Former CEO Of PayPal & TurboTax Is Using AI & Technology To Disrupt The Wealth Management Business

Hey, thanks a lot. This is really fun. Taking the time with me just to qualify the 100 million, we have just launched, but I had a previous experience. I founded Personal Capital and we grew that from zero to $23 billion. And so I hope to do a similar thing here.

Well, if you really want my story, like so many people, I think it starts early because those are your most formative things. The first 20 years of my life, I was a good student, I was a good athlete, and I did what I thought my parents expected of me. The next 20 years, I think I transferred that — all of this is in hindsight, I didn't realize this at the time — but I think I transferred that to doing what I thought society expected of me. So good schools, good graduate schools, good companies, rose through the ranks, found myself running a public company with probably many thousands of employees, and figured out I really wasn't very good at it and I'm not sure I enjoyed it as much as other things. So I left that and went to PayPal along with Elon Musk and Peter Thiel and Max Levchin and David Sacks and the whole catastrophe. So that was my first taste of the startup world and I really loved it. So for the past 25 years, I've been starting companies, probably about nine of them at this point.

Sure. We fundamentally believe in electronically or digitally enabled advisory relationships. At Personal Capital, we were some of the first people in 2010 who built a digitally delivered wealth management service. We were just about coincident with the first robos, Wealthfront and Betterment, but we were fundamentally different. They had average account sizes of $40,000. We had average account sizes after a couple of years of $700,000 and most of our assets in a million or more. And also they were purely algorithmic. We were digital of course and we had some fabulous not only apps but personal finance managers. But we also had people and I fundamentally believe in the mix of technology and people that really is the golden formula. So why do something new and different today? Well, the technology — this was 15 years ago that we started Personal Capital and 15 years in the technology business is a couple of lifetimes. So now we have the opportunity to build with an entirely new set of technology tools and of course it's AI. So what are the things that we specifically focus on as a wealth management firm? First is AI-assisted financial advice. The second is tax. Just to quickly mention the AI: if you look at most of the major companies, everybody's investing a lot in AI, but if you're a big company, the first thing you typically do is go look at your call centers and say, 'Wow, I wonder if I can do the jobs of these 300 people with 30.' So it ends up being a cost reduction strategy. We're really trying to use AI as a service enhancement strategy. So we've built AI not only to support our own advisors but also available directly to the clients so they can work on their own 24 hours a day and then immediately connect with their advisors in the same process. So that's number one. Number two is tax. I'd be happy to go into all of the things we do on the tax side, but the fundamental issue is this: the industry thinks in pre-tax terms. All the funds report pre-tax, and it's only half the story because you can't put pre-tax money in the bank. So we really focus on after-tax performance as the only thing that counts.

So, first of all, PayPal was a rocket ship. We went from zero to a million customers in 6 months. And this was 25 years ago when a million was a million. So it was a rocket ship and then it was sold pretty quickly. So what's next? My theory of the case is this: you want to work in an environment where you know the rules of the game. I had been at Intuit for 10 years and I knew tax and I knew small business tax prep and small business accounting and personal finance. And now I knew electronic payments. So what I have observed both in myself but also at a distance about innovation: it rarely comes from somebody who has done the same thing for 20 years. It's not that they're not good. They're very good. They're often well-meaning and they know their craft, but they've got blinders on because they know how to do this really well. The best of them really are excellent performers, but it means you're invested in the current way of doing things. So you rarely see innovation from somebody who's really been in it for a long time. But similarly, you rarely see innovation from someone who is so far removed they don't even know the problem set. So the Goldilocks solution is you're adjacent. You're adjacent but not in. So that you can understand, 'Oh well, this is what they're trying to do and these are the obstacles,' but you're not, you have the mental freedom to think about, with technology or with different changes, how could you do it better, faster, and cheaper? So if you look at my career, the various companies that I've started have all been in financial technology and cyber security. I got into cyber security — I've done three companies in cyber security. The reason I got into that was in the early days of the internet, the hardest thing was actually determining that the signal you were receiving from the client or the prospect was indeed legitimate, so that was one of the very first problems to solve. So within fintech and cyber security, which is sort of the general arena that I know, I tried to do a series of different things where I could bring fresh eyes.

Well, what I love is the highway and switching lanes metaphor. So consider it stolen and please don't tell anybody.

Sure, happy to do it. So I actually wrote a book, The Investment Tax Guide, because I'm not a tax accountant and I'm not a tax attorney, but I have been in the tax business for a long time and once again a little bit adjacent to the people, a tax attorney. So I had 10 years of managing in one way or another TurboTax and it was kind of early years at the beginning, so I saw a lot of progression and a lot of innovation. Initially it was DOS-based, MS-DOS, and it was just fill in the form. We had character versions of the form and you'd have to know what to do to fill it in. By the end of the 10 years, it was all graphical interface, Mac and Windows, and we had built the notion of an interview. So you didn't have to do anything except answer questions. That ended up being something that really took the market. We ended up with about 60% market share. Having done that for 10 years, having then dabbled in tax related things that related to my other businesses over a period of time, I'm now back to tax. So the first thing I did was try to really dive deep into the things you can do on the tax side to improve your after-tax performance. As a part of all that, I wrote a book called The Investment Tax Guide. I'm trying to write another but it's not an easy thing. In that, we talked about 12 different tax strategies. I won't go through them all, but some of them are relatively obvious. We do tax harvesting and direct indexing. But we also go farther. As an example, really think hard about your retirement accounts, 401k, IRA, and Roth in particular. Then try to build strategies around them. Also importantly, asset location, not asset allocation but asset location — which assets do you put in your taxable, in your tax deferred, and your tax exempt accounts — and you can get a big gain there. Going beyond that, it's not only tax loss harvesting, it's tax gain harvesting because you want to figure out what are your big high appreciation securities that over time, one way or another, you're going to want to sell, but you want to do it without a big capital gains drag. Those you don't sell but you transfer out to a DAF for charitable purposes. I think every investor should have a DAF, a donor advised fund. Or there are various family gifting scenarios that make a lot of sense as well. There are a couple more, but that's the highlight.

Excellent. Thank you for that. And now moving forward, let's talk about some timeless advice. Let's talk about risk management. Bill, you've been CEO of PayPal, TurboTax, of now $23 billion money management shop. Now you're doing it again with AI and technology. How do you handle risk and what are some mistakes you see people make with respect to risk management?

So there's sort of two different questions. I'm not sure what you're asking. I'll take them both. The first quickly, because it's probably not what you were asking, which is risk in my own life. In my own life, I'm taking huge risk because very often I fund these companies just to get them going, not ultimately, but until we get traction and define what the formula is. Starting a company, you have to assume that you will fail — the stats are that you will fail. So I've got big risk on that side. So I really end up with a barbell strategy on my investment securities and investments. I'm quite conservative just to balance it out. For most people, what I would recommend, and implicit in your question, is what I think is the single thing to remember: it's not return, it's risk-adjusted return. So in my own life when I was 30, I was overconfident just as every young man is. I thought I was immortal and I thought I could do just about anything, so I played the market and all the rest and I thought I was darn good at it. A couple years later, I look back at the historical record. Nope. I was trailing even the S&P even though I was taking bigger risk. That's typical. One of the reasons is we remember our triumphs, we forget our tragedies, so we delude ourselves that, 'Oh man, I bought crypto when it was this and I sold it when it was that, so I'm a genius.' At very least, even if you match the market, you're taking more risk so your risk-adjusted return is poor. So where do we come from that? First of all, for myself, I had to mature. I had to understand that's not a game. You're doing this not for bragging rights. You're doing this to put yourself in a better financial situation going forward. When you're young, it's a financial resiliency and strength that allows you to feel that you have financial freedom to do whatever you think you want to do in your life. As you get older, then of course you have to think about retirement. My god, if you retire at 65 these days, when back when Social Security was put in place, the average life expectancy was 67. So now what you have to do is prepare yourself for another 30 years of providing for you and your family. That's daunting. So it's not a game. This is important stuff. And you really want to focus on risk-adjusted return for the long haul. The biggest thing to do, and this is not a secret, everybody knows this but few people really do it, is diversification.

Well, life. There are two things. One thing people always say is don't let your schooling get in the way of your education. I think early in my life I was unbalanced on the schooling side and not on the education side. Although in college, I got a summer job between junior and senior year. Where I got that job, they said, 'Listen, we love you, you love us. Why don't you stick around?' And I said, 'Well, I can't because I have to go to school and graduate.' And they said, 'We're going to think about it.' And I said, 'Well, why can't I do both?' So my job was in Boston, my school was in upstate Vermont, but I set it up so that most of the classes were seminar classes that would meet irregularly. So I read the stuff and did the homework and I came back for tests and things like that. So in that one, I really did not let the schooling get in the way of the education. But then in life, this is something that I really haven't done well. Your life and your family and your friends are more important than your work. I'm afraid I've blown that one. I have always been, I don't know if I'd call it a workaholic, but yeah, let's call it a workaholic. In that way, my life is less diverse and less socially rich than I would otherwise like. But that's something you don't realize until you're older.

Well, the biggest mistake in investing is emotion. Again, this is not a secret. Everyone will say this and very few people actually live up to it. Certainly for me early in life, I was driven by emotion. I am now more disciplined and really do work towards risk-adjusted return and high diversification on the pre-tax side, and then a lot of tax strategies to get higher after-tax performance. But what drives this? It's simply human nature. When times are good, you get greedy, and when times are bad, you get fearful. That's why you make bad decisions. That involves the market, involves securities, involves sectors, it involves everything. There's a really interesting study where they look at investors in mutual funds and consistently over many years, the investors do worse than the funds themselves. Why is that? It's timing. They sell when things are low and they buy when things are high. So there's multiple percentage points on an annual basis of underperformance of the investors in the funds. And why is that? It's all emotion. I've done a little work with a couple of folks for a couple of years. I worked with Harry Markowitz. He's passed now. He was 80 when I was working with him, but he was still really sharp. At that point, he was working on tax optimization. The other person that I've worked with is a fellow named Shlomo Benartzi. Shlomo was a close partner of Richard Thaler. What Thaler talks about, he's done many of the classic things, but one of the things he talks about is the hot hands fallacy. We all see this. If we go to the game and somebody sinks three baskets in a row, you think, 'Okay, it's golden. Pass it to him.' In fact, if you look at it statistically, there is no correlation. So we just see meaning in statistical noise. When we see that meaning, we start basing our actions on it and we get emotional about that. That's when we make mistakes.

You're going to Amazon to my book. I am racing to Amazon to get yours because I really love this stuff.

Let me just mention one other thing. It's probably not in your book. But Shlomo and Thaler, they did a book together and it was on 401k. How do you maximize 401k? Because very few people, 30% of Americans for whom they're eligible for 401k actually use it. And when they use it, they tend to have low percentages participation, 1% or 2% of their income. They did a number of things. They developed guidelines and tested these guidelines. How could you make the 401k more effective? One thing was sort of obvious to any marketer: make it opt out, not opt in, because most people just take defaults. The second, which I thought was just really brilliant and I would never have thought of it, and the name of the book is Save More Tomorrow. So what they did was they said, 'Okay, you've got 2% today. Why don't you commit to increasing it to 3% next year and then 4% the following year?' And then it was just on autopilot. You avoided the pain because you didn't have to say, 'Okay, my paycheck is going to go down this year right now.' And you allowed people to let their better instincts set themselves up for success in the future.

I would think many things make a great leader, but it depends on the person. You really have to understand yourself. This is what in some ways I did when I moved from corporate life to startup life. It is more important. I wasn't good at corporate life at least at the higher level. Remember the Peter principle: everyone is promoted to their level of incompetence. I think I found that. It's at least as important to know what you're not good at as to know what you're good at, because what you're good at you just spark to it. But what you're not good at, for me at least, it was really difficult after my whole career, the 40 years of my career, to realize, 'Okay, I'm not very good at this.' So I think it depends who you are and what you do. I have seen great leaders. I had a fellow named Jay Shah who was the chief operating officer when I was CEO of Personal Capital. When I eventually started to back out and became chairman, he became CEO. He went to run Edelman after that. He's done a lot of stuff. He was so good at execution, at making the trains run on time. I was in awe. Frankly, it's really rare to find somebody who can do that. I'm the opposite. I really can't. I'm not a good manager. I hope I'm a good leader, but I'm more of an idea guy. It's funny if you look at my dad and myself. My father is my hero. He did some incredible things in his life. He's still going at 98 years old. He and I are very similar in many ways, but we're fundamentally different. He runs on discipline. Gets up at the same time, does the same thing, the whole day is scheduled out. I'm really weak on discipline. I run on enthusiasm. I just get, 'Oh my god, this is a fabulous idea and I want to do it now.' So where should I be? I should not be running a major operation. I should be doing the formative work when you're starting companies and you're thrashing around and you need to have the resiliency to do things. You have to be comfortable in ambiguity because there is no playbook. There is no, 'Well, what should I do next?' I don't know. Let's give this a try. Most humans, even in Silicon Valley where everyone believes they're a change agent, most humans are not comfortable in that. When you talk about going to do a startup, yes, there's monetary risk and yes, there's career risk, but that's not the thing. The real thing is: are you comfortable in a place where you just don't know what you're supposed to do and you don't know whether it's going to work?

Well, I'm really, I mean, your choice of words makes me sound smarter than I am. Know thyself. It's almost biblical.

When you're in the startup world, there is all sorts of adversity in a single day. For the most part, I'm fueled by that. 'Oh, okay. This is not working. What can we do?' Because it's a stimulus. Necessity is the mother of invention. These kinds of challenges stimulate you to think twice and think three times and try this and try that. So most of the time, I'm really challenged by that and energized. Occasionally, the issues are so big that they threaten the firm. I had to close down a firm earlier this decade. It was called Nirvana. I can explain it to you if you're interested. But the main point is that I had to come to the realization that this was not going to work. So I need to shut it down. If you're an investor, it's a bloodless decision. There is sunk cost and regret and everything else, but you don't feel it as emotionally. If you are the person who put the team together and made the rallying cries, it's a very, very hard thing. When faced with something of that nature, I'm afraid I'm not good. I anguish about that. I typically linger on the decision even after the decision is almost obvious. I'll take time to face it. I'm not good emotionally in that extreme situation.

You know, I'll just say there is an ethos in Silicon Valley that failure is good because you learn from it and you get stronger and you're on to the next thing and there's no penalty in Silicon Valley. That's simply wrong. Failure is awful. It saps your confidence and it really impacts people. So yes, you want to learn from it and all that, but don't believe the happy talk.

Well, the 30-year-old self, and me, my 30-year-old self and 30-year-old others, is: money is not a game. Money is a purpose. It's not bling and it's not a scorecard. It is the essential fuel that lets you live the life you want to live, not only for you but your family, for now and for decades to come. So take it seriously and don't treat it as a game. For instance, I think the world of, even though I'm very different, I think the world of Wealthfront and Betterment because they are teaching people to invest in what I think is the right way. I am very against Robinhood. I think they are teaching an entire generation of people exactly the wrong way to invest and encouraging them. So I think they're doing these people and their families a huge disservice.

Hey, I hope so. A lot of fun. Thank you.