By Lauren Keyson and Sarah Grieco
FinMason started as a financial education concept a little less than three years ago. Kendrick Wakeman, the founder, pulled together a group of scientists, investors, analysts and technical leads to try and help what he saw as a major problem in the United States: the retirement crisis. He found that people had a lot of anxiety around investing because they didn’t have a good understanding of the process; they were holding back from engaging with their retirement plans.
The challenge for the team was to come up with an analytical suite that clearly showed the risk versus the reward of an investment. How could they come up with an analysis of a complicated subject that could be understood by anybody without financial training whatsoever? Their second challenge was how could they get these people the analysis for free?
Kendrick Wakeman: We know for a fact that users will not pay us a dime for it. The expectation around free information is so high these days that you’ll never get a retail investor to pay you anything. We had to go eyes wide open on that one.
My observation was that there weren’t really that many tools available to the average person on the street who wouldn’t really care about investing. Now that the pension system has shifted from defining benefit to defining contribution, which is to say 401K’s, they’re being forced to make investment decisions in their retirement profile that they’d rather not do. Thirty years ago investing used to be all about chasing return. Now, it’s all about establishing how much risk is in your portfolio and that you’re getting the most return on that.
So we thought that if we gave them some tools that were easy to understand and that could help them make investment decisions, that would allow them to move forward with confidence and engage with their retirement planning.
Lauren Keyson: Are you the only ones doing this?
KW: Yes, and it’s kind of a nice edge to have. We’ve spent the last two and half years testing and retesting the analysis we put out. In order to get to the right solution, we had to build a gigantic analytical infrastructure. Essentially, we have to analyze six million investments a day across all countries. It’s important to do that because we need to be scalable. That’s another one of our competitive advantages. We’re scalable up to 125 million users and we plan to use that scale to be able to produce and deliver a very expensive analysis at the minimalist or even free price point.
LK: You don’t actually talk with your clients. How does that work?
KW: One of the rules we have is that people use our product completely anonymously. We do that because people are very anxious their financial situations, particularly sharing details about it. Our goal is to have as many people as possible use our product, determine how much risk should be in their portfolios and then potentially compare to see whether the amount that should be in their portfolio is the same as the amount of risk in that portfolio. If those two things match up, they have a good portfolio. If those things don’t match up, they probably have to think about doing something to make them match up. We want as many people to do that before the market crashes again…
LK: Do you expect the market to crash?
KW: I’m not that smart, that’s way above my pay grade! What I can say is that statistically speaking, the market crashes every eight years about 42%; it’s just a fact. People shouldn’t be afraid of it – it’s going to happen. If you’ve got 30 years until retirement, the markets going to crash three times before you retire. It’s just the way the world works. They key is to make sure that you have the right amount of risk in your portfolio so that when the market does crash you don’t have to sweat it.
LK: What in your background gives you the ability to forecast things like that?
KW: Basically on the job training. I managed institutional money at Wachovia, now Wells Fargo. I had very senior roles and ran a department at the bank. Basically risk versus reward is something I’ve been doing since I was at Dartmouth College; while I was there I was ranked one of the top 2% of options traders three out of five times every year by CNN’s investment channel.
Back in 2008 there were a lot of people who had too much equity and were too close to retirement. When the market crashed, they found suddenly they could never retire. It’s not that they could retire in a year or two – but that they could NEVER retire. It can be devastating for a person.
We do believe that the retirement crisis is a very real crisis. We’d love to have more people pay attention to it. We do our part, but it’s only a small part. We need everybody pulling together to make sure people can retire with dignity or even retire at all. It’s basically trying to give people some independent validation so they can move forward with confidence. This is nice to have for baby boomers. As for the millennials moving onto the investment scene, they are very different purchasers than the baby boomers. They need to have independent validation of everything they do — they need online, free, unbiased information.