Latest / Masters in Business / Serial Innovation in FinTech with Purpose Unlimited CEO Som Seif

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Serial Innovation in FinTech with Purpose Unlimited CEO Som Seif · Masters in Business

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
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  Speaker 2: This week on the podcast Yet Another Banger. Sam Safe
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  Speaker 2: is founder and CEO of Purpose Unlimited. One of their
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  Speaker 2: holdings is Purpose Investments, about forty billion Canadian He is
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  Speaker 2: a serial entrepreneur and financial innovator. He created the world's
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  Speaker 2: first bitcoin etf in Canada, long before the US came
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  Speaker 2: up with one. He built one of the larger etf
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  Speaker 2: firms in Canada, sold it to Blackrock. On and on
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  Speaker 2: the conversation goes about all these fascinating things. I thought
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  Speaker 2: the conversation was really really intriguing, and I think you
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  Speaker 2: will also with no further ado, my conversation with Purpose Investments.
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  Speaker 3: Some Safe, Some Safe.
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  Speaker 4: Welcome to Bloomberg, Barry, It's great to be here, and
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  Speaker 4: thank you for that kind introduction.
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  Speaker 2: So I'm kind of fascinated by your background, your career,
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  Speaker 2: the whole multiple innovations, serial entrepreneurship. But let's roll back
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  Speaker 2: to the early days. You wanted to be an architect
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  Speaker 2: and then you went for a bachelor's in Industrial and
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  Speaker 2: Systems engineering from the University of Toronto. What was the
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  Speaker 2: original career plan.
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  Speaker 4: Yeah, I mean, since as long as I can remember,
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  Speaker 4: architecture was my kind of goal, and that fundamentally was
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  Speaker 4: something that just inspired me. I loved the mix of
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  Speaker 4: the creative side of my brain and the call it
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  Speaker 4: systems and structural mathematical side of my brain and bring
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  Speaker 4: them together.
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  Speaker 1: And just design was always something exciting.
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  Speaker 4: The interesting thing was that, you know, so now you're
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  Speaker 4: faced with this decision, you apply to you know, school
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  Speaker 4: for architecture and for engineering. And then in my you know,
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  Speaker 4: I went and spoke to a couple of architects and
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  Speaker 4: every single one of them said, this is.
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  Speaker 1: A stupid career choice.
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  Speaker 4: You won't be doing anything that you will you think
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  Speaker 4: you'll be doing. It'll be gruntwork, you won't enjoy it,
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  Speaker 4: and there's no money in it.
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  Speaker 1: And I, you know, of course, said well what am
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  Speaker 1: I signing up for?
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  Speaker 4: So I said, okay, I'm going to go do engineering
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  Speaker 4: with the idea that maybe I'll switch, and fundamentally that
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  Speaker 4: was not going to happen.
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  Speaker 1: And you know, I was in first year of engineering
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  Speaker 1: and said, okay, what is my second choice? What else?
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  Speaker 4: And you know, I really loved the concept of strategy
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  Speaker 4: and finance. I didn't know anything about finance and I
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  Speaker 4: hadn't been learning anything about it, but I got excited
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  Speaker 4: about investment banking and things like that, and so, you know,
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  Speaker 4: ultimately I decided that was the path I was going
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  Speaker 4: to pursue, and coming out of an engineering degree, I
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  Speaker 4: ended up, luckily just a timing really uniquely. At the
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  Speaker 4: end of nineteen ninety eight, got an opportunity to join
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  Speaker 4: the biggest bank in Canada, RBC, in their investment banking division,
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  Speaker 4: and so engineering was a really interesting path towards it.
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  Speaker 1: And you know, at the time.
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  Speaker 4: The tech bubble was happening, and I guess someone in
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  Speaker 4: investment banking said, hey, we need more engineers in here
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  Speaker 4: to tell us, you know, how to think. And the
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  Speaker 4: learning curve was pretty amazing in terms of starting with
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  Speaker 4: nothing and basically learning on the go.
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  Speaker 2: Huh. So you spend six years at RBC helping them
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  Speaker 2: build out their structured products group. Tell us about that experience.
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  Speaker 2: What did you learn?
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  Speaker 4: So investment banking is one of the amazing early learning experiences.
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  Speaker 4: And I've always been in sort of pursuit of you know,
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  Speaker 4: learning and call it pushing myself to certain limits. And
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  Speaker 4: you know, investment making today is very hard. Investment banking
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  Speaker 4: twenty five years ago was even harder. And you know,
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  Speaker 4: young analysts, young individually, you're ultimately working on you know,
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  Speaker 4: amazing things. But at the same time you are you know,
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  Speaker 4: being you know, you're working like a dog, like eighty
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  Speaker 4: to one hundred hour weeks. That's there is no better
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  Speaker 4: place as a twenty ey two year old, twenty three
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  Speaker 4: year old, twenty five year old to ultimately have immersive
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  Speaker 4: learning like and so it was amazing for me when
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  Speaker 4: I when I went into it.
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  Speaker 1: It's funny I.
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  Speaker 4: Had as a young individual always you know, I was
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  Speaker 4: an immigrant to Canada. You know, I didn't you know,
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  Speaker 4: my family was a good middle class family, but we didn't,
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  Speaker 4: you know, have stuff.
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  Speaker 1: So I always dreamed about this idea of.
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  Speaker 4: All the riches and golds and things of that, and
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  Speaker 4: you know, investment making kind of one of the things
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  Speaker 4: that kind of excited me was this idea of you know, hey,
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  Speaker 4: you're going to make lots of money. And and you know,
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  Speaker 4: the interesting thing was during the tenure, you know, the
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  Speaker 4: first few years, you know, you start making good money
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  Speaker 4: for a young individual, and then you kind of realize,
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  Speaker 4: wait a minute, this isn't actually motivating me. I remember succinctly,
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  Speaker 4: I came home. I was twenty five years old. It
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  Speaker 4: was three in the morning or two in the morning,
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  Speaker 4: and I just sat down and kind of weeped because
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  Speaker 4: I said, you know, I'm working like a dog, and
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  Speaker 4: I'm pursuing this goal, but I'm not happy. And I
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  Speaker 4: had to actually go through a deep perspective of like, Okay,
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  Speaker 4: what is the thing that actually drives me? What is
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  Speaker 4: the thing that actually motivates me to wake up on
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  Speaker 4: Monday morning and skip to work because I'm still.
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  Speaker 1: Enjoying what I'm doing.
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  Speaker 4: And what I realized was that the thing that actually
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  Speaker 4: I was in pursuit of was the idea of seeing
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  Speaker 4: my ideas progress, seeing the things that I was doing
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  Speaker 4: have real tangible outcome. And I go back to that
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  Speaker 4: principle of what was it that excited me about architecture
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  Speaker 4: or design. It was this very simple principle of you know,
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  Speaker 4: when you build something or you design something, you can
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  Speaker 4: actually see it in front of you afterwards. And so
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  Speaker 4: I actually correlate that really specifically around what was the
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  Speaker 4: thing that was my intrinsic motivation. So at that point
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  Speaker 4: I just said, look, I'm still learning, I'm having an
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  Speaker 4: amazing time, but am I going to ultimately achieve what
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  Speaker 4: I want here, and I said I won't, so I
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  Speaker 4: kind of gave myself a put I call it. I
• 5:55
  Speaker 4: was twenty five years old and I said, Okay, I'm
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  Speaker 4: still here learning, I'm going to build my networks. I'm
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  Speaker 4: going to do all this stuff. But if I am
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  Speaker 4: in seat on my thirtieth birthday, I'm going to resign
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  Speaker 4: on that day. And that kind of woke up my
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  Speaker 4: mind to what else is out there, And over the
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  Speaker 4: next number of years, I started thinking about what was
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  Speaker 4: it that was going to be the next for me,
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  Speaker 4: and that ultimately came when I was twenty eight and
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  Speaker 4: started Claymore.
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  Speaker 2: So let's talk about Clay Moore. You launched this in
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  Speaker 2: two thousand and five. Globally, ETFs were a thing, but
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  Speaker 2: not the giants than they were today. They certainly were
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  Speaker 2: a tiny niche product in Canada back then. What did
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  Speaker 2: you see that all the other banks and all the
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  Speaker 2: other finance bros Completely missed?
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  Speaker 1: So you're absolute right.
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  Speaker 4: So in Canada specifically, there were fourteen ETFs listed on
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  Speaker 4: the Toronto Stock Exchange, basically all by Barclay's Eye units
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  Speaker 4: at the time I shares, and in the United states.
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  Speaker 4: You know, of course ETFs were starting to become popular,
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  Speaker 4: specifically in the institutional crowd, retail crowd. You had I think,
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  Speaker 4: perhaps like wisdomsr had just sort of entered the business
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  Speaker 4: and players like that, and so it was it was
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  Speaker 4: not an area that was logical or call it clear
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  Speaker 4: that said, I had. One of the things I had
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  Speaker 4: the benefit of, I'd actually covered some management firms globally
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  Speaker 4: and during my time at RBC, and i'd actually got
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  Speaker 4: the opportunity to cover Barclays and got to know the
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  Speaker 4: leadership of the of the organization and help them raise
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  Speaker 4: the capital. But more importantly, was supported and understood what
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  Speaker 4: they were doing on the indexing ETS side. And it
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  Speaker 4: got me really excited. I started to see the trends.
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  Speaker 4: But what I struggled with was the fundamental principle of
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  Speaker 4: you know, passive indexing.
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  Speaker 1: I really did.
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  Speaker 4: I actually love the principles of what indexing did. And
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  Speaker 4: at the time ETFs were deemed as indexing, right, that
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  Speaker 4: was the concept, right, It was actually anything you did
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  Speaker 4: outside of pure indexing was a no no. The industry
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  Speaker 4: players would say, well, this isn't an index. And so
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  Speaker 4: I got really excited about you know, the idea of
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  Speaker 4: you know what an ETF does, It's low cost, great
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  Speaker 4: product in terms of rapper and structure, transparent discipline, and
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  Speaker 4: its approach using an index. However, I just hated the
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  Speaker 4: fundamental principle of what market cap indexing did, which is
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  Speaker 4: basically by high and sell low.
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  Speaker 1: Right. So, in around the time.
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  Speaker 4: That I left our received started Claymore, I had actually
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  Speaker 4: read a research paper just serendipitously came out around the
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  Speaker 4: same time in two thousand and four by Rob are
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  Speaker 4: Not and Jason Sue, We'll spend some time on Rob,
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  Speaker 4: who's a really important person in my life, and they
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  Speaker 4: had published this article around non market cap weated indexes,
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  Speaker 4: smart data, Yes, and it was I read this article
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  Speaker 4: and I'm engineer, so I love these technical things, and
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  Speaker 4: I just got excited, and basically a couple of months later,
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  Speaker 4: I reached out, We went down and spent time with
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  Speaker 4: Rob in Pasadena.
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  Speaker 1: And he was a big thing.
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  Speaker 4: I remember Rob was a pretty big deal, but he
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  Speaker 4: took the time, he spent half a day with me,
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  Speaker 4: and I walked out of that office just having clarity
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  Speaker 4: on the future of what I was going to build,
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  Speaker 4: and more importantly, the future of where the industry opportunity was.
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  Speaker 4: And that was the principal starting point of the vision
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  Speaker 4: for building Claymore and you know the future of what
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  Speaker 4: I felt was going to be a really amazing thing
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  Speaker 4: around indexing and the future of indexing around and we
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  Speaker 4: used of course, we launched the first public investment fund
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  Speaker 4: on fundamental index and the RAFFI indexes.
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  Speaker 2: Huh really interesting. So you grow this to thirty four
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  Speaker 2: ETFs and a couple of closed end funds and about
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  Speaker 2: eight billion dollars Canadian I think, yeah, six billion US.
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  Speaker 2: What was the hardest part of building that sort of
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  Speaker 2: asset manager considering all the other products were giant bank owns.
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  Speaker 4: Well, you know, Canada of course has many structural I mean,
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  Speaker 4: it's an amazing region for opportunity financial services. That said,
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  Speaker 4: it is also you know, highly concentrated with the big
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  Speaker 4: banks and the control that they have with their distribution,
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  Speaker 4: and so it's a very challenging market for independence as
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  Speaker 4: you can imagine.
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  Speaker 1: That said, you know what, I really I go back
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  Speaker 1: to the period we had a really amazing product. No
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  Speaker 1: one knew what it was.
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  Speaker 4: I remember we'd go out in two thousand and five,
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  Speaker 4: two thousand and six, two thousand and seven. We'd sit
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  Speaker 4: down and talk to advisors across the country and you know,
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  Speaker 4: I'd walk into a room and I'd have a sign
• 10:28
  Speaker 4: in sheet and saying, you know, name and email. But
• 10:31
  Speaker 4: then I'd ask the question, how many of you use ETFs?
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  Speaker 4: And back then it was one out of ten would
• 10:36
  Speaker 4: say yes. Most people were like, what's an ETF? It's
• 10:39
  Speaker 4: what EFTs? You know, like, this is the time, right,
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  Speaker 4: But I fundamentally believe what we were doing is important,
• 10:46
  Speaker 4: and it was, you know, we grew in Canada. Of course,
• 10:49
  Speaker 4: remember about one tenth size of the American market, so
• 10:52
  Speaker 4: you know, eight billion aggregate would be like eighty billion
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  Speaker 4: in that timeframe. But we actually in the first couple
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  Speaker 4: of years grew to about a billion dollars. So at
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  Speaker 4: the beginning of a weight, we got to eight hundred million,
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  Speaker 4: which is a great, great outcome early on in you know,
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  Speaker 4: from nothing, and then in the real thing happened in
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  Speaker 4: two thousand and eight, you know, and it's you know,
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  Speaker 4: it was a really great wake up call and called
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  Speaker 4: learning for me. We went through two thousand and eight
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  Speaker 4: and every single month and o eight we grew positively.
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  Speaker 4: We had the net positive sales I think we were
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  Speaker 4: going to bite the market environment. And in September October specifically,
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  Speaker 4: we had positive net sales, and I think we were
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  Speaker 4: the only firm in the country that had that. The
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  Speaker 4: principle was that disruption was critical for us at a
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  Speaker 4: time when we were trying to build a challenger idea
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  Speaker 4: and tell a really strong narrative. We needed the complacency
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  Speaker 4: of our investor base, of the advisor community of institutions
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  Speaker 4: to wake up and say, hey, wait a minute, you
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  Speaker 4: know what should I be thinking about next? And that
• 11:54
  Speaker 4: was a really important point. So coming out of two thousand,
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  Speaker 4: we ended up in two thousand and eight growing from
• 11:57
  Speaker 4: eight hundred million to one point one billion, despite the
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  Speaker 4: head of the markets, and then in two thousand and
• 12:02
  Speaker 4: nine we went from one point one billion to four
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  Speaker 4: point four billion. Wow, So just an accelerant coming out
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  Speaker 4: of the financial crisis. The next year we went from
• 12:09
  Speaker 4: four point four to five point seven, and then to
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  Speaker 4: six point eight, and then ultimately two months later when
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  Speaker 4: we closed the deal with black Rock to sell it,
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  Speaker 4: it was eight billion. And the momentum was just so
• 12:20
  Speaker 4: unbelievably strong. And the reason was because when people the
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  Speaker 4: financial crisis occurred people left the market and they were
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  Speaker 4: going to cash, and then when they were re entering
• 12:30
  Speaker 4: the market, they were asking themselves, now, what where do
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  Speaker 4: I go?
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  Speaker 1: What's the best investment vehicles?
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  Speaker 4: And all of a sudden, easys became something that they
• 12:38
  Speaker 4: were learning about, understanding, and we were.
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  Speaker 1: Right there and it was amazing.
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  Speaker 4: At the same time, we also saw the acceleration towards
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  Speaker 4: the trends that were happening in advice as you know,
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  Speaker 4: the movement towards discretionary portfolio management, you know, the historical
• 12:53
  Speaker 4: mindset towards commission oriented new issue type business that became
• 12:58
  Speaker 4: challenged because of the market and the banks and the
• 13:01
  Speaker 4: broker dealers wanted more stability, so advisors started to transition
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  Speaker 4: their practices towards more discretionary investment processes and model portfolios
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  Speaker 4: and ETFs of course, you know, fit extremely well.
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  Speaker 1: In the US.
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  Speaker 4: We've of course seen the RAA movement coming out of that,
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  Speaker 4: and those were an amazing backdrop of trend that that
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  Speaker 4: just drove the market and in parallel, the ETF industry
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  Speaker 4: alongside of it, and it's been an unbelievable number of
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  Speaker 4: years for everyone.
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  Speaker 2: Really interesting. So so the sale to Blackrock what motivated
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  Speaker 2: the exit, what was the process like, and how hard
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  Speaker 2: was it to let go of this thing that you
• 13:38
  Speaker 2: had built?
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  Speaker 1: Very hard.
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  Speaker 4: So there's a My financial partner in the call it
• 13:43
  Speaker 4: latter years was a firm called Googa IM Partners and
• 13:47
  Speaker 4: an amazing partner, an organization. Worked really well with them,
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  Speaker 4: and you know, really proud of the relationship we built there.
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  Speaker 4: And the interesting thing was, of course I had sort
• 13:58
  Speaker 4: of approached them and said, let's let's sort of, you.
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  Speaker 1: Know, let me buy you out.
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  Speaker 4: You know, they'd had a great outcome and it was
• 14:06
  Speaker 4: a wonderful locome, but you know, we just sort of
• 14:09
  Speaker 4: couldn't get to a price that made sense.
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  Speaker 1: So we decided to go through a process.
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  Speaker 4: And I at the time felt, Okay, we'll run a process,
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  Speaker 4: but I'm going to also be a buyer at the process,
• 14:17
  Speaker 4: and I agreed.
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  Speaker 1: We agreed to that. At the end of the day
• 14:19
  Speaker 1: though the process was very robust.
• 14:22
  Speaker 4: Blackrock was a leading partner at that and I remember
• 14:27
  Speaker 4: pivoting multiple times as the price kept going up on
• 14:30
  Speaker 4: who my partner was going to be to finanza my buyout.
• 14:33
  Speaker 4: And then at the end, I remember, on in December
• 14:36
  Speaker 4: of twenty eleven, I was was my daughter's birthday. I
• 14:39
  Speaker 4: was on the phone with one of my strategy partners
• 14:42
  Speaker 4: around the purchase and we were having conversation about strategy,
• 14:46
  Speaker 4: execution plan. And then I got off the phone. I
• 14:48
  Speaker 4: walked down to my wife and I said, I'm holding
• 14:50
  Speaker 4: on too much. The price has gotten well above what
• 14:53
  Speaker 4: my target price was.
• 14:54
  Speaker 1: I'm being too emotional. I think that the right thing
• 14:57
  Speaker 1: to do is to sell.
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  Speaker 4: So I called the bankers. I said, I'll put my
• 15:01
  Speaker 4: name behind the black Rock bid. I flew down to
• 15:03
  Speaker 4: New York on January second. We spent a few days
• 15:06
  Speaker 4: in a room negotiating the purchase. Still agreement.
• 15:08
  Speaker 1: I mean, now it's the deal.
• 15:08
  Speaker 4: I think on January eleventh and close a deal on
• 15:12
  Speaker 4: March second, and that it was a really difficult period
• 15:16
  Speaker 4: for me. I had a chip on my shoulder. I'd
• 15:18
  Speaker 4: built this thing. You used the word serial entrepreneur earlier,
• 15:21
  Speaker 4: and I actually have never believed I'm a serial entrepreneur.
• 15:24
  Speaker 4: I don't build businesses to build businesses. I build business
• 15:27
  Speaker 4: because I truly love what I do. I'm in pursuit
• 15:30
  Speaker 4: of really building things that have endurance, have great value
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  Speaker 4: to our customers, that really think about changing the industry,
• 15:36
  Speaker 4: and so this was a moment where I felt like
• 15:40
  Speaker 4: something was being ripped out of me, and so I
• 15:43
  Speaker 4: had a chip on my shoulder. We closed the transaction
• 15:47
  Speaker 4: and I said, I need to take the time. I
• 15:50
  Speaker 4: actually ended up building the business plan for what I
• 15:53
  Speaker 4: was going to do next, which ultimately is purpose and
• 15:55
  Speaker 4: while simple, within thirty days. But I said to myself,
• 15:58
  Speaker 4: if I start today, I'm going to fail because I'm
• 16:01
  Speaker 4: not doing it for the right motivation.
• 16:03
  Speaker 1: I'm doing it for the wrong reasons.
• 16:04
  Speaker 4: I want to do it because I'm in pursuit of
• 16:06
  Speaker 4: getting back in the business.
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  Speaker 1: And so I ended up.
• 16:09
  Speaker 4: Consulting for the Irregulator for a couple of weeks, and
• 16:11
  Speaker 4: then I ultimately went to with my wife for three
• 16:14
  Speaker 4: months overseas to Southeast Asia and I detached. I Back then,
• 16:20
  Speaker 4: we had blackberries. I still probably have BlackBerry. People famously
• 16:24
  Speaker 4: know I love blackberries. But I had BlackBerry and I
• 16:26
  Speaker 4: turned it off and no one could get a hold
• 16:27
  Speaker 4: of me. We went throughout Southeast Asia and it was
• 16:29
  Speaker 4: the greatest thing. And I said to myself, if I
• 16:31
  Speaker 4: come back and I have the energy and excitement around
• 16:35
  Speaker 4: this business plan, then I'm going to do it. And
• 16:37
  Speaker 4: of course we came back and you know, I once
• 16:41
  Speaker 4: we landed in North America, you get all the texts
• 16:44
  Speaker 4: and all the news, and my energy just started to
• 16:46
  Speaker 4: really powerfully go up. And I said, okay, let's go,
• 16:48
  Speaker 4: and I registered purpose and started the business plan.
• 16:50
  Speaker 2: So we're going to talk in a little bit about
• 16:52
  Speaker 2: why I think you're a serial entrepreneur. But you said
• 16:56
  Speaker 2: something that I'm kind of fascinated by. And it requires
• 17:01
  Speaker 2: a degree of self awareness that many people in our
• 17:07
  Speaker 2: industry sometimes don't have. I don't want to say always
• 17:12
  Speaker 2: don't have. We all have blind spots. You said you
• 17:16
  Speaker 2: became aware that you were too emotional, too self involved,
• 17:21
  Speaker 2: too you were holding too tightly. How did you come
• 17:26
  Speaker 2: to that realization? You know, listeners aboard of hearing me
• 17:30
  Speaker 2: talk about my early days on a training desk, But
• 17:33
  Speaker 2: I became very aware that, oh, this is just way
• 17:37
  Speaker 2: too much fun. You're trading for the dopamine hit, not
• 17:41
  Speaker 2: for P and L. You either have to become more
• 17:44
  Speaker 2: disciplined or shift your career. What was that insight that
• 17:50
  Speaker 2: led you to say, Oh, I'm gripping this way too tightly.
• 17:53
  Speaker 4: So I think self reflection is one of the great
• 17:55
  Speaker 4: virtues that we all should have. It's one of the
• 17:57
  Speaker 4: things I think often people don't have enough of. And
• 18:00
  Speaker 4: I actually think, you know, it's something that requires anchoring
• 18:04
  Speaker 4: to sort of early on to the kind of goals
• 18:07
  Speaker 4: and the things that matter to you. So you're disciplined
• 18:09
  Speaker 4: around what you're self reflecting around and it's hard as humans,
• 18:12
  Speaker 4: like we're not trained, our mental state is not trained
• 18:15
  Speaker 4: this way. So it's just something that I feel very
• 18:20
  Speaker 4: confident in my ability to constantly be asking myself, Am
• 18:24
  Speaker 4: I on the right track? Am I doing the right things?
• 18:26
  Speaker 4: Am I pursuing the right goals? Am I going to
• 18:29
  Speaker 4: achieve the things that I want to achieve on the
• 18:31
  Speaker 4: path I'm on? And that that's just I think it's
• 18:34
  Speaker 4: a critical learning and you know, the growth mindset that
• 18:37
  Speaker 4: comes with that curiosity and willingness to be vulnerable is
• 18:42
  Speaker 4: critical as a human. So this is this is I
• 18:45
  Speaker 4: think a really important thing. I think our industry can
• 18:48
  Speaker 4: always use that because you know, I like, I love
• 18:52
  Speaker 4: the financial services industry one because it starts with a
• 18:54
  Speaker 4: really amazing mission. We are here in service of individuals
• 18:58
  Speaker 4: to help them ultimately achieve their out comes, their goals.
• 19:00
  Speaker 1: There it is such an unbelievably.
• 19:03
  Speaker 4: High mission industry, and we don't do enough to talk
• 19:06
  Speaker 4: about that. Instead, we talk too much about ourselves. We're
• 19:09
  Speaker 4: self centered. We talk about you know, hey, let me
• 19:12
  Speaker 4: tell you about me, and now that I'm done talking
• 19:14
  Speaker 4: about me, let me talk to you more about me.
• 19:15
  Speaker 4: And you go to someone's website, it's always about me, me, me,
• 19:18
  Speaker 4: it's never about the customer. And so there's this amazing
• 19:20
  Speaker 4: opportunity as an industry to step back, reflect and say,
• 19:23
  Speaker 4: why are we here? What's the actual job that we're
• 19:25
  Speaker 4: here to do? And it is ultimately in service of
• 19:29
  Speaker 4: individuals and their outcomes one hundred percent, and we complicate
• 19:34
  Speaker 4: that so much, and so I think self reflection on
• 19:36
  Speaker 4: that as an industry is a big opportunity, and those
• 19:39
  Speaker 4: who get it are those who stand out and differentiate
• 19:42
  Speaker 4: more than anybody else.
• 19:44
  Speaker 2: Really really fascinating. Coming up, we continue our conversation with
• 19:48
  Speaker 2: some safe founder and CEO of Purpose Investments discussing financial innovation.
• 19:56
  Speaker 2: I'm Barry rich Alts. You're listening to Masters in Business
• 19:59
  Speaker 2: on blue Berg Radio. I'm Barry Redhults. You're listening to
• 20:03
  Speaker 2: Masters in Business on Bloomberg Radio. I'm speaking with some
• 20:06
  Speaker 2: Safe he is the founder and CEO of Purpose Investments.
• 20:11
  Speaker 2: So we were talking earlier. You sold Claymore to black Rock,
• 20:15
  Speaker 2: and instead of taking a couple of years off, a
• 20:19
  Speaker 2: month or two later you essentially start Purpose as well
• 20:24
  Speaker 2: as co founding Wealth Simple. So many people take a
• 20:28
  Speaker 2: breather after an exit. Why go straight back in? And
• 20:32
  Speaker 2: why two companies at want?
• 20:35
  Speaker 4: So I had, As I said earlier, I had a
• 20:38
  Speaker 4: very clear eye on what I wanted to do next.
• 20:40
  Speaker 4: I was really excited about where the industry was going,
• 20:44
  Speaker 4: what we were doing, with the momentum we were seeing.
• 20:46
  Speaker 4: And it felt actually now I had this amazing gift.
• 20:50
  Speaker 4: I was blessed with a blank piece of paper. And
• 20:52
  Speaker 4: so when you have a blank piece of paper, so
• 20:54
  Speaker 4: oftentimes businesses want to keep evolving, you want to, but
• 20:56
  Speaker 4: you have to kind of deal with your legacy, you know,
• 20:59
  Speaker 4: and technical data and things like that. And so I felt,
• 21:01
  Speaker 4: blank piece of paper I can get to do. How
• 21:03
  Speaker 4: would I start from scratch? And so I had this
• 21:06
  Speaker 4: great energy. But I looked at both the continued evolution
• 21:09
  Speaker 4: of modernization of investment management, but I also saw a
• 21:12
  Speaker 4: bigger picture opportunity in wealth management. I said, the opportunity
• 21:15
  Speaker 4: is not just you know, let's build ass some management products.
• 21:18
  Speaker 4: Because when I started claymar I came from it from
• 21:20
  Speaker 4: a technical engineering perspective, and I said, when I look
• 21:23
  Speaker 4: at all the billboards and I look at all the advertising,
• 21:26
  Speaker 4: all it says is, hey, we beat the market.
• 21:28
  Speaker 1: We did this.
• 21:28
  Speaker 4: And I said, okay, well, the job to be done
• 21:30
  Speaker 4: is to beat the markets. And I thought that's what
• 21:32
  Speaker 4: we were supposed to do. So I was in pursuit
• 21:35
  Speaker 4: of building a product and a business that ultimately solved
• 21:38
  Speaker 4: for helping people beat the markets. What I realized and
• 21:41
  Speaker 4: one of my great stories around this was the first
• 21:44
  Speaker 4: product we launched was the Canadian Fundamental RAFFI Fundamental Index,
• 21:49
  Speaker 4: and we launched that and it was amazing. But it
• 21:53
  Speaker 4: hit its five year numbers in twenty ten, just early
• 21:57
  Speaker 4: twenty eleven, and of course five years you start to
• 21:59
  Speaker 4: see real track record. And at the time it was
• 22:02
  Speaker 4: the number two Canadian equity fund. It beat every active fund,
• 22:07
  Speaker 4: all the main index. It outperformed by two hundred basis points,
• 22:11
  Speaker 4: and that's a great accolade, of course in our industry.
• 22:14
  Speaker 4: That's what you know, you were really excited about. And
• 22:16
  Speaker 4: I felt, wait a minute, I actually don't know if
• 22:19
  Speaker 4: we actually did anything, because it went down in two
• 22:22
  Speaker 4: thousand and eight, just like the Maid Index thirty five
• 22:25
  Speaker 4: percent or whatever it was. And I also looked at
• 22:28
  Speaker 4: the journey and I said, if someone had bought it
• 22:30
  Speaker 4: on day one when we launched it and held it
• 22:31
  Speaker 4: all through that five years, they would have received that return.
• 22:34
  Speaker 4: But the reality of what human nature was is that
• 22:36
  Speaker 4: they were buying it at different times when they got fearful,
• 22:39
  Speaker 4: they were selling it, and you know, their return was
• 22:42
  Speaker 4: very different than the fund's return. And I asked myself,
• 22:45
  Speaker 4: I said, did we actually change the industry?
• 22:47
  Speaker 1: Did we do anything?
• 22:48
  Speaker 4: Yes, we did something great technically, the product was excellent.
• 22:51
  Speaker 4: We were moving the needle of how the industry operates,
• 22:53
  Speaker 4: but we weren't changing the way the client and the
• 22:56
  Speaker 4: customer was experiencing what we did.
• 22:58
  Speaker 1: And so that for me.
• 23:00
  Speaker 4: And at the same time I told you about Guggenheim
• 23:02
  Speaker 4: was our partners and they had been working on their
• 23:05
  Speaker 4: wealth part of the business with Danny Knoman, and I
• 23:07
  Speaker 4: had this wonderful gift again to have the opportunity to
• 23:10
  Speaker 4: learn and understand how the Danny was brought in to
• 23:14
  Speaker 4: help them understand how to help billionaires and wealthy families
• 23:19
  Speaker 4: and call it patriarchs and matriarchs to understand the transition
• 23:23
  Speaker 4: from wealth creation to wealth management. And it was so
• 23:27
  Speaker 4: powerful and the principles of what Danny talked about really
• 23:31
  Speaker 4: resonated with me. I became a student of behavioral science
• 23:34
  Speaker 4: and that sort of became really powermount to my view
• 23:38
  Speaker 4: of what a modern assa management firm needs to think about,
• 23:40
  Speaker 4: which is not just beat the markets, but develop investment
• 23:43
  Speaker 4: products that actually have outcomes and goal orientation towards them.
• 23:46
  Speaker 4: How do you help advisors and investors ultimately communicate together
• 23:51
  Speaker 4: and work collaboratively around the actual goal the customers are
• 23:54
  Speaker 4: asking us to do, which is help them meet their goals.
• 23:57
  Speaker 1: And so I just.
• 23:58
  Speaker 4: Felt the asse management industry, wealth industry both could ultimately
• 24:02
  Speaker 4: optimize around that.
• 24:03
  Speaker 1: And that was what Purpose's mission was going to be around.
• 24:06
  Speaker 4: Is outcom oriented modern investment management, optimizing for all the
• 24:10
  Speaker 4: inputs and how we manage money, not being active, not
• 24:12
  Speaker 4: being passive. And then second is how do we help
• 24:16
  Speaker 4: restructure the way wealth management could ultimately be oriented towards
• 24:19
  Speaker 4: the customer journey as opposed to, Hey, we're just going
• 24:22
  Speaker 4: to give you a sixty to forty portfolio.
• 24:23
  Speaker 2: Huh really really fascinating. Tell us a little bit about
• 24:27
  Speaker 2: wealth Simple, which I described earlier as the default investing
• 24:31
  Speaker 2: app for a young generation of Canadians. What did you
• 24:36
  Speaker 2: see before apps like Robinhood were big and successful that
• 24:42
  Speaker 2: was a thing that young people wanted.
• 24:44
  Speaker 4: Yeah, So the principal insight that I sort of had was,
• 24:49
  Speaker 4: you know, if you looked at the way that the
• 24:50
  Speaker 4: industry was operating, one of the big negatives was that
• 24:54
  Speaker 4: because the industry made so much money, the margins were
• 24:57
  Speaker 4: so good, we actually relied in a l easy way
• 25:00
  Speaker 4: on what we call average economics. So what does that mean?
• 25:03
  Speaker 4: Where do you see that It comes out as on average?
• 25:06
  Speaker 4: You know, I like to run money for bigger customers.
• 25:08
  Speaker 4: On average, my bigger customers make me more money, and
• 25:11
  Speaker 4: on average, my smaller customers don't make any money. And
• 25:14
  Speaker 4: how does that show up? You know, smaller customers get
• 25:16
  Speaker 4: treated poorly, get high fees, get relegated to lower quality services,
• 25:21
  Speaker 4: and larger investors ultimately get all the value. And people
• 25:25
  Speaker 4: are gravitating towards hey minimums and big fees for big,
• 25:29
  Speaker 4: big services for high net worth and ultra high networth.
• 25:31
  Speaker 4: And I just felt that was stupid. The only economics
• 25:34
  Speaker 4: class I took in engineering was something called ABC economics,
• 25:39
  Speaker 4: and what that is is actually activity based economics. And
• 25:43
  Speaker 4: so the idea of unit economics, and I said, what
• 25:46
  Speaker 4: we need to understand in this industry is that I
• 25:49
  Speaker 4: actually disagree that small accounts don't make you money. I
• 25:53
  Speaker 4: just think that the systems, the principles of the infrastructure
• 25:55
  Speaker 4: of the industry are poorly designed to serve smaller clients.
• 25:59
  Speaker 4: And so what I I felt my whole wealth model
• 26:01
  Speaker 4: was how do we restructure the infrastructure of the industry.
• 26:06
  Speaker 4: How do we think about it from a unit economics
• 26:08
  Speaker 4: using technology and structure and pipes that would ultimately allow
• 26:12
  Speaker 4: for that. And then what you do is bifurcate the
• 26:16
  Speaker 4: value for the different segments of customers fall early stage customers,
• 26:20
  Speaker 4: middle of massiffluent all the way to ultra high net
• 26:23
  Speaker 4: worth based on a service level offering. And the service
• 26:26
  Speaker 4: level offering would change an increase based on the needs
• 26:28
  Speaker 4: of those customers.
• 26:29
  Speaker 1: So that was the principle.
• 26:31
  Speaker 4: And I said, at the earliest stage, if you're twenty
• 26:34
  Speaker 4: years old, twenty five years old, this is the most
• 26:36
  Speaker 4: amazing period to build for. But the industry was treating
• 26:41
  Speaker 4: them awful. So I said, let's go build this, and
• 26:43
  Speaker 4: so we started with the technology, the infrastructure, and what
• 26:45
  Speaker 4: will Simple has done is really unbelievable. It has become
• 26:49
  Speaker 4: in Canada the most competitive platform in financial services against
• 26:54
  Speaker 4: the big six Canadian banks. Canada has never seen anything
• 26:57
  Speaker 4: like this before. And it all is rooted on on
• 27:00
  Speaker 4: serving customers where they're needing us to serve them right
• 27:03
  Speaker 4: when they're getting started or along the earliest stage of
• 27:06
  Speaker 4: their journey, and then helping them compound not only their
• 27:10
  Speaker 4: wealth but also the overall financial experience as they grow.
• 27:13
  Speaker 4: From twenty five thirty thirty five, forty it has been
• 27:17
  Speaker 4: an amazing experience.
• 27:18
  Speaker 1: And you know today Well.
• 27:19
  Speaker 4: Simple, I mean, I think we're we run about one
• 27:21
  Speaker 4: hundred and fifty billion, but we're doing more in net
• 27:24
  Speaker 4: deposits than the biggest bank in Canada, RBC. That is
• 27:28
  Speaker 4: an unbelievable City six and I'm proud of what that
• 27:31
  Speaker 4: team and what the organization is doing to challenge the
• 27:34
  Speaker 4: industry and change the way Canadians are served.
• 27:37
  Speaker 2: So let's stay with wealth Simple a minute, because initially
• 27:41
  Speaker 2: I assumed this was kind of a rub and hood
• 27:44
  Speaker 2: like app with free trading and gamification and you know
• 27:49
  Speaker 2: up to but not quite sports betting like that sort of. Hey,
• 27:54
  Speaker 2: this isn't going to get anybody to their goals. It's
• 27:56
  Speaker 2: fun entertaining stuff during the lockdown of the pandemic. Tell
• 28:01
  Speaker 2: us about wealth simple in terms of the differences with
• 28:06
  Speaker 2: an app like Robinhood.
• 28:07
  Speaker 4: Yeah, So the starting point actually is you start with
• 28:11
  Speaker 4: the customer where they need you the most. Right when
• 28:14
  Speaker 4: you're twenty five or thirty, you know, you're either just
• 28:16
  Speaker 4: getting started, you might have five, ten, twenty, thirty thousand dollars,
• 28:20
  Speaker 4: and the principle of it is you want to help
• 28:21
  Speaker 4: them ultimately get going.
• 28:23
  Speaker 1: So building a discipline, a structure.
• 28:24
  Speaker 4: So we have the manage money programs, which are you
• 28:27
  Speaker 4: open an account very simply and clearly, you basically build
• 28:29
  Speaker 4: your portfolio, and your portfolio is basically a glide path
• 28:32
  Speaker 4: on the markets and and such, and then you surround
• 28:35
  Speaker 4: that with you know, the types of services and solutions,
• 28:39
  Speaker 4: so direct trading accounts, you know, cash management, credit cards,
• 28:44
  Speaker 4: you know all the crypto things like that are really important.
• 28:47
  Speaker 1: So my principle is there's always a view of attention
• 28:50
  Speaker 1: of these things.
• 28:51
  Speaker 4: I come from a different way of it, which is,
• 28:53
  Speaker 4: these are things that people are going to be in
• 28:54
  Speaker 4: pursuit of, and what you want as an organization is
• 28:57
  Speaker 4: not to duck your head in the sand at any stage.
• 28:59
  Speaker 4: If you're an advisor, you know, saying hey, I don't
• 29:01
  Speaker 4: do crypto is actually a wrong message or because your
• 29:03
  Speaker 4: customers are going to be in pursuit of it. We
• 29:05
  Speaker 4: know that sixty seventy percent of highit worth individuals have
• 29:08
  Speaker 4: a direct account and many of them are curious and
• 29:11
  Speaker 4: engaged in buying interesting areas like that. So I think
• 29:16
  Speaker 4: an advisor firm or any firm, a financial service firm,
• 29:19
  Speaker 4: has to find a way to balance the foundations of
• 29:22
  Speaker 4: what is good long term you know, call it discipline investing,
• 29:26
  Speaker 4: along with saytiating the needs and the desires of what
• 29:29
  Speaker 4: an individual wants so that they don't always you know,
• 29:33
  Speaker 4: turn their head to I need something different. And that
• 29:35
  Speaker 4: actually comes from the mindset of find a safe and
• 29:38
  Speaker 4: secure way to do those types of things on behalf
• 29:40
  Speaker 4: of the customers and educate them and size it effectively.
• 29:44
  Speaker 4: So you know, like for example, while Simple recently got
• 29:47
  Speaker 4: approval to do prediction markets, and this is a really
• 29:49
  Speaker 4: high tension area.
• 29:50
  Speaker 1: It's you know, people have a you know, binary.
• 29:52
  Speaker 4: View of this, and my view is if customers are
• 29:55
  Speaker 4: going to be doing it, you want them to do
• 29:57
  Speaker 4: it with you in a safe and secure way, then
• 30:00
  Speaker 4: to do it elsewhere, and that's how you have to
• 30:02
  Speaker 4: ultimately be building around. But at the same time, the
• 30:06
  Speaker 4: whole business is oriented around helping someone where they need
• 30:10
  Speaker 4: it the most, around their financial journey so they can
• 30:12
  Speaker 4: ultimately achieve their goals.
• 30:14
  Speaker 1: That's it.
• 30:15
  Speaker 2: So this discussion about whether or not you're a serial entrepreneur,
• 30:20
  Speaker 2: I have to click through a bunch of things that
• 30:24
  Speaker 2: you've built that are fascinating. Starting with the world's first
• 30:29
  Speaker 2: spot bitcoin ETF back in twenty twenty one, long years
• 30:33
  Speaker 2: before the US approved one. It crossed a billion dollars
• 30:38
  Speaker 2: in the first month. How did you get the Canadian
• 30:42
  Speaker 2: regulators to approve this? How did you make them comfortable
• 30:45
  Speaker 2: three years before the SEC was comfortable.
• 30:48
  Speaker 4: So, first off, I've had a deep thesis on crypto
• 30:53
  Speaker 4: for a long time, and that's the starting point is
• 30:55
  Speaker 4: I wasn't doing it because hey, cool, dos your idea.
• 30:58
  Speaker 4: Let's launch this and throw some thing against the wall.
• 31:01
  Speaker 4: I had, you know, in twenty sixteen, just like most people,
• 31:05
  Speaker 4: you know, I had been like, you know, been asked
• 31:06
  Speaker 4: about bitcoin, and I was like, I don't know, it
• 31:08
  Speaker 4: looks like a sort.
• 31:09
  Speaker 1: Of scammy thing.
• 31:10
  Speaker 4: And then I sort of self reflected and said, wait
• 31:12
  Speaker 4: a minute, people are actually asking my opinion on this.
• 31:14
  Speaker 4: I should go and do some research. So I spent
• 31:16
  Speaker 4: the time learning and understanding the space. I actually the
• 31:18
  Speaker 4: best way to do that is make an investment. And
• 31:21
  Speaker 4: you know, over the next twelve months, I just became
• 31:24
  Speaker 4: this student of what was happening. And you know what
• 31:28
  Speaker 4: really excited me was, of course Ethereum, which is this
• 31:30
  Speaker 4: call it sister technology that was really around taking what
• 31:35
  Speaker 4: Bitcoin had done and really expanding the capabilities of it,
• 31:38
  Speaker 4: around smart crypto and.
• 31:41
  Speaker 1: All the ust it exactly. And so I got very
• 31:44
  Speaker 1: excited about that. And so what I.
• 31:46
  Speaker 4: Said was, we're so early in this, the infrastructure is
• 31:48
  Speaker 4: not there, The fraud risks all of it for investors
• 31:52
  Speaker 4: is going to be so high. So I actually launched
• 31:54
  Speaker 4: the first publicly traded vehicle on Ethereum, called ether cap
• 32:00
  Speaker 4: Partner with a group of people and I said, we're
• 32:02
  Speaker 4: going to raise the money. We're going to buy a
• 32:04
  Speaker 4: ether on the balance sheet.
• 32:05
  Speaker 1: Effect.
• 32:05
  Speaker 4: You know, we've seen these now become more popular in
• 32:07
  Speaker 4: the last number of years, but it was the first
• 32:09
  Speaker 4: one and we did this in twenty eighteen, and I'll
• 32:11
  Speaker 4: tell you it was an amazing thing. And my message wise,
• 32:13
  Speaker 4: we're going to find a safe and secure way for
• 32:15
  Speaker 4: people to co invest alongside of us on this really
• 32:18
  Speaker 4: great journey because of the asymmetric opportunity of this bet
• 32:22
  Speaker 4: that informed me on so much. And then at some
• 32:24
  Speaker 4: point and we used to do self custody in that
• 32:27
  Speaker 4: corporation and all the rest of it, and then at
• 32:29
  Speaker 4: some point we started to see the infrastructure change and
• 32:31
  Speaker 4: that's when we went into the regulator and said, look,
• 32:33
  Speaker 4: there's an opportunity here. The infrastructure is changing around how
• 32:36
  Speaker 4: you can custody and fit this into a liquid ETF structure.
• 32:41
  Speaker 4: We worked with them for nine months and ultimately got
• 32:44
  Speaker 4: them comfortable. And this is a really important principle that
• 32:46
  Speaker 4: I believe we as a registrant, as a money manager,
• 32:51
  Speaker 4: we have great ideas, great innovation, and as long as
• 32:54
  Speaker 4: our ideas are aligned with where the regulator wants the
• 32:57
  Speaker 4: future to go, it's really important to engage with the
• 32:59
  Speaker 4: regus later and have that dual relationship. That idea of
• 33:04
  Speaker 4: helping them, educating them on where we need to get to.
• 33:07
  Speaker 4: And so that was the kind of work we've done
• 33:09
  Speaker 4: all throughout my career, and we did that on crypto
• 33:12
  Speaker 4: and frankly, we really excited that we got the opportunity
• 33:15
  Speaker 4: to launch it and that model. What we did actually
• 33:18
  Speaker 4: ultimately informed the series of products launched in the US
• 33:22
  Speaker 4: a couple of years later on how ultimately to structure
• 33:25
  Speaker 4: ETFs in the crypto space. And of course the industry
• 33:28
  Speaker 4: has grown and we've moved an asset from the fringe
• 33:31
  Speaker 4: all the way to the core, which is what ultimately
• 33:33
  Speaker 4: my thesis was in a deep way.
• 33:34
  Speaker 2: And ef capital today is in what structure we.
• 33:37
  Speaker 4: Actually converted it from that corporation to an ETF once
• 33:40
  Speaker 4: that was available, and the gain there we built staking
• 33:43
  Speaker 4: into it and those things weren't again available in an
• 33:46
  Speaker 4: ETF form or call it doable, until they were, and
• 33:50
  Speaker 4: when they were, we ultimately moved to the most efficient vehicle,
• 33:52
  Speaker 4: which is the ETF structure.
• 33:54
  Speaker 2: Let's talk about longevity pension funds, launched in twenty twenty one,
• 33:59
  Speaker 2: the world's first income for life mutual funds, which uses
• 34:04
  Speaker 2: longevity risk pooling to pay lifetime income like a defined
• 34:09
  Speaker 2: benefit pension investors include allions and omers. How is this
• 34:14
  Speaker 2: different from what in the US we think of as
• 34:18
  Speaker 2: traditional annuities.
• 34:20
  Speaker 4: So this is actually so first of this was my
• 34:23
  Speaker 4: original thesis on purpose, which was, you know, the industry
• 34:26
  Speaker 4: was all solving for the accumulation phase.
• 34:28
  Speaker 1: Let's build them.
• 34:29
  Speaker 4: Investment products to call it, solve for how do we
• 34:32
  Speaker 4: save money? But no one was really solving within the
• 34:34
  Speaker 4: asset management industry around the challenges of decumulation. And it
• 34:39
  Speaker 4: was kind of left to the insurers, you know, with
• 34:41
  Speaker 4: annuities and with defined benefit pensions and such. And I
• 34:45
  Speaker 4: just felt there was this gap there that was really
• 34:47
  Speaker 4: critical and you need to deeply understand the sort of
• 34:51
  Speaker 4: the principles of you know how, longevity and structure and
• 34:55
  Speaker 4: all the rest of it. We're going to be critically
• 34:57
  Speaker 4: in there. And so I asked the team, I said,
• 35:01
  Speaker 4: we need to solve for decumulation. And we were in
• 35:02
  Speaker 4: pursuit of it. We were spending a lot of time
• 35:04
  Speaker 4: working on it. Ultimately we came across a structure and
• 35:08
  Speaker 4: I just got really excited.
• 35:09
  Speaker 1: And the principles.
• 35:10
  Speaker 4: We had to go to the regulator again and say
• 35:12
  Speaker 4: there are some exemptions we need to make this work.
• 35:16
  Speaker 4: If I step back for a moment, the greatest financial
• 35:19
  Speaker 4: product ever created in our business or in the financial
• 35:22
  Speaker 4: industry is the divine benefit pension plant. And frankly, if
• 35:26
  Speaker 4: you go back to what that represented, it was such
• 35:29
  Speaker 4: an amazing bargain. You join a company, the company says,
• 35:33
  Speaker 4: we will, in an institutional way, organize to have a
• 35:37
  Speaker 4: savings program alongside of your career, and it will not
• 35:41
  Speaker 4: only solve for your savings needs while you're working, but
• 35:44
  Speaker 4: once you retire, it will also solve for your income
• 35:47
  Speaker 4: longevity for as long as you live and in some
• 35:50
  Speaker 4: cases your spouse. That is like, if you think about
• 35:53
  Speaker 4: the journey of a customer, it is the most unbelievably
• 35:56
  Speaker 4: comforting and principal thing that we've done. And the industry
• 35:59
  Speaker 4: has done everything over the last forty years to break
• 36:03
  Speaker 4: that down, kill it and on with the concept of hey,
• 36:07
  Speaker 4: we're giving you choice, and that has been so bad
• 36:11
  Speaker 4: for people. So I always believe that we needed to
• 36:14
  Speaker 4: get back to bring the system back. If every Canadian,
• 36:18
  Speaker 4: every American had access to a defined benefit pench plon,
• 36:21
  Speaker 4: ninety five percent of them would be unbelievably better off.
• 36:24
  Speaker 4: The reality is it's not good for the industry. The
• 36:27
  Speaker 4: fragmentation allows for agency to increase. And so what I've
• 36:30
  Speaker 4: always said is how do we bring this back into
• 36:33
  Speaker 4: the structure, And so Longevity Pension Plan was designed on
• 36:35
  Speaker 4: how do we build a pension line for all? How
• 36:38
  Speaker 4: do we do that in a mutual fund structure which
• 36:40
  Speaker 4: is accessible the annuity structure that is of course it
• 36:44
  Speaker 4: works similarly. The problem is it has it has the
• 36:48
  Speaker 4: structure of you have to go off book for an advisor,
• 36:51
  Speaker 4: or advisors don't really like them. Investors have to ultimately
• 36:54
  Speaker 4: go through an insurance structure and it's individualized. Whereas the
• 36:57
  Speaker 4: defined bension plane is a pool. And so when you
• 36:59
  Speaker 4: get longevity risk pooling like that which is done in
• 37:03
  Speaker 4: a defined benefit BENSUIP plan, why couldn't you do.
• 37:05
  Speaker 1: That in a mutual fund.
• 37:06
  Speaker 4: And that was our principle and so we designed that
• 37:08
  Speaker 4: it's the first fund to really incorporate longevity risk pooling.
• 37:12
  Speaker 1: So putting lives together with a mutual goal of.
• 37:15
  Speaker 4: I'm putting money at work to ultimately solve for my
• 37:19
  Speaker 4: lifetime comfort that I'm going to have in number life
• 37:21
  Speaker 4: and if I die early, I'm ultimately supporting the cohort
• 37:25
  Speaker 4: but I'm getting what I needed from it.
• 37:27
  Speaker 2: So I want to click through four other innovative products,
• 37:30
  Speaker 2: but I don't want to spend all week on it.
• 37:33
  Speaker 2: Let's click through these four quickly, starting with cash management ETFs.
• 37:38
  Speaker 4: Yeah, so cash is something I think that of course
• 37:40
  Speaker 4: everybody needs access to. So we had launched the first
• 37:43
  Speaker 4: money market ETF in when I was running Claymore. When
• 37:46
  Speaker 4: I came back with Purpose, we saw the movement towards
• 37:49
  Speaker 4: deposit rates were much higher than money markets, so we
• 37:52
  Speaker 4: actually went in. The unique thing we did there was
• 37:54
  Speaker 4: we went and built a ETF that linked to a
• 37:58
  Speaker 4: deposit account, so it's not to a security so it's
• 38:00
  Speaker 4: actually one of the first of its kind, and that
• 38:03
  Speaker 4: was a hugely important thing back in twenty fourteen. And
• 38:05
  Speaker 4: of course the cash management industry has grown dramatically. We
• 38:08
  Speaker 4: haven't seen this in the United States yet, so we
• 38:10
  Speaker 4: haven't seen deposit based cash ETFs. We've seen money market
• 38:15
  Speaker 4: based ETFs, but we haven't seen deposit based. So it's
• 38:19
  Speaker 4: you know, based on the buck you know, it increases
• 38:21
  Speaker 4: based on the on the value doesn't fluctuate, and it
• 38:24
  Speaker 4: goes right into the bank deposits of you know, several
• 38:26
  Speaker 4: banks and you get therefore a higher rate.
• 38:29
  Speaker 1: So we were really really proud of that innovation. It has.
• 38:31
  Speaker 4: It goes to show the kind of principal first or
• 38:34
  Speaker 4: the first principle mindset that our organization always thinks about
• 38:36
  Speaker 4: is solving problems because many advisors moving to discretion and
• 38:39
  Speaker 4: we're saying, like, I want to bulk trade cash, but
• 38:42
  Speaker 4: it's my organization isn't making it easy.
• 38:45
  Speaker 2: So I have to sweep it exactly Sodian at night
• 38:48
  Speaker 2: into it really is is it should be capable of
• 38:53
  Speaker 2: being automated and maximizing yield without increasing risk. But there
• 38:58
  Speaker 2: are just a million impediments.
• 39:00
  Speaker 4: I sell qqqs and I want to go into cash
• 39:03
  Speaker 4: in my balance of my model, my administrative assistant has
• 39:06
  Speaker 4: to go and do all the basically account by account.
• 39:08
  Speaker 4: Now with the ETF, you were able to go from
• 39:12
  Speaker 4: from you know, qqs to cash and then back to
• 39:15
  Speaker 4: qqqs or whatever you were doing in just a simple
• 39:17
  Speaker 4: single trade.
• 39:18
  Speaker 2: Let's let's talk about option based income products. I've never
• 39:22
  Speaker 2: been a fan of this as a brokerage product. It
• 39:26
  Speaker 2: just felt like there was so much costs, so much
• 39:30
  Speaker 2: commission built into it. It really when when you're dealing
• 39:33
  Speaker 2: with relatively tight margins, it's a challenge as a retail
• 39:37
  Speaker 2: investor to derive any value out of it, real value.
• 39:41
  Speaker 2: It's certainly great for generating fees. How do you how
• 39:44
  Speaker 2: do you manage an option based income product that works
• 39:49
  Speaker 2: for the retail investor.
• 39:50
  Speaker 1: So let's start with the principle why right?
• 39:53
  Speaker 4: I believe that options and derivatives actually play a really
• 39:55
  Speaker 4: important role for management of portfolios and return stream.
• 39:58
  Speaker 1: So it goes back to that principle.
• 40:00
  Speaker 4: Can you design outcomes and the trade offs that come
• 40:02
  Speaker 4: with options, because that's ultimately what you're doing, whether it's
• 40:04
  Speaker 4: call options or put options, and so for an investment
• 40:08
  Speaker 4: return stream that you're designing, options can be really powerful.
• 40:11
  Speaker 4: That said that, to your point, they're high friction for
• 40:15
  Speaker 4: an advisor, very hard to execute and you know, across
• 40:18
  Speaker 4: your business, but too for individuals. It's very hard and
• 40:20
  Speaker 4: very expensive to you know, the spreads and the costs
• 40:23
  Speaker 4: and the sizing.
• 40:24
  Speaker 1: But it's excellent.
• 40:25
  Speaker 4: It's actually what option structures are really designed for ETFs
• 40:28
  Speaker 4: and institutional money management in a great way because you
• 40:31
  Speaker 4: can do at scale really amazing programs. So we've been
• 40:34
  Speaker 4: doing these for twenty five years. You know, back when
• 40:37
  Speaker 4: I was at RBC, we used to help firms build them.
• 40:39
  Speaker 4: At Claymore, I build them, and then at Purpose we've
• 40:42
  Speaker 4: done it, and I find that they are so designed,
• 40:45
  Speaker 4: so perfectly designed for the structural outcome that you want
• 40:50
  Speaker 4: to ultimately create and manipulate in your return stream.
• 40:52
  Speaker 1: But they do come with trade offs. I'll give you
• 40:54
  Speaker 1: a great example.
• 40:55
  Speaker 4: One of the first things when I was in my
• 40:57
  Speaker 4: you know, starting in my career in talking to advisors,
• 41:00
  Speaker 4: the thing that they the old school advisor would say, oh,
• 41:03
  Speaker 4: I write put options or call options for a couple
• 41:05
  Speaker 4: of my clients on their large names, but I can't
• 41:08
  Speaker 4: do it for all my clients.
• 41:10
  Speaker 1: And I'd say, why do you do that?
• 41:11
  Speaker 4: Well, because you know I'm owning this stock, and you know,
• 41:13
  Speaker 4: if I'm going to own it for the next ten years,
• 41:15
  Speaker 4: why not generate some income along the way. And that
• 41:18
  Speaker 4: was a really important mindset that people had, but they
• 41:21
  Speaker 4: couldn't do it across their business. And I said, well,
• 41:23
  Speaker 4: if I own a name like a JP Morgan and
• 41:27
  Speaker 4: I'm going to own I love JP Morgan. The actual
• 41:29
  Speaker 4: optimal well way to own JP Morgan is to have
• 41:32
  Speaker 4: eighty percent long JP Morgan and twenty percent covered call
• 41:36
  Speaker 4: overlaid JP Morgan, so that you're generating the long term
• 41:39
  Speaker 4: beta of JP Morgan. Plus you're generating some ongoing return
• 41:43
  Speaker 4: from the option income as volatility is there, and you're
• 41:46
  Speaker 4: taking advantage of the volatility to generate a return trip.
• 41:48
  Speaker 4: And that's the best way, optimally from a risk adjust
• 41:51
  Speaker 4: basis to generally own most stocks.
• 41:53
  Speaker 1: So how do you do that?
• 41:54
  Speaker 4: And so if you design product We've designed something called
• 41:57
  Speaker 4: the Yield Chairs which was designed specifically around single name
• 42:00
  Speaker 4: stocks that we people most love, and then you write
• 42:02
  Speaker 4: options against them to generate the option income so that
• 42:05
  Speaker 4: it complements a long only position.
• 42:07
  Speaker 2: How do you avoid getting called away when the stock
• 42:09
  Speaker 2: has a sudden surge and all the problem isn't merely hey,
• 42:15
  Speaker 2: you can always go out and re buy it, but
• 42:17
  Speaker 2: now you have a giant capital gains hit you have
• 42:20
  Speaker 2: to pay when the stock gets called.
• 42:21
  Speaker 4: So in one thing in Canada is we don't actually
• 42:24
  Speaker 4: have the difference between short and long term capital gains.
• 42:26
  Speaker 1: Yeah, so it's a really nice thing.
• 42:27
  Speaker 4: You know, you can buy and sell something in a
• 42:29
  Speaker 4: day and ultimately get capital gain streatment at the lowest rate.
• 42:32
  Speaker 1: Our rate is a little higher, but but still it's.
• 42:34
  Speaker 2: A short term thirty percent long term.
• 42:37
  Speaker 4: Yeah, so our long term is twenty five twenty seven percent.
• 42:42
  Speaker 4: The principal mindset, though, is this is what institutional programs
• 42:46
  Speaker 4: are really great at. You don't write one option on
• 42:48
  Speaker 4: one strike, price on one position.
• 42:50
  Speaker 1: You use stack them, so you might have if you have.
• 42:52
  Speaker 2: A whole matrix exactly different strikes, different dates.
• 42:55
  Speaker 4: And then with technology today you can optimize all the
• 42:58
  Speaker 4: structural elements of do you roll it for tax efficiency?
• 43:01
  Speaker 4: Do you ultimately buy it back? Do you do you
• 43:04
  Speaker 4: wear along a curve an option? Do you basically roll
• 43:06
  Speaker 4: the capitol into at any point? So you're constantly in
• 43:09
  Speaker 4: this call it vintaging of your portfolio overlay, which is
• 43:13
  Speaker 4: really important. That's what institutional money management needs to do.
• 43:15
  Speaker 4: If you're just singularly buying one option on one strike byce,
• 43:18
  Speaker 4: that's actually a very low quality execution.
• 43:21
  Speaker 2: Yeah, we used to see a lot of that on
• 43:22
  Speaker 2: the broker side. So the single stock yield chairs. How
• 43:26
  Speaker 2: many different versions of this are there or are they
• 43:29
  Speaker 2: all tossed into.
• 43:30
  Speaker 4: Twenty No, we have a single names, so I think
• 43:34
  Speaker 4: we might be at like twenty something twenty five. I
• 43:36
  Speaker 4: don't know what the exact number, but it's north of
• 43:38
  Speaker 4: twenty Canadian and US names.
• 43:40
  Speaker 1: And they've been very popular.
• 43:42
  Speaker 4: You know, they've been very popular with both advisors and
• 43:44
  Speaker 4: direct investors.
• 43:46
  Speaker 2: Huh. Really interesting. Coming up, we continue our conversation with
• 43:50
  Speaker 2: Sam Safe, CEO and founder of Purpose Investments, discussing why
• 43:55
  Speaker 2: he built Purpose Unlimited. I'm Barry rich Alts. You're listening
• 43:59
  Speaker 2: to Masters Business on Bloomberg Radio. I'm Barry Redults. You're
• 44:04
  Speaker 2: listening to Masters in Business on Bloomberg Radio. My extra
• 44:07
  Speaker 2: special guest this week is Some Safe. He is the
• 44:11
  Speaker 2: founder and CEO of Purpose Unlimited, which also owns Purpose Investments.
• 44:17
  Speaker 2: He has founded and sold a variety of different companies
• 44:22
  Speaker 2: over the past let's call it twenty almost twenty five years.
• 44:26
  Speaker 2: So Purpose is now about thirty one thirty two billion
• 44:32
  Speaker 2: Canadian or about twenty two billion US across ETF's cash, alternatives,
• 44:37
  Speaker 2: private assets, et cetera. Tell us the problem that Purpose
• 44:42
  Speaker 2: is trying to solve for your clients.
• 44:45
  Speaker 4: Sure, so total Purpose actually run over around forty billion,
• 44:49
  Speaker 4: now forty BILLI yeah, on the platform. So on the
• 44:51
  Speaker 4: asset management side, just over thirty and on the wealth
• 44:54
  Speaker 4: side now just round ten and growing quite fast, and
• 44:57
  Speaker 4: the principal mindset has always been so on the asset
• 44:59
  Speaker 4: management side, was you know, let's build a modernization of
• 45:03
  Speaker 4: investment management and products and services to meet clients where
• 45:06
  Speaker 4: they need to be. How do we help advisors and
• 45:08
  Speaker 4: investors build more resilient portfolios, not just long only equities
• 45:11
  Speaker 4: and long only bonds, but how do you optimize for
• 45:14
  Speaker 4: the types of return streams that support a world where
• 45:18
  Speaker 4: potentially bonds aren't your protective assets. How do you optimize
• 45:22
  Speaker 4: for the types of return streams that ultimately are designed
• 45:25
  Speaker 4: around an outcome as opposed to just the return of
• 45:27
  Speaker 4: a beta.
• 45:28
  Speaker 1: And so those are the first start.
• 45:29
  Speaker 4: And we have the inputs of we care about not
• 45:31
  Speaker 4: only the quality of our investment product that we manufacture,
• 45:35
  Speaker 4: but also they call it artisan quality of our investment inputs.
• 45:39
  Speaker 4: So the team, the capabilities the process for investment strategy
• 45:45
  Speaker 4: using both quantitative methods active methods in each of the
• 45:48
  Speaker 4: different categories. I think the second component was then we
• 45:51
  Speaker 4: have this big picture that goes back to this system
• 45:54
  Speaker 4: and I use the reference to the defined benefit pension
• 45:57
  Speaker 4: plan as a phenomenal product.
• 45:58
  Speaker 1: How do we.
• 45:59
  Speaker 4: Redesigning the way advice and investment management work together on
• 46:05
  Speaker 4: ultimately achieving a client's goal. And so we've designed this
• 46:08
  Speaker 4: whole infrastructure around the wealth management to support one the
• 46:11
  Speaker 4: movement towards independent wealth management. So as you know in
• 46:15
  Speaker 4: the United States, you've seen the US RIA segment. Canada
• 46:18
  Speaker 4: has a nascent segment there, and you know, we saw
• 46:20
  Speaker 4: this really important movement towards and a need for that.
• 46:23
  Speaker 4: So we built the infrastructure to support and movement towards
• 46:25
  Speaker 4: independent wealth management. But then also the services and the
• 46:28
  Speaker 4: tools and the capabilities over and above that to support
• 46:31
  Speaker 4: advisors in basically driving their businesses towards more planning based,
• 46:36
  Speaker 4: portfolio outcome oriented investment management and wealth management and experiences
• 46:42
  Speaker 4: as opposed to you know, I pick better stocks in
• 46:45
  Speaker 4: the next guy, I'm better at delivering better returns. More
• 46:48
  Speaker 4: around how do we help customers ultimately achieve their goals,
• 46:51
  Speaker 4: And so we've built all of this technology and systems
• 46:53
  Speaker 4: around that outcome.
• 46:54
  Speaker 2: So I like the idea of emphasizing outcomes over benchmarks,
• 46:59
  Speaker 2: but you know, we have half a century maybe longer,
• 47:03
  Speaker 2: of organizing portfolios around those benchmarks and trying to beat
• 47:09
  Speaker 2: the index. Explain what's wrong with that approach?
• 47:12
  Speaker 4: Well, it goes back to the behavioral science start. That's
• 47:15
  Speaker 4: first and second ones. It is also a structural thing.
• 47:18
  Speaker 4: If you go back to the last the last ten
• 47:21
  Speaker 4: years or so, when I looked at the space that
• 47:25
  Speaker 4: I felt that the industry had become a little bit
• 47:28
  Speaker 4: complacent towards this idea that the call it the best
• 47:32
  Speaker 4: and optimal portfolio was a sixty forty portfolio. And the
• 47:35
  Speaker 4: reason was if you actually span yourself out and looked
• 47:37
  Speaker 4: at the returns of the sixty forty portfolio going back,
• 47:41
  Speaker 4: you know, one hundred, one hundred and ten years, which
• 47:43
  Speaker 4: we did the research on, it actually only met its
• 47:47
  Speaker 4: long term goal of seven percent in five of call
• 47:51
  Speaker 4: it eleven or so decades. And this is a couple
• 47:54
  Speaker 4: of years ago we did that research, and those of
• 47:57
  Speaker 4: those five, three of them were in the period of
• 48:00
  Speaker 4: teen eighty to twenty twenty, and so I felt that
• 48:04
  Speaker 4: that had created this bias and anchoring bias in call
• 48:08
  Speaker 4: it the industry. You know, Barry, the one thing you
• 48:10
  Speaker 4: realize about our industry is that very few people have
• 48:13
  Speaker 4: a historical experience beyond nineteen eighty. Most people's career spans
• 48:18
  Speaker 4: are from nineteen eighty onwards, and so you know, you
• 48:21
  Speaker 4: get biased towards what you know, what you see?
• 48:23
  Speaker 1: What do you see when interest.
• 48:24
  Speaker 4: Rates go up, they pretty rapidly go back down. When
• 48:28
  Speaker 4: you look at any three or four year cycle, the
• 48:30
  Speaker 4: sixty to forty portfolio generally was giving you positive returns,
• 48:34
  Speaker 4: and so that meant, hey, that's an optimal way to invest.
• 48:37
  Speaker 4: I looked at it and said, wait a minute, if
• 48:39
  Speaker 4: you actually look at periods where interust rates actually not
• 48:42
  Speaker 4: just go up a little bit and then come back down,
• 48:43
  Speaker 4: but actually go up and stay up, how does that
• 48:47
  Speaker 4: affect bond portfolios?
• 48:48
  Speaker 1: How does that affect the overall balanced portfolio?
• 48:50
  Speaker 4: And so I said that we needed to be prepared
• 48:52
  Speaker 4: for that, and that's what was the starting point.
• 48:54
  Speaker 1: The second though, was this behavioral component, and I.
• 48:57
  Speaker 4: Just said, look at the end of the day, you know,
• 48:58
  Speaker 4: we've kind of lost touch with what the customer actually
• 49:01
  Speaker 4: is asking us to do. And the customer wakes up
• 49:04
  Speaker 4: and says, look, what I care about is I want
• 49:06
  Speaker 4: to know when I wake up, I'm going to be okay.
• 49:09
  Speaker 4: And you need to be in the business of serving
• 49:12
  Speaker 4: me on helping me solve that question.
• 49:15
  Speaker 1: Am I going to be okay? And like a pension plan, you.
• 49:18
  Speaker 4: Should have a liability a goal, and you should have
• 49:21
  Speaker 4: an input, which is your portfolio, your savings program and
• 49:24
  Speaker 4: your portfolio all designed around are you going to be okay?
• 49:28
  Speaker 1: And I felt that, you know, the idea that you.
• 49:30
  Speaker 4: Know, we should wake up and say, hey, we're here
• 49:32
  Speaker 4: to beat the S and P five hundred or we're
• 49:33
  Speaker 4: here to beat some benchmark was a silly concept. All
• 49:36
  Speaker 4: that matters to a customer is am I going to
• 49:39
  Speaker 4: be okay? And everything we do every day should be
• 49:41
  Speaker 4: in service of that. And so that's how I always
• 49:43
  Speaker 4: looked at it, and the principle of the design of
• 49:46
  Speaker 4: an investment firm should be around the kinds of programs
• 49:50
  Speaker 4: and asset strategies that help an advisor build better portfolio
• 49:54
  Speaker 4: to answer the question of am I going to be okay?
• 49:56
  Speaker 1: With their customers?
• 49:56
  Speaker 2: So I have so many different ways to go with
• 49:59
  Speaker 2: this that I'm very enthusiastic about. Maybe we'll put a
• 50:03
  Speaker 2: pin in the whole idea of out of sample testing
• 50:06
  Speaker 2: because everybody is so framed by it's not just their
• 50:12
  Speaker 2: own hindsight bias, but the recency bias of what they
• 50:15
  Speaker 2: just experienced entirely has such a big issue. But let's
• 50:20
  Speaker 2: stick with the concept of behavioral finance and the sixty
• 50:22
  Speaker 2: forty I have gotten a lot of pushback for saying,
• 50:27
  Speaker 2: if you're in your twenties, thirties, forties, do you really
• 50:30
  Speaker 2: need bonds if you're not going to retire for well,
• 50:35
  Speaker 2: twenty something year old might not retire for fifty years. Yeah,
• 50:40
  Speaker 2: there's some emotional salve from some ballast that's uncorrelated and
• 50:46
  Speaker 2: doesn't have the volatility of equities. But if I go
• 50:50
  Speaker 2: back in time, forget what the market did. If I
• 50:53
  Speaker 2: was twenty today, I wouldn't own a single bond, and
• 50:56
  Speaker 2: if I was seventy five today, I would own a
• 50:59
  Speaker 2: whole lot more tax premunis. So raises the question, sixty
• 51:05
  Speaker 2: forty does that make sense for a forget twenty year old,
• 51:08
  Speaker 2: for anybody under fifty.
• 51:10
  Speaker 4: It's actually a really important question, and in many cases
• 51:13
  Speaker 4: the answer is.
• 51:13
  Speaker 1: No, you don't need bonds.
• 51:15
  Speaker 4: And you know, the reality of it is that if
• 51:17
  Speaker 4: you look at the last five six years, bonds wouldn't
• 51:19
  Speaker 4: have done you any good. And so you know, especially
• 51:22
  Speaker 4: if you're in an environment like we're in right now,
• 51:24
  Speaker 4: where you know the greatest risk right now to a
• 51:27
  Speaker 4: portfolio oftentimes is the volatility the uncertainty and interest rates
• 51:30
  Speaker 4: and inflation, and so I think it actually the return
• 51:34
  Speaker 4: this was logical in twenty eighteen twenty nineteen zero.
• 51:38
  Speaker 2: Right, You go from nineteen eighty twenty twenty forty years
• 51:41
  Speaker 2: of bonds.
• 51:42
  Speaker 1: Of phenomenal Yeah.
• 51:42
  Speaker 2: I mean that's a unique.
• 51:45
  Speaker 1: Yeah.
• 51:46
  Speaker 4: But the thing that was the thing that was the
• 51:48
  Speaker 4: big driving for us was the movement between the seventies
• 51:50
  Speaker 4: to the eighties when interest rates spiked into the teens.
• 51:53
  Speaker 4: That was the thing that's set up, of course, the
• 51:55
  Speaker 4: next forty years of declining interest rates, and so you
• 51:59
  Speaker 4: have to step back and have that context.
• 52:01
  Speaker 1: It's just like timing the market.
• 52:02
  Speaker 4: The reality is that if you had bought in the
• 52:04
  Speaker 4: mid seventies, you would have had a horrible experience.
• 52:06
  Speaker 1: Right with that portfolio structure.
• 52:08
  Speaker 2: There's pre and post pull fulker that's the defining But it's.
• 52:12
  Speaker 4: Actually different that it's pre and post the economic situation
• 52:16
  Speaker 4: that was happening that led to an inflationary spike that
• 52:19
  Speaker 4: we ultimately had to address, and that was what you
• 52:22
  Speaker 4: were dealing with. But to your point, recency bias drove
• 52:25
  Speaker 4: people to believe that this was the optimal way to invest.
• 52:28
  Speaker 4: I think for an individual, again, it goes back to Okay, Yes,
• 52:31
  Speaker 4: equity is a hope based strategy.
• 52:33
  Speaker 1: Investing is a hope based strategy.
• 52:35
  Speaker 4: And when you're in your twenties and thirties and forties
• 52:37
  Speaker 4: and even potentially you know, fifties, because you know, I'd
• 52:40
  Speaker 4: say call it twenty years before retirement, call it like
• 52:43
  Speaker 4: a pension plot. T minus twenty years anything T minus
• 52:45
  Speaker 4: twenty years plus is a lot of You have a
• 52:48
  Speaker 4: lot of room for hope. Hope is a wonderful thing
• 52:50
  Speaker 4: that you should take advantage of because you know, ultimately
• 52:53
  Speaker 4: you want strength and momentum, and you have the time
• 52:55
  Speaker 4: to get it right. But once you get into that
• 52:57
  Speaker 4: T minus twenty period, that's the period where you better
• 53:00
  Speaker 4: have some structure and discipline to what you're ultimately achieving
• 53:02
  Speaker 4: to get to T. Because the one good thing is
• 53:04
  Speaker 4: you can move T T can move. That's the time
• 53:06
  Speaker 4: of retirement that can move. You could say it's sixty five,
• 53:09
  Speaker 4: but if you really needed to and your advisor said,
• 53:11
  Speaker 4: hey it's a bad time, you need to move to
• 53:12
  Speaker 4: sixty seven, you can move to sixty seven. A it's
• 53:14
  Speaker 4: going really well, we can move to sixty three. But
• 53:16
  Speaker 4: T minus twenty is a really important window where structure
• 53:20
  Speaker 4: discipline in your portfolio has to be designed. Everything before that, Absolutely,
• 53:24
  Speaker 4: you can take as much hope as you want, you
• 53:26
  Speaker 4: can take as much risk as you want, because you
• 53:28
  Speaker 4: haven't entered that window.
• 53:30
  Speaker 1: That's how I look at it.
• 53:31
  Speaker 2: Really interesting as someone who's partial to the math and
• 53:37
  Speaker 2: science half of my brain, I'm curious how you reconcile
• 53:43
  Speaker 2: the rigorous, structured environment of being an engineer, Like there
• 53:50
  Speaker 2: is an internal logic and a set of hard mathematical
• 53:56
  Speaker 2: principles that govern that. How do you reconcile that with
• 54:00
  Speaker 2: the squishy emotional side of all of Dannie Kahneman's teachings,
• 54:07
  Speaker 2: which is, hey, this is just how we are built.
• 54:11
  Speaker 2: We weren't made for this sort of decision making.
• 54:14
  Speaker 3: Yeah.
• 54:14
  Speaker 4: I think the beauty of when you marry the first principles,
• 54:19
  Speaker 4: you know, call it linear kind of thinking around what
• 54:21
  Speaker 4: engineering can do, and then you apply that with the
• 54:23
  Speaker 4: nonlinearity of human behaviors. It's actually a phenomenal. We call
• 54:27
  Speaker 4: it a mixture of thinking. And that's what you want.
• 54:31
  Speaker 4: You want those multiple inputs to basically change your mental
• 54:33
  Speaker 4: model of how to design and think. What I love
• 54:36
  Speaker 4: about engineering in general is it is a reverse engineering
• 54:38
  Speaker 4: mindset is going back to the hypothesis a scientific method, right,
• 54:42
  Speaker 4: which is I have an idea of what the answer
• 54:44
  Speaker 4: will be, but I'm going to do everything I can
• 54:46
  Speaker 4: to prove that. So if you apply that to any problem,
• 54:50
  Speaker 4: which is, hey, i'd like to solve for this problem,
• 54:52
  Speaker 4: I have an idea of how to solve it, and
• 54:53
  Speaker 4: then you reverse engineer how to ultimately get there, or
• 54:55
  Speaker 4: you build around a scientific method of it. It's a
• 54:57
  Speaker 4: wonderful way to approach problem solving in general. And then
• 55:00
  Speaker 4: if you bring in the input. So one of the
• 55:02
  Speaker 4: things we did a purpose is we've actually brought on
• 55:05
  Speaker 4: behavioral scientists to actually support the organization in the way
• 55:08
  Speaker 4: we think about product design, the way we think about marketing,
• 55:11
  Speaker 4: and all the things that we do, because it actually
• 55:13
  Speaker 4: helps influence the mental models and the way that we
• 55:16
  Speaker 4: make decisions.
• 55:17
  Speaker 1: Those are really powerful.
• 55:18
  Speaker 4: So I just believe it's goes back to that original
• 55:21
  Speaker 4: comment abound the creative mind and the call it structured
• 55:25
  Speaker 4: discipline and mind. I think you bring those two together,
• 55:27
  Speaker 4: it's a very powerful mixture to build with.
• 55:31
  Speaker 2: Really interesting. So we've been speaking for an hour and
• 55:35
  Speaker 2: artificial intelligence has not come up, which I think is
• 55:38
  Speaker 2: a first this year. How do you think about AI
• 55:43
  Speaker 2: from a managerial perspective, how do you think about it
• 55:46
  Speaker 2: from an investment perspective? What do you see the impact
• 55:52
  Speaker 2: of this going forward? Especially, I appreciate the opportunity to
• 55:56
  Speaker 2: ask someone who's an engineer about this because essentially this
• 56:01
  Speaker 2: is software engineering at the highest level.
• 56:04
  Speaker 1: So I've never been more excited in my career.
• 56:07
  Speaker 4: I feel a sense of energy in the last nine months,
• 56:13
  Speaker 4: specifically coming into twenty twenty six that I've just been
• 56:17
  Speaker 4: excited about because of what this new technology is enabling us.
• 56:21
  Speaker 1: And more importantly, it's not.
• 56:23
  Speaker 4: Just how do we build features or you know, solve
• 56:26
  Speaker 4: some problems or create a little bit of incremental productivity.
• 56:29
  Speaker 4: It is about the grassroots, you know, go to first
• 56:32
  Speaker 4: principles of how should we ultimately design the way we work,
• 56:35
  Speaker 4: the way we optimize our business in and around a
• 56:38
  Speaker 4: technology a replatforming. You know, it would be no different
• 56:42
  Speaker 4: than in two thousand if you were going through this
• 56:44
  Speaker 4: period and the Internet was now becoming real and scalable,
• 56:47
  Speaker 4: and you were sitting there as a retailer or any
• 56:49
  Speaker 4: other business saying, if I just think about the historical
• 56:52
  Speaker 4: way to run a business, and I've got this new thing.
• 56:55
  Speaker 1: I think you lost.
• 56:56
  Speaker 4: Whereas if you actually said no, no, I need to
• 56:58
  Speaker 4: redesign the way I work to this new platform Mobile Era,
• 57:01
  Speaker 4: which was a different one, same thing I did redesign
• 57:04
  Speaker 4: the way we work, and AI is the same thing.
• 57:06
  Speaker 1: So we've been at purpose.
• 57:08
  Speaker 4: Have been really deeply embedded in the way we operate
• 57:12
  Speaker 4: the company. The first thing is we are effectively driving
• 57:16
  Speaker 4: forward deploy engineering, data science, and product across the whole organization.
• 57:21
  Speaker 4: We are driving into smaller teams and squads. We're rolling
• 57:24
  Speaker 4: that out across everything, and we're driving the company with
• 57:27
  Speaker 4: this mindset that we What a modern organization needs to
• 57:32
  Speaker 4: design around is vulnerability, the ability to have innovation and
• 57:38
  Speaker 4: intelligence moving through the organization constantly and data flowing and communication,
• 57:43
  Speaker 4: you know, and this is on top of, of course,
• 57:44
  Speaker 4: leadership strength. In the past, the organization was all driven
• 57:48
  Speaker 4: by leadership strengths. How good was the leadership And my
• 57:51
  Speaker 4: view is vulnerability and communication are going to be the
• 57:54
  Speaker 4: things that really drive and AI enables for that in
• 57:57
  Speaker 4: a really amazing way. What that is is a system
• 58:00
  Speaker 4: of way you work. So we are doing that in
• 58:02
  Speaker 4: a great way. The same time, though you know, when
• 58:05
  Speaker 4: I look at the industry, we are still stuck in
• 58:08
  Speaker 4: this idea of AI as a feature set. So I'm
• 58:11
  Speaker 4: going to design features. I'm going to design something I
• 58:14
  Speaker 4: used to do that took me an hour. I can
• 58:16
  Speaker 4: do it now in five minutes. Those are really cool.
• 58:18
  Speaker 4: But that's no different than what excelled it for us.
• 58:20
  Speaker 4: You know, you know the accounting industry. You can imagine,
• 58:22
  Speaker 4: you know when excel came, was a little nervous, but
• 58:24
  Speaker 4: then actually adopted it and wanted to do and it
• 58:26
  Speaker 4: created a great value. But what this actually allows for
• 58:29
  Speaker 4: is a way to change the way we operate. And
• 58:32
  Speaker 4: that's what I hope that the industry really leans into
• 58:34
  Speaker 4: more deeply.
• 58:35
  Speaker 2: Really really fascinating. All right, I only have you for
• 58:37
  Speaker 2: a couple more minutes. Let's jump into our favorite questions
• 58:42
  Speaker 2: that we ask all of our guests, starting with who
• 58:45
  Speaker 2: are your early mentors who helped shape your career?
• 58:49
  Speaker 4: So I talked about Rob or not. And Rob is
• 58:51
  Speaker 4: someone that I care so deeply about. He not only
• 58:54
  Speaker 4: introduced me to his own way of thinking. Rob has
• 58:57
  Speaker 4: a special thing and you spend time with him. Rob
• 59:00
  Speaker 4: is you know, unbelievably intelligent that can go toe to
• 59:05
  Speaker 4: toe with any Nobel Prize laureate, you know, from an
• 59:08
  Speaker 4: academic perspective, but at the same time actually is an
• 59:11
  Speaker 4: excellent communicator and marketer. It's a very rare combination, and
• 59:17
  Speaker 4: he taught me that in such a deep way. So
• 59:18
  Speaker 4: much of who I am was during that format of
• 59:21
  Speaker 4: the years of working alongside and seeing him in motion.
• 59:24
  Speaker 1: So he's been an amazing person in my life.
• 59:27
  Speaker 4: He also introduced me to his advisory group, which was
• 59:31
  Speaker 4: people like Harry Markowitz, Peter Bernstein, Rick Roll, you know,
• 59:35
  Speaker 4: Keith ambecksh here, some of the most amazing deep thinkers
• 59:38
  Speaker 4: that I got this immersive opportunity to spend time with
• 59:41
  Speaker 4: that just informed so much of my principal thinking at
• 59:46
  Speaker 4: a time when I was very raw and really open
• 59:48
  Speaker 4: to that curiosity.
• 59:49
  Speaker 2: It was exciting, really really interesting. I have some hilarious
• 59:53
  Speaker 2: rob or not stories that I will share with you
• 59:56
  Speaker 2: off air. Let's talk about books. What are some of
• 59:59
  Speaker 2: your favorite What are you reading right now?
• 1:00:01
  Speaker 4: So I love books, and autobiographies are one of the
• 1:00:05
  Speaker 4: things I actually think. You know, people always say learn
• 1:00:06
  Speaker 4: from failure. I love to talk about learn from success.
• 1:00:09
  Speaker 4: So how do you learn from people's you know, careers
• 1:00:12
  Speaker 4: and lifetimes successes. So some of my favorite books An
• 1:00:17
  Speaker 4: Education of an American Dreamer by Peter G.
• 1:00:19
  Speaker 1: Peterson.
• 1:00:19
  Speaker 4: I don't know if you've read that one. A phenomenal,
• 1:00:21
  Speaker 4: great story about an individual who of course ended up
• 1:00:25
  Speaker 4: co founding Blackstone later in life. But just an under
• 1:00:29
  Speaker 4: the little journey about an immigrant family who.
• 1:00:31
  Speaker 1: Just basically moved.
• 1:00:32
  Speaker 4: He just did unbelievable things and the evolution of a career.
• 1:00:36
  Speaker 1: That's so fascinating. Creativity, inc you know, we're just talking
• 1:00:40
  Speaker 1: about that.
• 1:00:41
  Speaker 2: I literally just got it delivered two days ago.
• 1:00:44
  Speaker 4: I love that because when I finished that book, I
• 1:00:46
  Speaker 4: said to myself, if I was to ever write an
• 1:00:49
  Speaker 4: autobiography about my career.
• 1:00:51
  Speaker 1: I hope it would sound like this.
• 1:00:53
  Speaker 4: It was the creativity of what Ed Katsmill did, but
• 1:00:56
  Speaker 4: more importantly, the relationship of how he explained his partnership
• 1:00:59
  Speaker 4: with jobs and the love he had for Steve and
• 1:01:02
  Speaker 4: the way he was so intricate about that.
• 1:01:03
  Speaker 1: It was just so inspiring for me. I loved it.
• 1:01:07
  Speaker 4: And then you know, I look at some of them,
• 1:01:09
  Speaker 4: of course, recent books that have just really inspired me
• 1:01:11
  Speaker 4: around unreasable hospitality. I think one of the greatest business
• 1:01:15
  Speaker 4: books one of the best business books has been written
• 1:01:17
  Speaker 4: in the last couple of years. If you haven't read it,
• 1:01:18
  Speaker 4: it's a critical book. And then I recently finished a
• 1:01:22
  Speaker 4: couple of years ago. It Never Split the Difference by
• 1:01:25
  Speaker 4: Chris Voss, and it is unbelievably strong, and in fact,
• 1:01:29
  Speaker 4: yesterday we had the team from Chris Voss's group come
• 1:01:32
  Speaker 4: in and train our people on how to apply that
• 1:01:35
  Speaker 4: type of negotiation skill into our daily way we work.
• 1:01:38
  Speaker 4: It's an unbelievable way to think about the concept of
• 1:01:42
  Speaker 4: being comfortable with the word no. We're so afraid to
• 1:01:46
  Speaker 4: hear no in life and in business, but actually allowing
• 1:01:49
  Speaker 4: no to become something that lets you get to yes.
• 1:01:52
  Speaker 4: It's really important, whereas it's so counter to all the
• 1:01:54
  Speaker 4: things that people had learned through the Harvard programs around
• 1:01:56
  Speaker 4: getting to yes. It's actually an unbelievable way to think
• 1:01:59
  Speaker 4: about Nico and.
• 1:02:00
  Speaker 2: One of the people I work with just recommended that
• 1:02:03
  Speaker 2: book Never Split the Difference. And it's sitting on a pile.
• 1:02:06
  Speaker 2: I'm holding my hand up this high and I'm like,
• 1:02:09
  Speaker 2: all right, I'll get around to it one day. I'm
• 1:02:11
  Speaker 2: gonna have to move that up to the a little
• 1:02:14
  Speaker 2: higher in the pile. Let's talk about streaming. What are
• 1:02:18
  Speaker 2: you either watching or listening to, either Netflix or podcasts
• 1:02:22
  Speaker 2: or whatever.
• 1:02:23
  Speaker 4: We have four kids at home, so you know, my
• 1:02:26
  Speaker 4: wife and I are always trying to find that hour
• 1:02:28
  Speaker 4: to stream. The one show that you know has really
• 1:02:32
  Speaker 4: touched me is the show Shrinking, of course on l TV.
• 1:02:36
  Speaker 1: And it's just the way that the.
• 1:02:38
  Speaker 4: Writer, Brett Rolstein talks about emotions and you know, communicating.
• 1:02:43
  Speaker 4: It's just such a touching I finish every episode that
• 1:02:46
  Speaker 4: I think. I'm teary eyed every single time. That's been
• 1:02:48
  Speaker 4: amazing thing about my wife and I. We love, you know,
• 1:02:50
  Speaker 4: lots of different shows we just don't get to We
• 1:02:52
  Speaker 4: have like seven different series that we are in the
• 1:02:55
  Speaker 4: middle of watching right now. Uh and but but we
• 1:02:59
  Speaker 4: try to find that time and it's an important time
• 1:03:01
  Speaker 4: for both of us.
• 1:03:02
  Speaker 2: You mentioned on Reasonable Hospitality. We just finished the final
• 1:03:06
  Speaker 2: season of The Bear and throughout that show you can
• 1:03:11
  Speaker 2: see some of the ideas right from that book.
• 1:03:14
  Speaker 4: You see it in season two, you really so much. Yeah,
• 1:03:16
  Speaker 4: that's when it really becomes prevalent and they of course.
• 1:03:19
  Speaker 2: A little hot dogs and all the stuff they do
• 1:03:22
  Speaker 2: to go over over and above the call of duty.
• 1:03:26
  Speaker 2: It's impressive, it really is. So our final two questions
• 1:03:31
  Speaker 2: what sort of advice would you give to a recent
• 1:03:34
  Speaker 2: college grad interest in a career in either investing or
• 1:03:39
  Speaker 2: financial innovation.
• 1:03:40
  Speaker 4: So, you know, I'd say there's two answers to this
• 1:03:43
  Speaker 4: that are important because we're you know, you got the
• 1:03:44
  Speaker 4: tension of what's happening with AI around this industry.
• 1:03:48
  Speaker 1: I'll start with the foundations. This is a wonderful industry
• 1:03:51
  Speaker 1: to be in.
• 1:03:52
  Speaker 4: And if you look at the sort of trajectory, financial
• 1:03:54
  Speaker 4: services as an industry will continue to grow meaningfully.
• 1:03:57
  Speaker 1: If you're in the wealth industry, it will double.
• 1:03:59
  Speaker 4: In the ESSA management inustry double just in the next
• 1:04:00
  Speaker 4: ten years by virtue of savings and market appreciation. So
• 1:04:05
  Speaker 4: you know, as an industry participant, the size of the
• 1:04:08
  Speaker 4: pie is growing and continuously.
• 1:04:10
  Speaker 1: So that's a really good thing too.
• 1:04:11
  Speaker 4: You've got an aging demographic of individuals in the space,
• 1:04:15
  Speaker 4: you know, advisors of constantly aging, and so there's a
• 1:04:18
  Speaker 4: huge opportunity for younger talent to come in and so
• 1:04:21
  Speaker 4: that's an awesome setup to be in the business. The
• 1:04:24
  Speaker 4: principle I'll go back to is it's an amazing place
• 1:04:27
  Speaker 4: that has high mission. But I want young people if
• 1:04:30
  Speaker 4: I was to come into it, to really focus on
• 1:04:32
  Speaker 4: how do I achieve this to help conduct the customer
• 1:04:36
  Speaker 4: truly win, as opposed to the historical mindset of I'm
• 1:04:40
  Speaker 4: here to basically manage money and do.
• 1:04:41
  Speaker 1: All these things.
• 1:04:42
  Speaker 4: And I think there's a really amazing opportunity to do
• 1:04:44
  Speaker 4: that in a great way and approach it if I
• 1:04:47
  Speaker 4: take the tension of AI. You know, there's always this
• 1:04:50
  Speaker 4: question of like what's it going to do to the
• 1:04:51
  Speaker 4: advisor industry or the investment industry, And I look at
• 1:04:55
  Speaker 4: it as only enabling. If you think about the opportunity
• 1:04:58
  Speaker 4: for a young person today, this is going to to
• 1:05:00
  Speaker 4: be an unbelievable period. The way I would approach this, though,
• 1:05:04
  Speaker 4: is recognize as a young person that a career in
• 1:05:07
  Speaker 4: any financial service or any career is not a sort
• 1:05:10
  Speaker 4: of a set of stairs. It's actually looks more like
• 1:05:13
  Speaker 4: a J curve, and you're going to have to go
• 1:05:15
  Speaker 4: through very difficult periods that look very uncomfortable, where you
• 1:05:19
  Speaker 4: look like you're not doing great to ultimately see this
• 1:05:22
  Speaker 4: great outcome. And that comes from curiosity, learning and immersing
• 1:05:25
  Speaker 4: yourself to ultimately take risks and do really important things.
• 1:05:28
  Speaker 4: It's an unbelievable time right now, I think as an
• 1:05:30
  Speaker 4: individual and a young person coming into this space.
• 1:05:33
  Speaker 2: Good answer, and let's jump to our final question, what
• 1:05:37
  Speaker 2: do you know about the world of investing, of ETFs,
• 1:05:40
  Speaker 2: of again, of financial innovation today might have been useful
• 1:05:44
  Speaker 2: twenty five years ago when you were really ramping.
• 1:05:46
  Speaker 4: Up Well, I mean, I think that I go back
• 1:05:50
  Speaker 4: to the constant learning of how behaviors and emotions really
• 1:05:55
  Speaker 4: drive outcome. And I wish, you know, I'd learned that earlier.
• 1:05:58
  Speaker 4: I wish I'd kind of been exposed to it. I
• 1:06:01
  Speaker 4: think the most important thing, though, is it is this
• 1:06:03
  Speaker 4: idea of how do we help truly solve problems along
• 1:06:08
  Speaker 4: the journey of a customer. How do we put the
• 1:06:09
  Speaker 4: customer and their moment of need at any point, whether
• 1:06:13
  Speaker 4: they're twenty five, forty five, sixty five, or eighty five,
• 1:06:17
  Speaker 4: and ultimately help them with the types of services and
• 1:06:20
  Speaker 4: solutions that drive that. If I had had that principal
• 1:06:23
  Speaker 4: mindset twenty plus years ago, I think I would have
• 1:06:25
  Speaker 4: built even more powerful businesses back then. It's really fun
• 1:06:29
  Speaker 4: to do what we're doing, but I wish we'd done
• 1:06:31
  Speaker 4: this even earlier.
• 1:06:33
  Speaker 2: Some I am so glad we finally got to do this.
• 1:06:36
  Speaker 2: We've tried to set this up a couple of times
• 1:06:39
  Speaker 2: and the dates just kept getting crossed. I'm thrilled you
• 1:06:44
  Speaker 2: came in to do this. We have been speaking with
• 1:06:47
  Speaker 2: some say founder and CEO of Purpose Investments. If you
• 1:06:52
  Speaker 2: enjoy this conversation, we'll be sure to check out any
• 1:06:55
  Speaker 2: of the six hundred and fifty discussions we've had over
• 1:06:58
  Speaker 2: the past twelve years. You can find those at iTunes, Spotify,
• 1:07:03
  Speaker 2: Bloomberg YouTube, wherever you get your favorite podcasts. I would
• 1:07:08
  Speaker 2: be remiss if I didn't thank the correct team that
• 1:07:10
  Speaker 2: helps put these conversations together each week. Alexis Noriega is
• 1:07:14
  Speaker 2: my video producer. Joan Russo is my researcher. Anna Luke
• 1:07:19
  Speaker 2: is my podcast producer. I'm Barry Ritoults. You've been listening
• 1:07:23
  Speaker 2: to Masters in Business on Bloomberg Radio.