fbpx

OpenInvest: Perfecting Impact Investing

Site: www.openinvest.com
Founded: 2015
Clients: Financial institutions, foundations, RIAs, individual investors
Value proposition: Affordable retirement savings management
The executive team: Conor Murray, CEO, co-founder
Philip Wei, CTO, co-founder
Joshua Levin, CSO, co-founder
Nima Shah, Head of Product
Neha Bhatia, VP Sales
Claire Veuthey, Head of ESG and impact

 

OpenInvest is an online investment advisor that helps individual investors, financial institutions, and advisors tailor their investments to the causes and socially conscious companies they care about.

Claire Veuthey
Claire Veuthey, Head of ESG and impact, OpenInvest

I had the pleasure of speaking with Claire Veuthey, head of ESG (environmental, social, and corporate governance) and impact at OpenInvest. She took me through the OpenInvest model, what it’s about, what makes it different, and how impact investing is making landfall in the average American’s home.

Claire has seen all facets of the investing world during her 15-year career. She started out by producing research for the environmental and social world, and then moved on to selling research for an institutional audience. In 2014, she moved to a role in a Wells Fargo subsidiary, Nelson Capital, where she was responsible for ESG and social impact investing. Claire joined OpenInvest in mid-2018 and is responsible for ensuring investments are socially and environmentally conscious.

OpenInvest in a Nutshell

Claire informed me that in 2018, OpenInvest shifted from a consumer-facing, socially responsible investing robo-advisor model to partnering with financial and investment advisors, the people who engage with individual investors and focus on financial planning.

“OpenInvest is a public benefit corporation. We’re one of the very few and certainly one of the first venture-backed public benefit corporations. And that means we can put social good and profits on the same level. This is the core of who we are.”

The company’s bread and butter is optimizing equity portfolios against issues that are not purely financial. These issues include environmental, social, and governance concerns. While the firm’s focus has shifted, OpenInvest still offers a purely retail investor solution. Anyone can open an account for as little as $100.

“We can provide diversification and passive performance for $100, so we can definitely do it for $100,000 or several million.”

Philip Wei, CTO, co-founder
Philip Wei, CTO, co-founder, OpenInvest

The OpenInvest team keeps security in mind throughout the development process, they don’t just tick a checkbox at the end. Phil, CTO, explained that security is ingrained from step one of any project and all project technology leads aim to exceed industry standards OpenInvest uses end-to-end encryption, password management systems, and all sensitive data is encrypted at rest and in transit.

Fees, Stock, and a Portfolio Full of Impact Investments

Unlike other robo-advisors, OpenInvest purchases the underlying stock directly. They don’t buy equity funds on the equity side, only fixed funds in the retail channel. This approach allows them to work precisely with investors’ values and also do very refined rebalancing and tax-loss harvesting.

Firms like Robinhood and Fidelity have no-fee funds, but Claire said that it doesn’t make much sense to pool investors into funds and exchange-traded funds. She also stated that OpenInvest considers that funds are on their way out, and their fees aren’t justified by their performance.

“You may as well just buy the underlying stock for your investors because it can be done at basically the same cost. And it gives you and them a lot more flexibility.”

Claire explained that the company’s underlying investment principles lies in finding the best stocks for causes that people care about, like climate change or gender leadership. OpenInvest’s algorithms need to be flexible because data constantly changes, some companies fall out of favor due to controversies, and some launch new products, and this has to be reflected during portfolio rebalancing.

One example of rebalancing Claire shared with me was that a company may become eligible for OpenInvest’s Women in Leadership cause because they add a woman to the board of directors. Conversely, if that company’s board changes and is composed only of men that company is no longer a fit for investors who have selected the company’s “Women Leaders” option.

Team Structure

Currently, OpenInvest’s business development and sales teams are headed by co-founder and CSO Josh Levin, who works on partnerships, and VP of Sales Neha Bhatia. Claire and Nima Shah, head of product, oversee the content and marketing. Recent hires include a VP of sales, a director of sales for the advisor channel, and a director of institutional sales for the asset owner channel.

The company has an in-house engineering team but also works with Andela, a company that specializes in distributed engineering teams from Africa. OpenInvest engineers work with remote engineers from Uganda, Kenya, and Nigeria, with daily communication between teams. Phil added that it’s harder to manage an offshore team, but being mission-oriented and having a strong culture are invaluable. He relies on Andela and the team delivers. In fact, most of the Andela development team just spent a few weeks in San Francisco ahead of an upcoming product launch!

Product Management Approach

Scaling is a big buzzword at the moment as companies are fighting tooth and nail to scale bigger, stronger and faster. However, this isn’t always the right approach. Phil believes that “scaling problems” are mischaracterized. To find a solution to a problem you must first define the problem or constraints correctly. As a business owner, you have to think carefully about what you are actually building.

“Scaling fast is a hot market, but without a business plan scaling can be a surefire way to be involved in a lot of dinner parties/meetings but ultimately crash your business”

Phil said the founders and team made a conscious effort to hold back an only move forward when they found answers to their business and technology questions, investing in scalable technology when the pathway was clear.

“The one area in which scaling matters most is in organizational and management structures – this is where it’s almost impossible to underinvest.”

Nima defines the roadmap for product management. She gets input from all the relevant stakeholders, like the engineering, operations, and sales teams. Nima’s responsibilities revolve around developing new products and features, ensuring everyone is in sync in their work, and working with the sales team to find product market fit.

“Nima’s job is to make sure we’re staying true to our vision and we’re producing something that customers haven’t seen before and that they really want.”

Overcoming Challenges

Claire pointed out two main challenges that OpenInvest is actively working on. Because the company’s technology is of interest to people investing in equities—which is everyone– and focused on impact investing– for which demand has grown dramatically, the company’s first challenge is identifying exactly who they are serving. Depending on who is investing, whether they are an individual investor, an advisor, a pension fund, or a foundation, the user interface and features differ.

The second challenge is educating investors about the long-standing misconceptions about values-based investing and returns.

“This myth is that if you invest with some kind of socially conscious approach, you will need to accept concessionary returns. We’re showing that that doesn’t need to be the case. Good investing is good investing, whether or not you apply the sustainability lens.”

Good investing is about the basics: optimizing risk management and diversification approaches. In addition, Claire believes that a generational shift is happening—more and more people are waking up to the idea that making socially impactful investments doesn’t require trading off investment performance.

Takeaways

As Joshua Levin, chief strategy officer and co-founder of OpenInvest, put it, “OpenInvest is an online advisor similar to Wealthfront and Betterment, but imagine it merges with Change.org.” The concept is admirable and definitely something advisors and investors should note. OpenInvest has managed to leverage this socially responsible ideology with technology to provide real value and real returns.

DOWNLOAD PDF

Covisum: Comprehensive Retirement Income Planning Portal

Covisum provides financial advisors with software, training and support to deliver retirement income plans.

NEXA Insights: Surveys to Improve Advisory Business

NEXA insights provides client experience surveys & analytics and enables RIAs to research client opinions, analyze responses, maximize client retention, build client loyalty and better position themselves among prospective clients.

YCharts: Data Research Platform for the Modern Advisor

YCharts is a financial software company providing investment research tools including stock charts, stock ratings and economic indicators.

IBM Cloud for Financial Services: Bringing the Best of FinTech to the Cloud

The IBM Cloud for Financial Services is an ecosystem and open platform that brings together FinTech and financial services institutions to rapidly develop and share innovative applications, APIs, data and content on a secure, cloud platform to meet the unique business needs and challenges of banks, financial market institutions and insurance companies.

GeoWealth: All-in-One Solution for RIAs

GeoWealth is a provider of cloud-based wealth management platform for advisors and institutional investors.

InterGen Data: Predicting Life Events with AI Tech

InterGen Data is a data services provider of cloud-based artificial intelligence software solutions for the banking, financial services, and insurance industries

Redtail: The Evolving CRM System Built for Financial Professionals

Redtail Technology, Inc. is the web-based client relationship management solutions for the financial advisors.

LifeYield: Revolutionizing the Way Americans Save and Invest

LifeYield, creator of the Taxficient Score®, is the industry innovator in facilitating tax-smart, risk-smart household portfolio management.