INTERVIEW WITH FUTUREADVISOR CEO, BO LU
Please tell me about your background. You mentioned your parents came to the States when they were 40. Did you have a difficult time assimilating into a new culture? I’m curious to hear your thoughts on why there are so many immigrant success stories. Bo: I was seven when I came to the US from China. I only knew two words of English — lake and cake — and I usually got them mixed up. So yes, there were some speed bumps. But I had a really great English teacher in Morgantown, Virginia, who basically made me fluent within a year. Mrs Hutchison. I’m still grateful to her. Immigrants can see with clearer eyes how enormous the opportunities in America are. A lot of them come from places where their choices are extremely limited, so they can almost feel the freedom with their fingertips. They can taste it. If you grow up in America and never see the alternatives, you might be blind to how much you can do here. Why did you decide to work at Microsoft? Why do people stay at Microsoft when it seems like they have gone ex-growth? Bo: I was recruited for an internship at Microsoft while I was completing my computer science degree at the University of Illinois Champaign-Urbana. There are great people working there. You have to remember that Microsoft is a huge company. Some parts may seem ex-growth, but some are very much in the growth mindset. When they released the Kinect in 2011, that was ground breaking. Google’s only catching up now with Project Tango. There’s a lot of innovation going on. What gave you the courage to leave your job at Microsoft to start FutureAdvisor? Please share with us your experience at Y-Combinator. Bo: The company was really born out of scratching our own itch so to speak. Our friends kept coming to us for financial advice and it seemed like there were no great options for young professionals like us. My co-founder Jon Xu and I both saw our projects slow down at Microsoft, so we suddenly had some time and energy to devote to our friends. Jon’s got a lot of talents, including being a great technical lead. So we set out to build this solution to help our friends take control of their finances. To do market research, we talked to our friends and countless strangers at coffee shops about what they expect from a product like this and whether they would pay for this service. We’re great friends with Garry Tan, then the co-founder of Posterous who did Y Combinator and had nothing but great things to say about the experience. When we got in, Y Combinator exceeded our expectations. Because we built the first iteration of FutureAdvisor from scratch during YC, we got a lot of insightful feedback from the partners and our peers on a constant basis, allowing us to iterate very quickly. It also gave us a great platform to introduce our product to investors, customers and talented engineers we would later hire. Did you make a financial plan or create financial goals before leaving Microsoft? Bo: I’ve been investing and thinking about financial goals since I was a teenager. Most of what I earned at my first internship got invested in a number of tech funds. That was before the dot-com bust, and it taught me an important lesson about diversifying. What is your definition of success in the startup world? Bo: It depends on the stage of the startup. Very early stage startups are successful if they can identify a product people want, and gather a team to build it. A couple years in, startup success usually means very fast growth — like 30 percent month on month revenue increases — even if the business isn’t profitable yet. The next milestone is when the startup finds a way to acquire customers inexpensively and reaches a scale where it becomes profitable. At that point, it’s become a company that can be judged by normal financial metrics.HERE’S A SAMPLE OF HOW FUTUREADVISOR WORKS
1) Once you register, you’ll be promoted to share a little about yourself. The first chart helps FutureAdvisor ascertain your current risk-profile and goals to come up with an ideal target portfolio recommendation.DIGITAL WEALTH MANAGEMENT SOLUTION
FutureAdvisor looks like a terrific solution for those who are tech savvy, but don’t have hundreds of thousands of dollars to invest at the moment. You can start with as little as $10,000 and go from there, or use their free financial tools. Good savings habits builds wealth. But it’s the proper investment of those savings that creates great wealth over time. FutureAdvisor can help you build financial freedom sooner, rather than later. Once you link your accounts, you’ll get a free Personalized Investing Plan in 2 minutes. They’ll tell you exactly how to improve it. With the acquisition by BlackRock, FutureAdvisor has promised to keep everything the same, and use BlackRock’s tremendous resources to continue improving the product. I recommend using Betterment if you’re looking for a digital wealth manager. They are clearly the best platform today in my opinion. Betterment is an excellent choice for those who want the lowest fees and can’t be bothered with actively managing their money themselves once they’ve gone through the discovery process. All you’ll be responsible for is methodically contributing to your investment account over time to build wealth. In the long run, it is very hard to outperform any index, therefore, the key is to pay the lowest fees possible while being invested in the market.Comments
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[…] the three main robo-advisors that exist today: FutureAdvisor, Betterment, and Wealthfront. Because I’ve personally met Bo Lu, Founder of FutureAdvisor, I’m going to compare and contrast FutureAdvisor to the other two. They are all based here in […]
Interesting interview and interesting product.
As a fellow UIUC alum and current resident, I was distracted by your spelling of Champaign :).
Hey Sam,
Great interview and awesome concept for Bo, love the segments where you are interviewing people and it is quite inspirational..
One thing I would love to hear is the tough or difficult components, that is really where I am interested in finding out more about. Plus how your interviewees overcame these.
Cheers
Hey Sam,
Interesting to read that people are producing algos. I’ve got a friend who’s been doing the same thing for a few years, with the project nearing completion within a couple of months.
Personally, I wouldn’t dare to use an algorithmic advisor. But then again, I wouldn’t want a financial advisor to do it either. I dislike not being in control of making decisions.
Very interesting article and approach to helping people manage their assets.
However, I am very curious to see how these types of firms become successful. For people that need significant handholding and are interested in a non personal approach to financial advise for their assets typically have very few of them to begin with. Additionally, these fees (regardless of how low they are), are on top of transaction fees and other fees associated with your funds.
On the positive side, I do agree that there is a market for this type of service, just not sure how profitable it is. I imagine the goals of the founders and angel investors are more interested in getting an established financial firm to purchase them for the technology (IP) than they are interested in building AUM.
I’m a little unique, because I plan to manage my own investments for the foreseeable future. However, I do think this or Personal Capital are fantastic products for people who don’t have the knowledge to do so themselves. I try and put myself in my sister’s shoes, who is a Doctor, but knows little about personal finance or investments. I think services like these are exactly what people need and the opportunity is huge for people who don’t want to pay 1% to a human advisor.
I don’t see myself handing over the reigns, but that’s mostly because I don’t have the assets necessary to qualify to hire someone who is more capable than myself. Eventually, I think I will start to value my personal time enough to hand over the basics to someone else… but technology may narrow that gap considerably.
I think for high net worth individuals, I don’t believe a non-human-included service could completely replace actual advisors, but that’s just because their needs are a little more complex than just choosing investments. It’s not terribly difficult to find out the “ideal” exposures based on age and then choose Vanguard funds to get the exposure. You could even use Future Advisor’s free service to do that.
I opened an account and reviewed the analysis, but it seems to be of limited use since it just tells me to sell all my individual holdings. I have heavy exposure to alternatives, but that’s only because of my personal preferences and understanding. I’ll keep tabs on this though. I like what I see so far.
Overall, this is a very cool idea and could attract those who have good financial knowledge and know what they are doing with their money. At the same time, many middle class folks have little knowledge about things Bo was talking about while some others have complex financial situation (e.g. estate planning). I am wondering if the tool would actually tell people that they might need life insurance to mitigate risks or tell clients to get annuity. Also, CFP has to deal with some non-financial issues the clients might have as now we live in a fairly complicated life, a lot of money issues are actually 100% people related. It is not something algorithms could help to solve.
Sounds like a pretty cool tool. I do agree that there is a generational gap. I would rather work through an online system than a person. It’s much more convenient.
I think he’s got a really promising product, and he seems like he’s got great perspective on what it takes to be a successful start up. I really hope they succeed, the cost of professional financial advise is outrageous. Technology like this could work to change that across the board.
Very interesting idea! I think it is generational though. Old rich people like the hand holding of a wealth manager and young people are very online oriented. Right now there are many more “old” rich people that young ones. Over time, this could be the direction of the industry though. It relies less on individuals and more on the process.
A girl at the office wanted to chat about investing. I told her I was a little concerned about the markets. Later she sent me an article with Jim Cramer regurgitating a Jamie Dimon letter saying “now is the time to buy the market, don’t be afraid”. Her subject line was “Seeee, I told you”. I didn’t know whether I should laugh or cry.
I’ve never been convinced that I could go all-in on a service like this but I think it can be really great for someone who is otherwise simply watching Jim Cramer pitch IBM and then hopping on etrade.
What a small world! I know Garry Tan and Jon Xu from my days at Microsoft, very very smart guys :) Good to read they are doing so well. Great interview with Bo, I have been using Personal Capital but will try FutureAdvisor as well.
I don’t know how to ask this without it sounding negative, and I like this idea, this service and this company, so I’ll just ask…
A .5% fee is very low, but there are companies that offer lower fees for the same type of service, some as low as .25%. Maybe not as online accessible, but still the same service. So when he says he aims to do a lot more, what does that mean?
@tom – I work with FutureAdvisor. You’re right, there are other firms that charge less. But they also do something quite different. People who invest through Wealthfront or Betterment do so through Wealthfront and Betterment accounts. You bring your assets to them — they don’t go to your assets. That’s a process that involves a fair amount of commitment and paperwork.
FutureAdvisor rebalances your assets within your Fidelity or TD accounts. We come to you. You don’t have to choose to leave Fidelity to work with us.
When we rebalance your assets, we take your 401k, IRAs and other investments into account. So we’re a holistic, big-picture financial advisor, as opposed to a target-date fund.
Finally, while many online financial advisors offer tax-loss harvesting, ours is more comprehensive. Other companies will harvest tax losses from the moment you roll your assets over into their system — they handle future losses. We will harvest all losses you have incurred historically; i.e. if you bought something and it went down before you joined FutureAdvisor, that is still a loss we can harvest to offset your taxes.
Over all, I’d say what we offer is more convenience, a bigger vision of your assets, and the ability to save more money on taxes. Our service more than pays for itself in savings.
Chris,
Do your algorithms just provide asset allocation type advice, or do they customize it based upon your goals (retirement age of husband and wife, level of risk, etc.) and also take into account how you would best withdraw funds when you retire, taking into account social security, and a pension? Thanks.