Track 2: Powering personalization at scale through bank-fintech collaboration

69% of ultra-high net worth investors want to align investments with principles but struggle. Banks acquiring fintechs provide new offerings, creating "the third way," or where fintechs and banks work jointly. Financial institutions can innovate to supply customer-reflective money management. E.g., J.P. Morgan and OpenInvest are using tech to connect investors' values to money, aiming to help identify essential issues through data analysis and a transparent portfolio snapshot.

Join this session to understand: 

  1. The importance of mainstreaming values-based investing and connecting people's values to their money at scale
  2. How data points enable individual investors to shift their investments in real-time, swaying corporations to act accordingly to investor values
Transcript :

Gary Zimmerman (00:07):

Good afternoon everyone. Thank you for your continued attention here and I am really glad you have stayed for the next speaker. I am personally really excited to hear this talk. My name is Gary Zimmerman. I am here to introduce Josh Levin of Open Invest, which is a JP Morgan company. Josh Levin is co-founder and Chief Strategy Officer of Open Invest and he's been in the sustainable finance sector for more than a decade. We spent about six years at World Wildlife Fund, which is an organization that I think is near and dear to many of our hearts where he managed their sustainable finance program and then went on to found Open Invest. He has a MBA from Harvard, an MBA from NYU Stern. And I think what's particularly interesting about this is that there is been lots of talk about ESG, but Josh and team have taken this a step further to explore values-based investing, which is a much broader remit. And part of what they've done with Invest is really weave that into the entire investment experience with a focus on affluent investors. They sold the company to JP Morgan two years ago, and now Josh and team have been working within JP Morgan to help bring the spirit of innovation for the benefit of all of their customers broadly. So with that, I'd like to introduce Josh.

Josh Levin (01:35):

That was a really good intro. You sure you don't want to do the rest of this? That is kind of hard to talk. Cool. Well, thanks so much guys. I am excited to be here and hopefully make it interesting. Keep it lively. Before I say anything, there is three main points I am going to try and get across to you guys today. So number one, personalization is the future of the industry in many respects. Number two is that personalization is going to be the key to mainstreaming, call it what you want, sustainable finance, values-based investing, ESG, that is going to flow through this kind of modern personalization experiences. And the third thing is that I believe a lot of the new innovation is going to come at the intersection of incumbents and banks working together with fintechs, what I call the third way, that type of collaboration. And I think AI is going to be a big part of that as well.

(02:30)

I know that is probably the theme of the day, week, year, but I hope I can bring a little bit of a fresh perspective on that in terms of what it means for these collaborations and personalization. So first, a little bit on my story. It's been a fun experience. I have worked in a bunch of different sectors and now am really enjoying being part of JP Morgan. But I have been through the startup rollercoaster. I have worked in large non-profits, I have worked in traditional smaller private sector. And so I spent six years at the World Wildlife Fund them for pandas and tigers and tote bags, which is great. A little less marketed is their work with the corporate sector and corporate engagement. And then within that, our team was kind of like a startup within WWF where we said, hey, big financial institutions like platforms themselves affecting the whole economy.

(03:25)

Maybe we can help them on their journey towards promoting sustainable finance. So my team worked with over a hundred institutions around the world on developing new financial products, new environmental risk frameworks, writing sector policies, all of this. And as part of that, I actually got to do a lot of this. I got to do a lot of public speaking. This was 10 years ago now, and even then it felt like the golden age of ESG that, this was on the rise. It was nothing compared to what's going on today, but the time it felt better than ever. And I would speak and we'd get a lot of young people afterward who'd raise their hands and say, this is amazing. How can I get involved? How can I do this stuff? Everybody wanted to work in this space. I don't know if that is still true, but at the time, and there was a real lack of solutions for normal folks.

(04:11)

At the very high end of the market, you have a lot of money, you can get whatever you want from your provider, but for normal people it was a handful of very expensive mutual funds. And in particular, I felt that the problem was that when it comes to values, everyone has their own point of view and it's legitimate. It's a little different than traditional finance where the experts know the markets, they know what's going on. They have probably the more legitimate point of view in most cases for 90% of investors, the experts know. But for when it comes to values, environment, society, your point of view is legit because it's a subjective values-based decision and there was really no way for the portfolios to be customized to people's personal values. So that was the start of Open Invests. I teamed up with some friends who are Bridgewater Associates, the world's largest hedge fund.

(05:04)

They had LED teams building portfolio management systems there, risk control trading, a lot of the tech build. And we started Open invests. I should cut this story short, it'll be my whole talk. And the thesis was let's unlock personalization and I won't, I'll save how we did that. But we automated that kind of the workflow that you would get for generating a personalized separately managed account, tether that up to user interfaces so that you could whip out your smartphone and say, okay, I care about gender diversity and climate. I don't want tobacco and I don't want to hold this one single stock and hit go. And it would generate a passive portfolio that would fully reflect your values. And so that was the first solution for Open Invests over time, we then built a whole bunch of satellite features. We built the very tangible visceral impact reporting.

(05:56)

How cigarettes have I avoided financing this quarter? How many women are on my boards and so on. We built diagnostics to look at all of your assets and held away assets and analyze that according to your values. We built proxy voting with a swipe and all of these capabilities have become part of what led to the acquisition with JP Morgan and the types of things and more that we are working to bring online at JP Morgan. So that is the open invest story. Over time, I learned a few things. So I think my original thesis was wrong. My thesis was, well, it's all about personalization. Everyone has different values and if we can just customize, it's going to unlock the dams of demand for sustainable finance. So I think I was wrong. It's helpful. It's very helpful. It doesn't unlock the dams of demand. I now have conviction as to what mainstream values-based investing will be.

(06:52)

And that is that the space will mainstream through features, not products. Meaning historically this whole industry has been based on building a mutual fund more recently ETFs and then trying to market that product. But part of the reason this is such a good business is because clients never change products or providers. You have roughly 90% retention rates with recurring revenue streams based on AUM models. This is a very good business model. It's very hard to be a new player and pull people away. And that is in my mind why the sustainable finance space is kind of inched along. But I believe the future of the space is through services delivered through technology that can be hot released across current platforms and products. So that is things like impact reporting rolled out across your current products, proxy, voting, analytics, all the things that we built.

(07:50)

And a lot of a number of senior leaders at JP Morgan had reached a similar conclusion and there was overall high conviction on the space at JP Morgan. And so that is what led to this marriage, but that is how the space is going to mainstream. So let me do a quick example of this actually to help you personalize it for yourself. So how many of you raise your hand if you have a brokerage account right now? Okay, so raise your hand if you hold not just single names, but you hold funds, some funds in your account, okay, it's nearly all of you. Okay, now don't, don't be embarrassed, it won't be most of you, but raise your hand if you currently hold something that you would consider labeled as like an ESG or sustainable finance product. See, nobody raise their hand, right? Okay, I am going to give you a new don't totally normal.

(08:41)

I don't care what people say. This is a niche, niche industry. Now raise your, I am going to give you a new value proposition. Here's a button, and if you press this button, then whatever you care about, whatever your values are going to seamlessly incorporated into your assets and it's going to have an immaterial effect on your performance or your cost structure. Would you like to press the button? Raise your hand if you would. Okay. It's most of you, right? That is what I mean by features, not products. Marketing and pushing products is high friction. Rolling out seamless experiences makes it easy. And when we make your values and we make doing good, easy, well, most people are good people in my opinion. And that is when you get broad adoption. So personalization is the future. What do I mean? Well, why is personalization the future? Because there is no other space to compete anymore.

(09:38)

So everything is getting commodified, right? Products are getting commodified. So large institutions, especially for incumbents where it's about retention because we have recurring revenue streams on large clients, personalization is an essential frontier. It is the frontier, right? It's no longer about access to markets. Everyone has, it used to be access. It used to come to the bank, we had access to special products. That is not the play anymore. So it's going to be about personalization at the smaller end of the market. You can do that manually and that can be a high touch, personalized endeavor that is allowed the mom and pop shops, the smaller RIAs at the large size of the market. We need to compete at that level as well. So that is why personalization is key. Once you truly unlock personalization, and we'll talk about what that means, it's just you end up with a bunch of buttons including the button that I just mentioned.

(10:32)

So now your finances are essentially three dimensional. We go from risk and return to a queue. You now have all these other factors. Where do I work? Where does my spouse work? My spouse is considering changing careers from finance to biotech. How should my portfolio change? I have a new tax situation, I am having a child. So none of you should be holding the same portfolio as based. You shouldn't hold the same S&P 500 as the next person if you have all these different situations. I am not giving financial advice, by the way. I am saying that everybody is different, and so people should not be holding the same thing. Everyone's off the efficient frontier here because you are all different situations. But traditionally the industry has been product push and the last mile, the new frontier where we can unlock more value for clients, real value for clients while increasing retention.

(11:20)

Those relationships is personalization at scale. So how do we do that? It's actually a huge tech bill. It's a huge rewiring, a ripping up of the value chain of a lot of technology systems and delivering a whole new seamless integrated platform, kind of something the last speaker was alluding to, but it's very difficult to do and it's even more difficult the bigger you are. So I am talking about the ability to tweak and reoptimize holdings at the security level across asset classes in an integrated way with your financial planning and integrated with user interfaces for advisors and clients changing as your life situation changes over time. And then all reflected in your now personalized reporting. It's hard enough to get good static reporting out now has to be personalized reporting on a digital interface that is changing all the time based on your personal portfolio. That is what I mean by a rewiring of the system that is the platform of the future.

(12:22)

It's the holy grail. Everyone's racing there racing. We know our industry, we are racing there at our own speeds, but it's where things have to go because technology allows it. It's increasingly technology is making that possible. There's nowhere else to compete. And the bigger you are, the more important retention is. And so that knowing the client and reflecting that in all of their assets and their journey makes the platform more sticky. So that is the game. So sustainable investing, values-based investing is one way to get there. It's just a very, I would say a very sexy set of use cases to deliver on that. So I experienced this. We built now a mini platform of the future really based around, well, for people like me that really care about stuff, idealists want it reflected. What I mean is if you can deliver for someone who has particular views on the environment society, and it's the class like millennial, they want a great digital experience.

(13:28)

They have very particular views on different issues. Maybe they watch a documentary next week and they change their mind. So they need to change that. They actually want to engage in some proxy votes. Not all of them of course, but some of them. If you can deliver on that, you have delivered the platform of the future. But it's a virtuous cycle because also if you deliver, like I said, a platform of the future where all of that is easy, then everybody will do it. So it's a much better business model in my experience. Rather than start with this very niche of the niche, typically very progressive people who are tech forward and want all those capabilities I just described and try to build a whole modern platform to support that. It's a lot better to start on the incumbent side where broader personalization is the future and the value proposition.

(14:17)

And then once you do that, 90% of people will start reflecting in their values and what they do, and that will get you the middle of the bell curve adopting ESG or whatever you want to call it. So I know that is a little, I knew this would be the most convoluted part of my talk. There's a virtuous cycle between true values-based investing, implementation, building a platform of the future, and then in turn driving uptake of values-based investing. So values requires a modern platform. Modern platform will drive adoption of values because comes becomes three dimensional. So anyway, so who's going to do all this? Who's going to build all of these new tools? Who's going to execute on personalization in the future? Well, traditionally, I think for many the answer would've been, well, it's going to be fintechs, right? Because they out execute, they build stuff way faster, they build cool things.

(15:13)

And traditionally that is true. And here, let me see if I can actually use a slide or two. Oh, there we go. That is what I wanted. Okay, that is true. The market's changing a little bit, so it's a little less hot to be in FinTech. So we could see what was happening up until early 2021 and now there is a real compression in the FinTech space, less access to capital, less bullishness. And we'll come back to why this matters in a moment. Meanwhile, banks have become more stable. So let me, what about this? So I learned something actually during the recent bank runs on some of the regional banks, which was that every, at least where I come from out in Silicon Valley, there was a period of time during that FinTech rise where it was like we are going to tear down Wall Street and we are going to rebuild it better.

(16:12)

And it kind of came out of the financial crisis, this mentality about banks and that we can build a new thing better. But when the proverbial crap hits the fan, you suddenly realize that there is a stability in 200 year old institutions with the largest balance sheets in the world, and there is this flight to quality. And at the end of the day, there is a reason that banks exist, and frankly, the United States is never going to hand over the financial system to a bunch of fintechs or even to Google, apple, Amazon, or wherever you think might launch banking as a service embedded that banks are here to stay. They're more stable than ever, they're getting bigger than that, but there are strengths and weaknesses to both fintechs and banks. So I want to talk about that and talk about how it's changing, and this is going to lead into my point on collaboration.

(17:05)

So fintechs, they can execute quickly, they can move fast. They're living in a voracious market environment. Do or die ex wake up every day, do a standup with your team. What are we executing on at the end of the day? What did we deliver? It's never going to recreate that in a big institution, but they're typically executing on very narrow use cases. The biggest benefit that a large institution has is the accumulated number of users and more than any other tech sector I have been in, the startups don't live or die based on better products. The road is littered with gravestones of fintechs who built better mousetraps. You live or die based on your go-to market, your marketing and your sales team, which is a really painful place for founders because it's not their core competency. It feels very random, did I bump into the right person at the conference?

(18:00)

Oh, now we have a partnership that saves the company and brings us our next, gets the VCs, the back us in the next round. It's noisy and it's really, really dangerous. And so there is, again, there is a benefit with the large institutions, the banks having and incumbents having all of this accumulated user base, which is very sticky. We talked about retention numbers and then you have the execution abilities of the fintechs. Well, this is where I want to talk about AI a little bit, and I think what's happening is there was a balance there, and now AI is going to start pushing on those scales slightly in favor of the larger players. So we are in the midst of a new paradigm shift and each paradigm shift creates new shapes and forces in the market. And AI I think was pushed on this scale in financial technology, and there is three reasons why.

(18:52)

One is that the advantage is shifting slightly from speed of execution to accumulated proprietary data sets. So whoever has the largest amount of data and especially proprietary data, is better able to train models to provide value to users. That is number one. Number two is scope. So again, fintechs are very good at delivering on a very set of narrow use cases with fast loops with users to give them the best experience at a free trading app or whatever, name your particular narrow range. But when you start to be able to have an AI assistant who can execute actions on your behalf, a lot of the value comes from scope. The fact that I could be an investor but then want something to pull in some part, Hey, go pull cash from my banking account and top me up on my investment account. I am just making up examples and voting those proxies and then move some money into my charitable giving account.

(19:49)

Thank you very much. So having that range, having the scope of a larger institution becomes very valuable. The third thing is on execution, so it becomes a little easier in theory, we'll see how it plays out to execute faster. When you have AI that can write code on the fly, we might be moving into a world where you don't have any apps on your phone. Why would you need an app when AI could just write the software for you in seconds, depending on whatever your need is, you end up with one interface. And so this matters to me a lot. I am in a large institution right now. Large institutions are giant matrices, and the metaphor I use in my head is imagine a large bank as like a thousand piece Rubik's cube and the whole goal of the institution, our strength and our weaknesses are size.

(20:36)

The mantra is we deliver the bank, we deliver the institution to the client, we give you that full range of scope, but in practice, it's almost impossible to solve the Rubik's cube and deliver the value of the full institution. In any given client institu client situation, you could be working with a client. The client is really interested in solar investing. I'll keep using sustainability examples, investing in solar infrastructure, but you are, you are not going to have any idea that the investment bank is currently talking to a new prospect looking for capital, who's doing something really innovative in solar infrastructure. That is a completely different part of the institution. So you are never going to be able to solve this giant Rubik's cube on the fly for clients. The opportunity with AI is, well, you don't have to solve it anymore. It can just pull the red squares and pop them up as needed for the client.

(21:24)

So it helps unlock this hairball that is delivery for clients and speeds up our ability to deliver value, deliver the scope and the data and the value of a large form to clients and doing it faster, doing it on the fly. Another example would be reports. So we can all, at a big institution, you can fight through roadmaps for years, deliver a new version of a type of a new PDF report to clients. But does that really matter so much when a client in the future can just say, okay, give me a report on these five factors for the last four months in the style of Van Gogh, I have medium financial literacy. Thanks, boom. Right? So again, those roadmaps, the matrix roadmaps, if you guys aren't in big institutions, you don't feel this, but I feel it, Neil, those matrix roadmaps and bureaucracy don't matter as much in the age of AI, but the flywheel of success in AI is still requires execution for the foreseeable future.

(22:24)

It's the flywheel between data and then product feature delivery. So it's leveraging large amounts of data, delivering new features to the market, getting more users as a result, and then from those users you have more data and then delivering again, that is the flywheel of success in the AI economy for the foreseeable future until AI's writing all of your software and the execution is still a challenge. And we are moving, I would say over the past decade or so, large financial institutions increasingly recognized the value of technology, their slowness of delivering it and the opportunities that come in within the FinTech world. Got a slide for that.

(23:06)

It's a fun one. So there becomes a real opportunity for partnerships with startups who've automated workflows who can deliver on AI, and it becomes a real desire from startups increasingly, I think, to work with large institutions because of their data sets. And that I think is going to be the incubator of a lot of innovation that we see in the future is those points of collaboration. It is increasingly dangerous as a startup, it was already dangerous. It's increasingly dangerous to go it alone. Capital is constrained. It was already a terrible rollercoaster in the good times. It's really rough. Now you don't have the data or you can work with a large institution that has the users, has the data, has instant access. We have, in theory, we have access now at JP Morgan to more than half of all American households ready to go as soon as we build these new features and new solutions.

(24:03)

That is a great experience as a founder and an entrepreneur versus being out there on the FinTech rollercoaster in a down market. So then the challenge becomes for institutions, how do we actually work together effectively with startups, with startup culture? How do we create fertile ground for innovation given the regulatory environments that we operate under? This may seem esoteric. It's actually like the challenge of our age. If you believe that this site, this intersection is the place of innovation in FinTech in the coming five, 10 years, then the challenge of our age is actually creating controls environments that allow innovation while startups have access to bank user data. That is a very, very difficult problem to solve as far as I know. No, no incumbent has figured that out yet. But if we get it, if we figure it out, it's a grand slam. And again, in the meantime, for those looking to hang up their own shingle, there is still great opportunity to do all this personalization manually on your own.

(25:12)

But over time, I think that it gets challenged in the middle of the market and at the high end of the market, it becomes about automating the personalization and putting more and more data at advisors and clients fingertips. So that is all pretty theoretical. I know, but I'll happy to answer questions on it. And in the meantime, let me just recap my main three points. So personalization is the future. You can name quibble about specific use cases in AI. I think most of it's unknown. This is all very new. This started in what November, but that is the biggest area of value in our industry because there is just nowhere else to go. And the second is if you are an ESG skeptic, that is fine. I am an ESG skeptic too. I think it's niche, niche within the current paradigm, but the whole paradigm is changing. Finance is going to become three dimensional because tech will allow it. And then if everyone will be raising your hands just like you did, and the third area is that you are going to see more and more collaboration between banks and fintechs leveraging big data and AI to deliver on these opportunities to the market. So it, I am happy to take any questions if there is time. I don't know where we are, but yeah, you are the question guy.

Audience Member 1 (26:31):

So I have a FinTech startup pretty early on in the game, and it seems to me I might just be probably ahead from lack knowledge, but it's kind of like a chicken and an egg problem where the best route is to go to big businesses for your product to survive, but also if they want to see adoption.

Josh Levin (26:49):

Yeah, this is So, yeah, it took me too long to figure that out. So I was in charge of strategy and business development. That is right, because the real value for most fintechs is actually unlocked on a legacy platform. Again, like I was saying, it's almost impossible to attract users at scale. And so I'll just use our case. We built all of these awesome tools that add values, add value to clients. Any one of them is hardly sufficient, was hardly sufficient for us to go rip away a user from another provider or brokerage and bring them to us. But if you had existing users, it was very valuable in terms of retention and engagement. Once we had a client, their login rates are way in the stratosphere compared to the industry. So we could demonstrate all that, but it's very hard to demonstrate user traction. So traditionally, and certain startups, very rarely, and I would say it's often legalized gambling, figure out how to craft the go-to market on their own.

(28:02)

But generally it's through leverage distribution. So it is getting those partnerships, but then the partners want to know, they want to see traction as do the VC. So this is your chicken egg, I am reiterating it. But the main goal of the traction, whether they realize it or not, is to prove to themselves that you have built a good product. It proves that there is demand in the market for what you are doing. So I don't know a better answer, but by hook or by crook, you need to get enough numbers to show that. But I would recommend having someone in your team who is able to work the larger partnerships and then we can talk more about it. But then the key is really nailing down early how it's going to create value for those partners within their existing strategic goals. But I am happy to talk to you about that. I have worked because exactly what I did and the problems I had to solve. Yeah.

Audience Member 2 (28:58):

Two years in since the acquisition.

Josh Levin (29:00):

Yeah.

Audience Member 2 (29:02):

Can you just share a success working? You spent a lot of time speaking about these large organizations.

Josh Levin (29:12):

Sure.

Audience Member 2 (29:12):

You have a very interesting story. I tell you, if you were able to share a success of integration so.

Josh Levin (29:21):

Sure. One of the first things we have rolled out is this, I mentioned impact reporting, so rolling that out on some of the current products, and we started with the sustainability oriented products, but to deliver those kinds of tangible metrics to clients, people get very excited about it. People love it. Advisors love it, tells a much better story than nobody wants to hear that your eCore went from triple C to double B on one of your. So it's bringing those things to life and that it is the tip of the iceberg. There's so much, we have about eight different work streams of things that we are working on. Things do go slow at larger institutions. It's a trade off for scale. That is the idea. But yeah, we have already started rolling out, let's say pilots within certain areas like reporting.

Audience Member 2 (30:14):

For anybody or is your first?

Josh Levin (30:19):

For people who hold those products, which is up and down the line in terms of different parts of the bank. Different account sizes. Yeah. And more to come. More to come. Yep. It's a trade off. If you want to be able to ring the bell every Friday with a hot real feature release, then that is a different story. But yeah.

Audience Member 3 (30:49):

I have a question regarding, you mentioned the partnership is feedback. Basically you can utilize feedback data that startup may have the technology. Yeah, so my question that the big, that have their own researching and also kind of innovation team actually. So startup also somehow in terms, so my question that angle, the best way to pitching big about their proprietary technology from a start up perspective, because there probably will be interest the big in start the conversation.

Josh Levin (31:37):

Yeah, I really can. I should spend could probably spend a lifetime reflecting on, again, this may to may seem as stare questions, but this is the stuff that kept me up all night when our startup hinged on new partnerships and revenues and how do we get getting to close? Are you in some kind of, are you pitching large players?

Audience Member 3 (32:01):

We just start Not yet, but think about that.

Josh Levin (32:04):

Oh, okay. Yeah. There's a saying we got from one of our VCs or board members that startups don't die from asphyxiation, they die from drowning. So every institution will happily talk to you and they're innovation people, they're whatever, and they'll talk to you forever. You can have meetings forever and they're not doing it on purpose. They're genuinely interested in what you are doing. But they'll bleed you out because take all of you inadvertently, it'll take all of your time. And so you need to be, but you still need to do it, but you need to narrow in as quickly as possible on who's got the juice, who can actually close things and move things to the next level. What's the actual value proposition? And I don't know a generic answer. I know in my specific case, I think the thing I was too slow to realize was you can't go for the jugular.

(32:53)

So we were pitching like an AUM model. We wanted basis points and because that is the best business model and we had built a machine that did it well independently. So we were saying, let us come do it for you, but you are now trying to take away some of the core business. Whereas I think it would've been faster to pitch a smaller side wedge and then expand from there. So hey, you have this workflow over here. Ideally a cost cutting workflow would've been is the best, especially in this environment. You have got this workflow over here, we are super fast and light and easy to deliver on this and maybe some, there is a promise of something larger. We are a part of this overall paradigm, but we can accelerate this thing. So it would be easier if you want to talk and get about your startup and get into the nuance of it.

(33:46)

But finding a wedge that solves a critical problem without being threatening is probably your easiest foot in the door. And then you can expand from there. It's a little hard to say because in the end, our core capabilities, you can end up getting acquired because the jugular thing, because it's a thing and if they want it, but they don't want competitors to have it then. But I still think it would be faster to find cleaner, lighter workflows to work with institutions more. Partly the bigger, more abstract your pitch is, the more multi-headed and the more it's hitting the core business model. It's just leads to that bleed out scenario without closing. Yeah. Cool. Alright, well I think we are at time, but I am happy to talk to anybody else afterward and hopefully this wasn't, I think there is some specific folks in the audience where there is relevancy, but hopefully it's helpful for everybody. Great. I enjoyed getting to talk with you guys. Yeah, thank you.

Audience Member 3 (34:46):

This was fascinating. Thank you guys.