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this week on the podcast yet another extra special guest jason wenk is founder and ceo of altruist a new artificial intelligence driven custodian challenging a lot of the legacy entities like fidelity and schwab that are stuck with all of their old hardware and software i thought the conversation was fascinating and i think you will also with no further ado my interview of Jason Wank. Jason Wank's welcome to Bloomberg. My pleasure. Such a great intro. So I'm fascinated by the through line of your career. You are constantly focusing on creating lower-cost, tech-enabled financial advice, but I'm going to put a pin in that and come back. I've got to start with your background. You studied computer science at Grand Valley State University. What was the original career plan? Was it technology and computers or finance?

Yeah, yeah. So I'd never taken a finance class. I'd never met anybody who had money. My family never owned any stocks or mutual funds um i didn't know what an ira was uh or even a 401k for that matter um and uh but i grew up in the you know 80s and 90s so i remember getting our first personal computer in the mid 90s uh you know internet started to pick up a little bit of speed in the late 90s uh and that was my dream was to go to silicon valley work at a.com um yeah you probably I recall the market peaked out around 1999 and then, you know, a pretty major crash ensued. So, you know, very accidentally did an internship at Morgan Stanley at 19 years old. I was a bit of an odd duck in that I took a lot of college classes when I was in high school. So I was already taking doing internships, you know, my first year of university. And, yeah, I was presented an opportunity to move here to New York and to join Morgan Stanley. and that was really my crash course in finance. And you were 19 or 20? 19 as an intern and officially joined at age 20.

So what drew you to financial services instead of technology? Was it simply the dot-com implosion and there was no jobs to be had in technology?

Yeah, I was still working in technology. So my role, the internship was like productivity software, but again, this happened before for Big Investment Bank. And then I spent about two years building different types of technology, like within the Morgan Stanley ecosystem. By the time I joined, they were Morgan Stanley, Dean Witter. So they had this kind of big retail wealth business. They also had like prop trading and a number of other divisions too. So I didn't really get too involved into personal wealth until kind of the latter, maybe the last six months I was there. I was put on a project. We're doing a lot of work with Morningstar, which back then they were still sending out CD-ROMs to branches around the country. And so, you know, if you had a big branch, it'd be hard, who had the CD, Ramya? So we were just building networked versions.

of essentially the Morningstar database. But I remember around that time, I was doing some pre-built prompts inside of these research platforms. And again, the way my mind worked, which was more around math, physics, computer science, I looked at these prompts and I thought, these are terrible prompts. In other words, the prompt would be, let's build a screen so that financial advisors can easily build a portfolio. And the screen will be something like, find funds that have been around for five years with turnover under 100 percent with the same manager for you know for the five years or longer that's in the top quartile of their peer group and it was when you like on the surface you go well you know that seems like pretty reasonable and fair but that's as like uh that is no prediction of the future result like i mean there's like that is a terrible uh predictor of future outcomes but it was sort of built as as though it was a good prediction.

Well, you have the data. Past performance is right there. We have to do something with it. I give Morningstar credit. They had an internal survey that more or less said, hey, don't worry about the stars. The data shows if you just buy the least expensive fund, that's the one most likely to give you the highest level of performance. And to their credit, they published that. I want to say that was like 2011 or 2012. Really fascinating. So you never really worked, rotated through the department where you're smiling and dialing? Did you ever work as a broker?

So I got licensed. I took the Series 7, Series 8, Series 24, Series 30, like all the classic licenses. Series 24?

You want to be supervised? Yeah, yeah.

I'm not sure why I also, like a registered options principal, like why I did that, I have no idea. Managed futures, like again, not sure why I did that. But yeah, I did all of the research to understand the space. Um, and I, I did go through the broker training program, sort of 2021. Um, and part of it was cause I wanted to move back to the Midwest. 21? Or excuse me, uh, 2001. Yeah. Yeah. A little bit of a mistake there. Yeah. Um, and you know, I think the, I had this like romantic notion of like going back home and, you know, helping people that I knew through the reality was nobody I knew had any money, you know? So like that wasn't really going to work anyway. And really before I even got started, I made the decision to leave and go start another business. I'm kind of in the space but adjacent. I didn't do direct work with clients.

So let's talk about that. What was the first thing that you noticed in financial advice that led you to say, hey, this is broken, and I think I could use technology to build something better?

Yeah, I mean, so two things in particular. I mean, one was around that time, there was a transition from commission-based sort of sales brokers, if you will, and there was a transition to more fee-oriented financial planners. And for me, that really resonated. So I think this notion of, hey, can you give people more comprehensive planning advice? And be a fiduciary. Yeah, and also, I mean, look, I looked realistically at the way asset management worked. And I thought the, you know, I very much agreed with the Morningstar study that, you know, they published, he said, some 10 years later. You know, a lot of this, you know, I'd say goes all the way back to Jack Bogle's work. But I just, you know, looking at, you know, a couple of years worth of research around asset management, I didn't see a discernible benefit to stock picking or market timing. You know, again, high costs, high turnover, high taxes, like these things all eroded wealth. Um, so part of me thought, well, is there a way that you can, uh, just get more people access to, uh, empirically sort of evidence-based investing? Maybe that's will help people do better. Um, the other part was accessibility. Again, I grew up like in a farming town. Really, there were no brokers. There were no, uh, bank advisors. There were no Edward Jones offices. Like there was really no access to advice. And I could see the direction the internet was taking us to really flattening the world. Like everybody should be able to find advice and help through the internet. So really the first business was, from an accessibility perspective, it was going to be internet-based. It was a subscription service, and it was designed for people with 401ks because when I looked at the people I knew, that was about the closest thing they had to Wall Street, to a brokerage account was their defined contribution plan. And so the idea was, let's make it easy for people that have a 401k plan to get the absolute best results they can from their 401k. And I spent about almost three years building that business.

This is Retirement Wealth Advisors?

This is the one that doesn't exist on my LinkedIn profile.

This is before that.

Oh, yeah, yeah, yeah. I spent from 2021 until 2024 effectively building a 401k subscription. business 2001 to 2001 yeah gosh it shows how old i am very i have my decades it only gets worse the dates the names just trends in one direction yeah yeah yeah so 2001 till 2004 um and it was honestly like uh when i look back at it um it was just kind of like maybe a little bit too early uh this was like pre-robo-advisor pre-blogging like pre a lot of things that you know just got

more people connected but there's just starting yeah we went from geo cities like type pad yeah

you were a real uh trailblazer in that yeah uh yeah it was compulsion i had no choice so i look the the uh pay-per-click advertising was just coming out so you had things like overture which was like kind of pre-yahoo pre-google but you could buy the keyword for something like a phrase like how to manage my 401k for a penny right and you could be the top ranked you know search people then land on my website which was called smarter than wall street back then and uh yeah and it would allow you to say i work at general motors answer a few questions and it would say here's how to allocate your 401k they'd get an email once a month if there was anything they should do differently of course the emails never said that i should ever do anything differently. And after about a year, you know, I started, I built a pretty good size subscription business, but I started to have some churn because people are like, why am I paying you every month to just send an email that says the same thing as the email the month before. And eventually I started asking people, well, what would be more valuable? Sort of like a churn survey, if you will. And people would say, look, if you would just do this for me, I'd pay you a lot more than 20 bucks a month. And like, that was really the genesis to retirement wealth. You know, And that's even why it was called Retirement Wealth, because a lot of these 401k folks were retirement folks.

And that scaled up pretty rapidly. Was that the $4 billion advisory shop, or where did that go?

Yeah, so I ended up going to about $1.1 or $1.2 billion in assets. Yeah, it grew really fast. I started it in November, December of 2004 was when I got my registration. Ran that for about six years, roughly.

A billion in AUM is not insubstantial. That puts you into a category of... Especially back then. Yeah, no. Inflation adjusted, we're probably talking about $3 billion today. But that's real revenue. That's real clients. What made you say, all right, I've kind of done this. Now let's look at formula folios.

Yeah, so I was always driven probably more by impact than by the size of assets or revenue. that company was bootstrapped. I built every single thing myself, wrote all of the code. Although the name was Retirement Wealth, it was a fairly tech-forward platform. I built my own proposal systems to help really analyze a portfolio and then propose a new solution, digitize a lot of onboarding to really automate getting new clients onboarded. It was mostly virtual, so it was also before its time in the sense that it was built mostly from blogging, you know, back in like the 2006 to 10 era. So, you know, it was a lot of things it was doing well before its time. And what ended up happening really the catalyst to moving into the next business was I was invited to speak at TD Ameritrade's national conference. They were my custodian at the time. I loved the people there. They saw the unusual growth and also that I was still in my 20s and they thought, hey, we'd love to have you come speak and share a bit how you're doing what you're doing. So I went to San Diego. I gave a session where I just said, hey, here's how I'm getting new clients. I'm writing these blog posts. Here's the framework, how I do it. Here's how I take these people then through from a stranger from the internet into a defined financial planning process and then a defined portfolio. And it was so structured that I could then train other advisors. And so I hired a few other advisors. They came out and they could then run the process. And so that was the content. And at that time, a bunch of other advisors, you know, I'd say hundreds of other advisors started to reach out inbound. Hey, how can I get access to your system? They would kind of call it. And the reality was like, I didn't want to hire 50 financial planners. I've always been a bit reclusive. So I didn't, you know, I didn't want to.

You don't want to manage 50 people, but selling them the software is a fair relationship.

That seemed a lot better, right? So, yeah, so just the idea with Spawn, hey, maybe it makes more sense to license the software, make it easier for people to run their own business, but leveraging a lot of our technology, and that was the first thing.

Was that Formula Folios?

Correct, yeah.

All right, and how big did that scale up to?

Yeah, so it went zero to four billion in five years, and today it's, I think.

14 billion or something like that so so i know that you were a programmer in college you describe yourself as a developer and a math geek you very much have a little bit of a hacker mentality how did that technical i don't want to use the word self-identity but just your self-perception how did that affect your view of here are the services that make sense for investors, for advisors, for this whole ecosystem that has been, especially in the 2000s, mostly ignored by Wall Street. It took 25 years for the fiduciary side to pass the commission-based brokerage side. So how did the technology background affect just your perception of that

market? Sure. I mean, look, I think I've always been a little bit idyllic. You name your company altruist, you probably have a, you probably have some like, uh, generally, uh, yeah, I don't like tendencies, but I, you know, I, I think, um, you know, my, I think people know me well, they would, they would say I'm, I'm a bit of a macro thinker, uh, but I don't like working in the day-to-day weeds, uh, of most things. So, uh, for me, I've always thought in decades and it wasn't hard to look at the market in the early two thousands and say, well, this is the future. Uh, even though But to your point, like the RIA fiduciary channel back in 2004 when I started my first firm, I mean, it was maybe $600 to $800 billion in assets. You know, today it's probably $10 trillion. So today it seems very obvious. But back then it was a relatively small part of the market. It was not obvious maybe to everybody. But I look at the demographics of the country and just there'll be such a huge number of people who are going to need good quality advice and planning. And that just, again, if you think in first principles, which is a very common technology metaphor, and you have no bias of like the way things had been done historically to say, well, what is the right way to do things? That just seemed like the obvious and only an objective, you know, future for this industry. And I wanted to be, you know, on the forefront of that. But so, yeah, so now, you know, some 20 plus years later, you know, the market is, you know, very obvious to a lot of people they want to build in the space. And it's the place that seems to be growing the fastest. That was crystal clear to me 20 years ago. I think a lot of that comes from just, again, that more first principle, you know, sort of Silicon Valley way of seeing the world.

Coming up, we continue our conversation with Jason Wenk, founder and CEO of Altruist, discussing how he built the firm to compete with the big guys. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. This message is brought to you by Apple Card. Sometimes life's journeys take you on the roads less traveled. That's why Apple created the Titanium Apple Card to use anywhere in the world where MasterCard is accepted. Plus, with Apple Card, you can earn unlimited daily cash back on every purchase every day, whether you're in Paris or Pulao. And no matter where you are with Apple Card, you won't pay annual fees or foreign transaction fees. No fees, period. That's the power of Apple Card. Apply in the Wallet app on iPhone and use it right away with Apple Pay.

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The thing about AI for business, it may not automatically fit the way your business works.

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You're listening to Masters in Business on Bloomberg Radio. My guest this week is Jason Wenk, founder and CEO of the new custodian Altruist. So Altruist describes itself as a modern custodian, emphasis on modern, for independent financial advisors. What does that mean in the real world? And this has always been such like a boring, you know, plumbing type of industry. What was broken that required your attention?

Yeah, well, I guess, you know, the opposite of modern is not modern, you know? So the whole rest of the industry is pretty old if you think about most of the infrastructure that's used by financial professionals. The majority of it's 50 to 70 years old.

That's amazing.

And it operates on mainframes, not cloud-native platforms. So I think the starting point is, and with no disrespect, these were innovative companies 50 years ago. They're just not that innovative today. You're saying the electric typewriter isn't cutting edge anymore? I mean, they're still fun to use, the click and the clap. They make a nice noise, right? It feels very, you know, reminds me of like my grandparents' house in the 90s or something, you know. So, look, I think getting to the problem statements, having been in this space a long time, for the longest time, I would look at the industry and go, that just doesn't make any sense. You know, why do we do it this way, right?

We've always done it that way.

Yeah, exactly, right? It doesn't mean it's the right way. um and and so some examples of that i think it's a bit crazy that if you use if you're a financial advisor wealth manager i think if someone's listening to this and they're not one of those who they'll think this is literally crazy this is the way it works but so first you have to have a custodian right and this is a place where you'll open accounts for your clients they'll safeguard your client assets to all your record keeping process your trades third party who is not managing the money and that creates um a built-in checks and balance somewhat i mean or it could be a built-in limitation keeping that advisor from doing high-quality work, right? Which is, I think, what I sort of discover as I kind of peel back the layers of the onion. But so these custodians, one would think a very simple thing they should be able to do is, let's say you have three accounts with your financial planner. You've got an IRA, maybe a Roth IRA, a joint account with your partner. And you want to know, how am I doing over the past 12 months? You'd think you could just log on to Schwab or Fidelity or Pershing or whatever, and just click a button or something, and it would tell you that. But the reality is that you cannot get that information from your custodian. The custodian will only be able to tell you what you have today. It will give you access to your statements. The statements are not bundled at the household level. And what the custodian will tell you is that if you want that type of information, you need to buy a third-party portfolio accounting software. We'll send them a daily file of all of your positions and transactions. That third party will reconcile all of that data, and it will then allow you to run reports for your clients. And you're going to have to pay, depending on the size of your firm, anywhere from tens of thousands to millions of dollars for this third-party software. And this just fundamentally makes no sense at all. The custodian has all of the data. It should easily be able to reconcile that and run reports for advisors, but they can't and they won't. And you could go down this long list of things that they should be able to do. Again, just like the logic would tell you, for example, if you want to bill a fee to your client, client signs a fee agreement says, I'm willing to pay my advisor 1%, hypothetically. And I'm willing to pay them that every quarter by calculating the average daily balance and bill me in arrears, right? Something simple. Custodian will say, that's cool. What you need to do is we'll send you the data to a third party. They can reconcile the data. You can then run a billing schema. It'll create a CSV file. You can then upload that to our system. We'll then debit those fees from the accounts, but this whole process can take days. And by the time you go to debit those fees, sometimes a client will have had a distribution in their account or a trade or something and the fees get busted. It creates an account that gets overdrawn. And like just fundamentally, again, there's hundreds of these things and you go, this makes no sense. Like why is this the way things operate? This is largely the genesis to why would you build a brand new custodian from scratch. And if you are going to build it,

In a modern way, you would probably make sure all of these things are just built in automatically.

So that raises really a fascinating observation. Altruist first came to market in 2020, was it?

We wrote the first lines of code in January of 2019, and I think we went into beta in early 2020 and then launched the product right in the heart of the pandemic in 2021.

So I remember when the firm first launched, and I remember hearing about it, and the initial reaction was, I don't want to say crickets, but kind of low-key, yeah, someone's going to disrupt these 10. We got $10 trillion. We know what we're doing custody-wise. And what started out as sort of a shrug, it didn't take very long before there was a little bit of a freakout. Like, wait a second, what's going on here? They're actually winning clients? How is this a thing? From your seat within building the company, how did you see the rest of the custodian market react to Altruist's launch and to just rolling out one new capability after another?

So there's, I wish I could remember where to properly attribute this to, but there's a great saying that is that first they ignore you, then they laugh at you, then you win. So it's not surprising when somebody has a big, bold declaration, they're going to change an industry and make it better. However, if you're, you know, effectively like a duopoly or oligopoly as our industry was, you know, almost all the assets were held by, at the time, three custodians. Back then it was Schwab, Fidelity, and TD Ameritrade. TD Ameritrade, shortly after we launched, was acquired by Schwab, really making the power dynamic like two companies that have 80 plus percent market share. So, you know, respectfully, I think, yeah, like there's going to be a natural rent seeking, you know, sort of mentality from those people who are the dominant players. Why would they ever want there to be any change? You know, why would they want to change their cost structure? Why would they want to modernize their systems? Like things were great, you know, for those companies. So I'm not surprised that some folks may have been dismissive, but advisors never were. Like when we first started putting prototypes out into the public and sharing our vision, we had thousands of advisors that signed up for our wait list, hundreds that decided to become design partners, like very early kind of design partners helped us build, you know, the platform. And, you know, we have this sort of very loyal base of users that are very loud about, you know, how happy they are with the product. And we've done this by co-creating it with the advisors. So it's not lost on me that there are literally thousands of features that you have to build to support the wealth management industry. We can't possibly know all 1,000 internally, so you need to have some awesome partners that can help shine a light on what are the most important things. So, yeah, in the end, I think we have more than caught their attention. I think now there's a fairly deep-rooted fear, actually, from a lot of the bigger players.

So you have the three big incumbents. It's a little bit of an oligopoly of Schwab, which is now Schwab TD combined, Fidelity, Pershing Bank in New York. Everybody kind of looked at them and said, there's no way we're going up against those behemoths. You're one of the first companies to say we're going to take on the custodians because their legacy platforms just can't do the things that we can do at scale. um how do you think about the challenges of going up against what is fidelity 18 trillion and schwab is 12 trillion like these are monster my bank in new york pershing is the oldest bank that's hamilton's bank literally like these are not oh i think i could disrupt nokia with a better product These are just the most entrenched, well-thought-of partners for advisors. What gave you the confidence to say, we could beat them at their own game?

Yeah, I think a big part of the confidence came from that early advisor reaction. But the truth is that these companies don't have high NPS. These aren't loved by their customers. Net promoter score. Net promoter, okay.

Yeah, we do one of the surveys every year. I know that's become super popular everywhere the past 20 years.

You don't have to look very far and wide or have too many conversations to hear wealth managers gripe about their custodians. I mean, again, I was running one of the largest. I think when I stepped down from Formula Flows at the time, it was the fact. fastest growing RIA in the history of the entire industry. You know, we were growing at 16,000%, you know, had a three-year growth rate. So it was a true rocket ship, you know, in the sense of like, you know, the RIA space. And I felt tremendous pain. My biggest pain point was my custodian, onboarding new clients. Again, they were making you download forms from a form library, populate the forms by hand, send them out via DocuSign at best, sometimes requiring wedding signatures or medallion stamp signature guarantees. Like it was literally like going backwards in time 20 years. Meanwhile, you had companies like Robinhood that you could download an app on your phone at 18 years old, have your account open in 30 seconds, fund it with a hundred dollars and buy fractional shares of Berkshire Hathaway stock commission free. I mean, it was so obvious to me that the old way that custodians been operating, they were still charging commissions using paper. This was definitely not the right way to do things. And if you started looking at the impact to clients, so what is the impact of forcing people to use whole shares? Like why would the big custodians force you to use whole shares versus fractional shares? Fractional share trading had been around for over 20 years. Well, it's just math. It's not that difficult to correct. And this is even like a hard, you know, geometric algebra, right? We're not even talking about exponential algos or anything like that. Precisely. But, you know, a lot of it is you just start kind of going, okay, like, you know, maybe this is a good tinfoil hat, you know, theory here, but I'd say, what would the benefit to them be by not enabling fractional shares? Maybe that means more cash will be in client accounts. Maybe they make half of their revenue from the cash spread, right, the net interest income on cash that sits idle in client accounts. Maybe it also forces you, if you do want to use fractional shares, the only vehicle you can use that trades in fractional shares, in other words, you can do notional dollar-based buying, are mutual funds. And these mutual funds pay tremendous fees for distribution through these brokerage platforms. What if they are not allowing fractional shares because they really don't want to disintermediate packaged products in general, right? So make things like direct securities more accessible to more people. I mean, I just went down this rabbit hole, but the end result is it costs investors a ton of money. You end up limiting the amount of tax benefits. You end up increasing the average client account size. So if you really want to have great efficacy kind of investment outcomes, you'd have to have tens of millions of dollars. And if you had fractional shares as just one example, all of a sudden, you know, a ton of that entrenched, you know, kind of history goes away completely.

Everybody can get access to the same type of investment strategies, individually managed accounts, lot-level tax trading so you can get the best possible after-tax outcomes. You can compress cash down to the lowest amount so you're reducing cash drag. This increases outcomes. So I think in the end, if you put yourself on the right side of the client and you have time on your side, you will absolutely win. I think one of the best examples of that in our industry is Vanguard. like what they did, they were laughed at. For decades. A long time, you know, and they didn't even really reach massive scale for 25, 30 years into their journey. But I think, again, if you just put yourself on the right side of the client, the end client, hey, we're going to do things that objectively and obviously produce better outcomes on an after fee, after tax, after cash drag basis, we're going to provide delightful experiences with a true partnership with our advisor clients. These things will work. And again, I think you have to have a certain amount of craziness. One of our early investors, you might know, Omani Carson, formerly known as Ron Carson.

I was going to say, Omani is his post-retirement name.

And I love him dearly. But I remember I met him very early in building Altruist. And we met for coffee in Venice, California, where the company was started. And Omani looks at me after I explain the company. And he's like, that's the, and, uh, you know, pardon my French, everybody's like, uh, you know, this is the craziest effing idea I've ever heard. I'm in like, how do I give you part? I think there's a certain number of people who just like, we've been doing this a long time. You eventually become numb to the status quo. The status quo was totally shitty, right? It was not good for anybody.

Right.

Um, and so, except for the custodians themselves. There was one party that really was happy with the status quo. Right. Um, and so I think as soon as we shed a little bit of light now, there's a ton of challenges you have to overcome. But again, there's no doubt in my mind this is going to work when I started.

You mentioned Robin Hood and zero commission, which I want to say was 2014 or 2015. And then Schwab rolled out, you know, commission free trading in 2019. What did that shift in cost structure do to the relationship between investors and custodians, advisors and custodians? Did that change the way

everybody looked at this? Or was this just, okay, I guess this is an even lower margin business?

Yes, I think that's a huge misconception. So what's interesting is that I wrote this piece in 2018. And we had one of our designers kind of draw an infographic kind of behind it. And it was the classic sort of tip of the iceberg where we showed what you see above the waterline and then

what exists below the waterline. I just did one of those two weeks ago. Great metaphor, you know? It really is just so perfect to like, hey, here's what you're focusing on, but you got to look at

the things that matter even more. So we did this for custodians, right? And the thing people saw was the commission. So there was this belief, and advisors even didn't know the facts. They would go to clients and say, hey, when you work with us and our independent third-party custodian, here's how they get paid they get paid seven dollars if you do a trade it's a pretty cheap

what about spreads what about payment for order flow correct i mean the big money is the commission

is just a break even 100 right if you look at the big public companies that were in the space they were making maybe five to ten percent of the revenue is from uh from transactions and commissions were maybe half of the transaction revenue right before we get to the float which everybody loves So there's a ton of things that had, I'd say, historically been ignored or unknown. The biggest revelation when everybody went commission free was people started asking the question, well, how the heck do you make money? Like, how does this business actually work if you're giving away everything for free? Only then did people start to go, oh, wait a minute. Like, that wasn't even how you made money. That was literally like just a complete smoke and mirrors way to fool me into believing You only made $7 to trade when the reality was all of the real money was made by paying me 0.01% interest on my idle cash, making me trade whole shares, which makes me have more cash in my account than I really should, making me buy these different funds that all have a bunch of conflicts of interest through all of their various forms of 12B1 and 15C3 revenue sharing agreements. I mean, like, just like very esoteric stuff that very few people ever talk about. And to your point on float and liquidity through PFOF, payment for order flow, I mean, it just, it really opened everyone's eyes into the fact that the clearing and custody business turns out it wasn't a high scale, low margin business at all. In fact, it was a very high margin business, and that was just one kind of irrelevant piece that confused people into believing that was the full price of admission.

I recall a couple of years ago, it was after Schwab went free commission, zero commission, free trading. I don't remember if it was TD or Schwab that one of the public companies in quarterly earnings, 57% of their gross came from the float, came from what they got paid. The difference between what they were paying investors, .0, whatever, and the actual rate that they could generate internally. How does altruists deal with that?

So I think the key is doing whatever you're doing transparently and whenever you can, giving as much of the economics to the client. So I'm a big believer in the flywheel kind of made popular by Good to Great, one of my favorite books. And our flywheel is that the first spoke is invest in innovation that drives better outcomes for advisors. The second is invest innovation that drives better outcomes for end consumers, the end client. If we do those two things, it will drive the highest satisfaction amongst our user base. This will increase the amount of assets on our platform, which gives us the scale to invest more in innovation, right? So which drives better outcomes for advisors, better outcomes for clients. um you if you're going to do that there's uh there you have to earn revenue like of course um but in our case we built a very integrated wealth platform so yes we have custody and clearing revenue we make money on net interest income the float uh if you will um we make some revenue on payment for order flow but we built what's called the wheel wheel order routing system it's 100 optimized to drive the best possible execution for every single client transaction If we happen to get a better execution through Citadel or Jane Street or whomever, we might make a tiny amount, like literally measured in fractions of basis points, mills. It's the lowest amount of revenue we earn, but there is something there. We do earn money, again, on float, but we offer fractional shares. So we have the lowest cash holdings in the entire industry. People can hold virtually nothing. We also have...

some earnings from things like mutual funds, but we have the lowest amount of mutual funds in the entire industry because we offer fractional shares. So people can buy ETFs, they can buy individual securities. So we have very, very little in way of rev share through fund companies. But there's definitely money that is made at that clearing layer where we've really innovated is that we also do all of the software layer, you know, for advisors, we offer an asset management layer for advisors. So each kind of component of the altruist business is generally going to be 60 to 80% cheaper than if these things were bought individually. So you may recall when I shared the story about how you go to a custodian and say, why can't you do my fee billing? That makes no sense. You have to buy a third-party software. We built all of these things natively, and most of them are either free or very low cost because we have this sort of benefit, if you will, of stacking the various forms of services that advisors and their clients need. On a modern platform. Correct. And we do it with, I'd say, fairly insane amounts of automation. So the the kind of knock I made on using PDFs. Like, there's no PDFs necessary at Altru.

You're not exporting CSVs and then having to upload it to Claude to get an ROI on your quarter or year?

100%, yeah. You can open an entire family's accounts, do all of their account transfers, link all their bank accounts, do the whole thing in under two minutes. The accounts are being real-time validated. The transfers are being real-time validated. 98 plus percent of these workflows. There's no human being ever involved in them. So every time we build a new innovation or automation, we're able to operate with a much higher amount of operating leverage than anyone else in the industry. This allows us to invest back into more innovation, which allows us to offer more services at lower price points. So look, we earn revenue just like everyone else does. I think one interesting tidbit we don't talk a lot about, but it's the fact that on the aggregate, Altruist earns more revenue than I believe any other RA custodian on a per dollar basis, meaning per dollar on our platform, we earn more revenue than the big players. And it's not because we charge more. In fact, we have the lowest fee schedule in the entire industry. But it's because we do more for those advisors than just provide custody and clearing. We're offering software and services, AI products, asset management services, automations around things like tax management and tax loss harvesting. So because people use more surface area. We end up having, again, more and more diverse revenue as a business, and we have much better operating leverage because we have so much automation that we don't have to hire a lot of people to actually offer this at scale. So these are a lot of the benefits to modern, right? You do it this way in this day and age, you're not going to build the same way you

would if you did it 50 years ago. You're earning more revenue as the custodian per dollar on the platform, yet at the same time, the advisor is paying less costs per dollar on the platform. Of course, they're not working with five or 10 third-party add-ons. It's just one turnkey solution.

Correct. Yeah, it's material. And consumers, if using the platform correctly, are getting better results as well. So because they don't have things like cash drag, because they can be more fully invested because they can reduce the need for third-party investment products. They can hold securities directly on the platform, reducing expense ratios. Because we have automation around tax management, they can drive down the tax consequences of investing materially. So again, it's one of these things where it almost sounds too good to be true, right? But like, yes, advisors should be able to run more efficient, better businesses. We can have a great business and consumers can win, too. That is very much a real possibility. There doesn't have to be a loser. It's a win-win.

Let's talk about AI and automation and your platform, Hazel. I know my team loves it. Everybody is super, super positive about it. Is Hazel a standalone AI bet? Is it part of the long-term vision? Is it planning and custodyship and other services as one seamless workflow on a single platform. Tell us all about Hazel.

Yeah. So the basic thought, so first to answer your question, it's very tightly integrated with Altruist, but it's available totally separate. So really any wealth manager can use it. We have people using it all over the world in many different industries. So we have large CPA firms that are using Hazel and obviously large financial advisory firms. So part of the thinking here is that the altruist business will eventually be a very large scaled business with trillions of dollars in assets, but the total size of our industry is going to be tenfold that, right? So we don't want to limit the power of AI to just the whatever percentage of market share that altruist has. We want everybody to benefit from these innovations. And so the things that Thank you.

really cool with Hazel is that, again, it can be used by any financial advisor or really a lot of different segments of financial services. It's been a ton of fun to build. And a lot of what we're doing is just taking the hardest, most laborious, non-glamorous, but important work that used to really be hard to get if you didn't have tens of millions of dollars. And we're just bringing the unit cost down to like $3 to $5. So you can do like incredibly complex tax planning and do it for, again, effectively like a dollar to five dollars. This makes it accessible to everybody. And AI, you know, people have their fears about, you know, what could go wrong. But we like to think this is a lot of the what can go right.

Coming up, we continue our conversation with Jason Wenk, founder and CEO of Altruist, discussing how he built the firm to compete with the big guys. I'm Barry Ritholtz. You're

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I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My guest this week is Jason Wenk, founder and CEO of the new custodian Altruist. I've seen some crazy numbers as to what advisors manage. I don't want to talk about mutual funds. I want to talk about straight up RIAs who are your prime clients as a custodian. 10 12 20 trillion dollars just crazy numbers out there um what is the total addressable market there and how much do you know the does the oligopoly the big three have of that total market

so the approximate number is 10 trillion today uh it's about 35 000 firms these firms are roughly half are sec registered investment advisors meaning more than 100 million more than 100 million and then the other half are state registered firms that are sub 100 million some of those are just new entrants like they're just firms that are first registration they'll probably mature into the sec within a year or two um and others just you know they operate small independent you know businesses serving a loyal but small group of clients um the uh yeah the the top of the market you know i think it's um uh persian gets off

oftentimes lumped into the big three, they don't have much market share of the RIA segment. It's a bit muddy, but the reason is they support all of the big broker dealers that usually they have a companion corporate RIA. And so that's kind of how they get in here. But true standalone RIAs, 85% of the assets are with just two companies, Schwab being the largest. They're north of 50% market share and then Fidelity being the second largest. So it's your very classic Like, you know, disrupt, like if you were to just kind of say, hey, what would be the recipe for disruption? You'd say big, fast-growing market dominated by old companies using old infrastructure with generally low NPS, like low customer satisfaction. That is exactly the market that we are in today.

Really, really fascinating. So given the fact that you got to build a clean sheet custodian, you're not built on this legacy hardware that can't do all these things fast and easy. What's the biggest take up from advisors? Where are they still inefficient? Is it just paperwork and portfolio management? Is it tax? Is it compliance? Is it client service and disbursements? Like where are the biggest advantages or is it just the whole thing?

Yeah. So we break this down into two elements. So with Altruist, we have our core wealth business. This is the custody and related software to custody. We started there. It's a super big, hairy build. It just takes a long time, just hundreds of thousands of engineering hours. There's no shortcuts. Very expensive, time-consuming.

Was that a BHAG reference I heard?

Oh, absolutely. I mean, this is as big and hairy as they get, right? And there's just, again, there's no shortcuts, but that infrastructure is so critical because what it allows you to do if it's done the right way is it allows you to tackle all the other work, right? So I'll start with this work, right? The custody part, you can open accounts super fast, do all of the automation around onboarding clients. This is great, but you only onboard a client once, ideally. And so if you serve a client for 30 years, the custody part is really a pretty small part of the picture. It was a huge kind of friction point because it was oftentimes one of the first experiences that a client would have with their advisor. And if it was a bad experience, like – As it often is. Yeah, it's usually not fast. Like it's – you don't have a lot of clarity like, hey, when is my transfer going to be done? Like why did this thing get rejected? Why am I redoing this paperwork? So we solved a lot of the infrastructure. Now with our AI products, Hazel, we're tackling like the rest of the 30 years, right? So maybe there's, again, a 5% or less of a client relationship that's really connected to the custodian. You're onboarding the client. You're setting up rules around trading and rebalancing and tax management. But a lot of the work really is all of the one-to-one, hard-to-scale work. So you meet a new client. They're a prospect at this point. You need to uncover a bunch of data that they have. You need to then analyze that, build a financial plan, create a proposal. Once they agree to it, then you do that onboarding, and now you have to serve that client for decades. And there's going to be all of these life events that happen, all of these emotions that kind of these folks will live through with you. So it could be massive changes in, you know, macro conditions. It could be, you know, changes to their family, whether it's, you know, death, divorce, new children. I mean, there's so many things that happen. And advisors have to be able to react, ideally be proactive, but react to all these things and make sure your money's aligned at all times. And this is where AI is like incredibly powerful, where you can take a ton of that work that used to be heavily compromised. And compromise is interesting because every advisor, whether they want to admit it or not, historically has been making compromises for the clients. And so kind of one of two directions, like one compromise is, I want to save the world. I've got a hero complex. I'm going to take every client under the sun. If I do that, the compromise is I can't possibly give the highest level of quality care and service to every client. It's just not possible. You can't earn enough money and revenue from the lower end of your client base. The other compromise might be I am not willing to compromise in the quality and service and attention, but as a result, I can only serve 50 families. And so my minimum is going to have to be $10 million or something like that, whereas the compromises, I can't actually give my advice to as many people as I'd like to. AI is this great equalizer where we think about all the infrastructure we built on Altruist

and you then layer all of the agents that can do things like gather data for you, build financial plans, build tax plans, help you be incredibly responsive to client emails and questions, to build a level of intelligence across your client base that no human being could ever possibly attain.

So it's very easy to have, you know, incredibly precise, you know, and highly personalized, you know, perspective on every unique client that you serve. So these are the things that we're building. I mean, I think in the end, you know, the clearing and custody business will end up becoming very agentic. Like these agents will be the ones who are probably, you know, logging on, if you will. And they'll be performing functions, you know, that today humans have to log in and do. But it's a pretty exciting, you know, time to build.

Really interesting. I recall a couple of years ago, and I don't want to put words into anyone's mouth, but it was the CEO of either BlackRock or Vanguard or somebody that size was asked, what keeps you up at night? And the answer was cybersecurity and fraud. How do you make sure, and I totally understand no one wants to wake up one day and a billion dollars is missing. How do you integrate that into altruist? How do you think about the human element, you know, deep fakes and synthetic identity and voice fraud and cloning and all that stuff? What can the modern custodial platforms do that, hey, some of the big guys don't have the integration with technology to engage in this arms race against the bad guys?

I mean, I think the biggest reason they'd have that paranoia is that if you're working on a 50-year-old tech stack, and we see this with the latest anthropic model, these kind of mythos connected models where they sit on top of some legacy infrastructure and they'll find hundreds of critical vulnerabilities that no human being could have ever identified because the code base is essentially one giant monolithic code base. It's like it is just like this huge albatross that these companies have been dealing with for decades. And replatforming is really hard. If you're already big and you're scaled and you've got tens of trillions of dollars, it is nearly impossible to replatform and go from physical mainframe-based technology into a cloud-based infrastructure using smaller, more manageable microservices. So, yeah, it's a huge risk. If I was running a giant old bank or brokerage, I would have the same probably primary paranoia. If you're building today, you know, the best defense is oftentimes a strong offense. So why not just build, again, in first principles, a bunch of protocols to make it much harder for bad actors to even get in the door? And this is like overstating the obvious, but just having like modern multi-factor authentication and requirement of security keys. Even eliminating some of the highest risk, like, for example, like phone calls are a lot easier to dupe, ironically, than is a properly built multi-factor authentication program. So, you know, I think there's a lot that will change. We don't, you know, rest on, like, the fact that, oh, we're a tech company, therefore we're impenetrable. Like, of course, we get to, you know, we have bad actors trying to come after our clients all the time. And I think that if you're not building, especially AI that can help identify other AI and other bad actors, you're in a bit of a quandary. And it's really hard to do that if your core platform, again, has tens of millions of lines of code written in languages that, you know, honestly, nobody uses and hasn't used for decades. That is a major problem with financial services.

So you've raised a decent amount of venture capital money. I want to say the 2025 Series F gave you just under $2 billion valuation. I think I'm in the Series F, E, I don't remember, last year. Discuss the need for capital to build out. And we're not talking about the hyperscalers that are spending ungodly amounts of hundreds of billions of dollars. This is just a nice little startup that's taking on a couple of big entrenched companies and working off a clean sheet. What has the capital spend been like on the technology side?

Yeah, so we've raised a little over $600 million in capital over the last seven years. Yeah, I don't think we'll need any additional capital going forward. Like, we still have a lot of cash on balance sheet. You're cash flow positive now. You're actually... Our broker-dealer has been profitable for about three years.

Profitable? I wasn't even talking profitable.

I mean, just, like, at least holding your head above it. Yeah, well, look, in our industry, every broker-dealer's financial records are public, so you can go look up our balance sheet. It's not hard to find. But we still use cash on balance sheet for R&D investments to keep building more tools. But you can imagine if we backed off from our aggressive building of products and features, yeah, it wouldn't be a hard business to run standalone. loan for decades. But yeah, there's a serious cost to start a custodian. So beyond the cost of building all of the technology, there's also the regulatory requirements and the capital requirements. So when you run a brokerage business, every time you add a new client and new dollars to your platform, you have to have reserve capital on your broker-dealer. And so there's no shortcut. This is something where I tell people every now and again, And they'll ask me, like, hey, you know, what would it take for someone to compete? And I say, well, it'll take about five years and at least $250 million just to have a shot, just to have any shot in the dark of making it. That assumes, of course, you do it right and what you build is somehow substantially better than anything else in the market. And you can get enough clients to run it on. But just to give yourself a shot, it's, like, again, non-trivial. And just to pick up, because you made a comment about these sort of hyperscalers building these foundation models. I'm not so sure that when we look back in 20 years and say, okay, well, or maybe 30 years, 40 years, 50 years, but some amount of time in the future, we look back at what were the most impactful companies that made the biggest difference on society. I'm not so sure those are the ones that we'll be talking about. I think it'll be businesses like Altruist that we'll be talking about and going, wow, like they have managed to unlock trillions of dollars for consumers. And that is not something that any of us can be convinced is possible with foundation models yet. At this point, all they are are money guzzling machines that have yet to figure out how to turn, you know, sort of inference into profits. In other words, their costs are higher than what they're reselling their products and services for. I'm as big a fan and believer and user of AI products as anybody. But when we really start measuring impact, like what changes the world, you know, that's very possible, but there's nothing proven about it. What we're doing is very proven. Like you can very objectively say, if we give every single client, I don't know, 1% back in economic advantage, and you scale that across trillions of dollars for decades, you can start measuring your impact in hundreds of billions of dollars. That's, to me, more than like a small startup. Like, that's incredibly ambitious, but it's, like, incredibly good for humanity. I hope more people do this type of stuff.

That's Eric Balchunas' column, which became a book, The Vanguard Effect. I want to say it was, like, 2016, 2018. Vanguard has saved $2 trillion in fees for clients. I mean, that's an insane, insane number.

Yeah.

And you guys are looking to push into the same space. I want to be respectful of your time before I jump to my favorite questions. I just have to ask one other question. You've built multiple businesses in the wealth management and fintech space. What's the repeatable lesson that carries over from one to another? Or is each one a completely different animal?

I mean, these are all pretty connected businesses. If someone looks at like the evolution arc of my career, it's sort of like each time I find a problem, you know, again, metaphorically. metaphorically go on to the next yeah you kind of go okay well that was an interesting problem but this is an even bigger problem and this is even bigger problem um yeah i'm curious now i think there's going to be you know reasonably good need for um a highly specialized llm specifically narrowly trained for our industry i'm not sure the big lf so maybe we'll do that at some point in the future but the point is like there's always something that has the potential to make a bigger impact. And one thing that I'll say, for me, again, I don't spend a ton of time trying to compare what I do compared to other entrepreneurs. So I can't really say if there's a lesson to be learned broadly. But with each venture that I've been involved with, I've started with a pretty simple North Star, which is I want to help people. These are all mission-driven organizations. I'm very passionate about that. This allows you to attract other people that are also mission-driven. These are your more missionaries versus mercenaries. And we have some of the most incredible people that I could never even dream of assembling a team like what we have at Altruist, but it's because they share that same kind of core ethos of serving clients, driving better outcomes, being on the right side of the customer, doing things that really matter. So given that, I was going to say, so given that,

look at five to 10 years, where's altruist? What are you doing? How big is altruist at that point?

Yeah, it's hard to predict with precision, okay, just how big, but I suspect we'll be very large. You know, if we look at the trajectory of the business today, again, we don't talk a lot about our numbers publicly. So people have to sort of, it's sort of like, we'll take Jason's word for it, you know, but in our first five years of operating from when we opened our first account, you know, through five years, we had more assets on our platform than Robinhood, Betterment, Wealthfront, Public, Stash, M1. one acorns combined right so when people wonder like is this working it's scaling very very rapidly um and it's growing at a really really fast pace um people i think sometimes uh don't understand that the sort of network effect you get when you serve advisors and those advisors are growing fast firms like yours are going super fast um the clients are adding deposits to their existing accounts the market tailwind is is pretty material and it's 15 yeah the past 15 and it's It's better for advisor clients than it's for self-directed clients. So these are all things that create enormous tailwinds for businesses like ours. So I think in 10 years out, we'll be multiple trillions in assets serving many millions of end clients. And likely we'll be doing as kind of capped out at 100 or 125 or 150. Like those things, these laws of physics will sort of be removed. And I think that's a net great thing.

All right. I want to be respectful of your time. And I'm going to jump to our speed round. We're going to do these really quickly. Starting with who are your mentors who helped shape your career?

Yeah, so Nick Byme was our first investor at Altruist. He was also a big supporter of me at my last company. He's a partner at Venrock, and he's just awesome.

What are your favorite books? What are you reading currently?

So right now I'm reading Life 3.0 by Max Tegmark. It's like a book from 2016, 2017. He's one of the, he's a professor at MIT and one of the like real forward, like early thought leaders in AI. And so he kind of like, yeah, there's three phases of AI and I'd say we're in like life 2.0 right now. So human powered and like get to read the book, you'll find what 3.0 is. Good one.

That's interesting. And you mentioned good to great. Anything else you want to mention?

Yeah. I mean, look, these are a little bit cornier, but some of the most important books for me, I'm a total math nerd. So I can live in a Max Tegmark, you know, book for, you know, uh, forever. I had to learn a lot of soft skills, you know, to be a better entrepreneur. I learned a lot of those from reading Seth Godin's books, like one of my favorite. Amazing books, great blog as well.

Uh, let's talk about, um, what you're listening to streaming or watching. What's keeping you entertained on these cross country flights?

Yeah. So I don't, I don't watch much, uh, TV. Um, although I did watch your Knicks, congratulations.

That was, talk about perfect timing and a fairly easy path.

Perfect storm. Avoided my Pistons, you know. I'm a Detroit Pistons fan. So, yeah, I don't watch a lot of TV. I do listen to a lot of podcasts, so listen to yours. I listen to, I'm a big fan of Henry Stebbings, so 20VC is a good one. I listen to you quite a bit. And then I listen to Lenny's podcast. If you're a tech person, everyone who Lenny is, he's a product person that goes into deep on like how different tech companies are being built, especially kind of product led companies. So those are some things I listen to a lot.

Really interesting. Final two questions. What sort of advice would you give to a recent college grad interested in a career in fill in the blank, entrepreneurship, fintech, or even financial services?

Yeah, I think in any career, I would become the most AI forward, you know, person in your field that you could possibly be. So it does not matter if you're working in sales, if you're working in tech, if you're working in financial services. I mean, if you can become the person when you walk into the room, you are the absolute master of Claude for your kind of job function. I think that's one of the most important things for any person. I think young people have an actual advantage there, and it's one they should definitely be leveraging.

You're not going to be replaced by AI. You're going to be replaced by someone who uses AI better than you do.

And it's getting cliche, but it's very true.

And our final question, what do you know about the world of technology, entrepreneurship, or financial technology today that would have been helpful back in the 2000s when you were first ramping up?

I mean, I don't know that there's necessarily some innovation that I wish I knew. I wish I would have spent more time getting proximate to really high caliber people. Now that I'm older and I've done a few things, I've got the chance to meet some just outstanding people. And if you can get close to those people early in your career, it's just going to be such a massive accelerant because your way of thinking is going to be so much better and sharper and inspired. That's what I do.

Thank you, Jason, for being so generous with your time. We have been speaking with Jason Wanks. He is founder and CEO of Fast Rising Custodian Altruist. If you enjoy this conversation, well, check out any of the previous 648 we've done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, YouTube, wherever you get your favorite podcasts. I would be remiss if I didn't thank the crack team that helps put these conversations together each week. Alexis Noriega is my video producer. Anna Luke is my podcast producer.

sir. Sean Russo is my head of research. I'm Barry Ritholtz. You've been listening to Masters in

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