A Product Market Fit Show | Startup Podcast for Founders
00:04:51 · Pablo Srugo, Aaron Schumm
[00:04:51] S1: So, multiple questions on this. The next one is, what is the business model with Morgan Stanley and Aegis in general? [00:04:57] S0: Yeah, so the business model is really, we get paid off a per employer per month fee and a per saver per month fee. Typically a flat fee, something like a PEPM. Sometimes there's a basis point component depending, we're trying to over index on basis points and look like an asset manager or an advisory shop but sometimes we will do that depending on the services we're providing. So that's basically, those fees are borne by the employer and the savers on the platform. And then, Morgan Stanley really is just committing to continue to bring volume. They're not, or they're our enterprise partners. They're not necessarily going to write a check into us unless they miss the threshold of where we contractually agreed to. [00:05:40] S1: So we had Judi Health on the podcast recently and they talk about number of lives, right? Because they're a health benefits platform. So you're similar as kind of number of savers on the platform. That's kind of the big KPI you're trying to go after. [00:05:50] S0: Right, so we have over two and a half million people actively saving. Meaning they have dollars on the platform. They're in there and accruing some growth out of those.
00:05:50 · Aaron Schumm, Pablo Srugo
[00:05:50] S0: Right, so we have over two and a half million people actively saving. Meaning they have dollars on the platform. They're in there and accruing some growth out of those. [00:05:59] S1: And tell me a bit more, like with Morgan Stanley or a big partner like that. What is it that they don't have that you have, that you bring to the table? Because the assumption would be like Morgan Stanley, they're going to build all this stuff. They're going to have some product like this in house, right? So what do they need you for?
00:06:14 · Aaron Schumm
[00:06:14] S0: So they typically have something in house on the wealth side. The retirement side, specifically retirement, and there's other savings programs too. It's very complex when you get to the sub accounting and the record keeping. So traditionally what firms do is they have one of two models. Model one would be they go rent a piece of software from a legacy provider, which would be like an FIS or an SS&C. They go hire a bunch of people, you know, a couple hundred people to support the business and then they hope that you have some offering that they can accrue beyond the headcount operational overhead as well as software license fees. So that's kind of, that's model number one. Model number two is you don't rent any software and you just put a bunch of providers on the shelf. So you go out there and you have, maybe a Fidelity and a Empower, you know, pick a name, right? That's out there in insurance brand, nationwide and they put a bunch of these on the shelf. And then they say, hey, if it's an advisor sold solution, here's what you're permitted to go sell, right? And they frame it or box it in some capacity. The model we took was a bit different and said, listen, why would a large global brand be putting their business with a core competitor that's really just trying to siphon that business away from that brand, be it a Morgan Stanley or whoever it is. You know, our approach was like, hey, you should have the most modern, elegant experience possible. It should be low cost and it should be yours. It shouldn't be, you know, trying to compete with someone else that you're putting on the shelf. Because you can't operationalize it yourself. So we said, hey, listen, we'll put you in the market. It's your product, it's your brand, it's your advisors. It's, you know, your asset management if you want it and we'll do it all front to back, and you have zero overhead to do it. And that kind of really flipped the tables with how we were able to engage and got people to say, oh, I can do this myself. Yet I don't have to go hire, you know, an army of people and go rent legacy software, and try to grow a business out of it.
00:08:11 · Pablo Srugo, Aaron Schumm
[00:08:11] S1: So this is the white label software only strategy. [00:08:14] S0: Yes! Yeah, that's a key piece to it. [00:08:16] S1: So now that we have this kind of, that's the, maybe not the end state. Certainly for you, but for us product market fit. That's the end moment, let's say, of product market fit. Let's go backwards, you started this in 2016. Tell me a little bit more about your background. What were you doing in, let's say the 2010s, or so that led you to start this business? [00:08:32] S0: Yes, so I have been in the financial technology world since before like FinTech, quote unquote, was a thing. Which dates me quite a bit but most relevantly, I co founded a business before this called FolioDynamics that got acquired by Envestnet. It used to be a public company, now it got taken private by Bain. But we were out there basically, I ran product development, I ran sales and strategy for that organization. [00:08:57] S1: And this is what year, by the way? [00:08:59] S0: This, we started this in October of '07. [00:09:03] S1: Okay. [00:09:04] S0: Horrible time to start, cause then we're raising our first round of capital in the spring of '08. When everything fell apart in the financial world and that was one of the most. [00:09:12] S1: If you can do it, then you could do it anytime.
00:09:12 · Pablo Srugo, Aaron Schumm
[00:09:12] S1: If you can do it, then you could do it anytime. [00:09:14] S0: Right? I always tell people, I'm like, you have no idea how hard it was. This is a cakewalk relative to that. So yeah, so we started that business. We grew that and really what it was, was that unbundled turnkey asset management platform. A FinTech platform that we gave to financial advisors and institutions. So broker dealers, banks, RIAs, asset managers alike, and we essentially power their wealth book of business. And through that journey, you know, we were a few years into that business. Our employees wanted their own 401(k) program. So I was like, OK, I haven't really done that before. Let's go do it, so one of our sales guys had a buddy who is an advisor that sold 401(k) plans and he gave us a plan. And I was like, this is horrible. How can it be this hard, this clunky, this expensive? And that's really when the light bulb went off, like, hey, there's a problem, we're gonna go solve here. So we started with 401(k)s, you know, when it started Vestwell and now we've expanded to a whole host of different savings programs in the tax preferred lens but that was really the origination of it all. [00:10:10] S1: And tell me a little bit about. As you said earlier, you can't just launch this. There's a lot of regulatory pieces. There's a lot of pieces to this puzzle. Take us to the origin of this early 2016. What do you do first?
00:10:10 · Pablo Srugo, Aaron Schumm
[00:10:10] S1: And tell me a little bit about. As you said earlier, you can't just launch this. There's a lot of regulatory pieces. There's a lot of pieces to this puzzle. Take us to the origin of this early 2016. What do you do first? [00:10:23] S0: Yeah, it's a great question. So it was funny because I wasn't a retirement expert by any means. I still wouldn't even classify myself as a retirement expert, you know, a decade into this. I have a lot of them on the team, but for me personally, I was kind of like the tech product person and how I was viewing this and to solve it. But in 2016, what we did, first thing we did was we started designing a workflow for what we thought people would want, right? So you think about, as your business owner. Your small business. Let's say you got, you know, a handful of employees, you want to set something up. What would you do, right? And walking through that decision tree process. [00:11:00] S1: I'm curious actually, just to go maybe deeper on that. What was the current state of affairs? [00:11:05] S0: For us or for the industry? [00:11:07] S1: In general, for the industry. I mean, people obviously have been setting up 401(k)s for a long time. What was the default?