John is an experienced, multi-industry serial entrepreneur and new-product developer. After starting his first venture at age 25, he has been a founder, partner, or major contributor in four successful startups in the entertainment, publishing, HR software, and insurance industries. Now also a published author, John is focusing his talent and skills on developing an insurance-based product that provides both wealth creation and financial protection for married individuals worldwide.
Here, John outlines his vision of recent transformations in wealth management and whether they will affect financial advisors; we discuss whether and how artificial intelligence (AI) and blockchain will impact further development in the industry. In addition, John shares details on the marriage insurance provided by SafeGuard Guaranty.
Q: Could you please describe your background, particularly how you came to the wealth-management industry and how you are related to wealth management at the moment?
John: Technically I’m in the insurance business. From the standpoint of wealth management, that’s really where we focus. But my background is very varied. I joke about it because had anybody told me that I would be in this industry 15 years ago, I would’ve laughed at them and said they were smoking something funny.
But my background is really as a serial entrepreneur. This is my fifth adventure in four completely different industries; for some strange reason, things that other people look at as problems, I look at as opportunities—and that’s been very successful for me in the past.
That’s really kind of how I fell into this business that I’m in right now. I went through a world-class, ugly divorce about 17 years ago now, and said to myself, “Why isn’t there insurance for something like this?” That really started us down this path.
Q: What could you tell me about what’s going on in the wealth-management industry at the moment? What trends do you see, and what are you observing for the last few years?
John: I’ve seen a lot of transition, especially within the insurance industry. People are finding that there is a lot more usefulness for AI, as we have seen in the evolution of robo-advisors and those kinds of things lately. I see that as more than just a fad.
Realistically, the evolution is such that we’ve seen auto insurance and home insurance and other forms of insurance go direct to the consumer, but life insurance and other kinds of things that people have used to create wealth for themselves have really been annuities and are still in the domain of wealth advisors, financial planners, insurance agents, and so on.
I think in the coming years, you’re going to see a lot more people going direct to software, and algorithms that will basically evaluate their positioning in the market, asking them varied questions on what they want to accomplish with investing or retirement planning or whatever it is they’re thinking about, and then give them a list of things to do in terms of advice, or point them to certain types of investments that make the most sense for them so that they are actually able to monitor those types of investments without having to go to some website or mobile app every day and take a look at their stocks and investments and see where they are going.
I don’t think financial planners or wealth advisors are going to be displaced by an AI, there’s still going to be a number of folks that want to hear a human voice that says, “Yes. You’re making the right decision.”
More and more millennials I talk to, even though they’re interested in that kind of independence in terms of being able to do things without somebody pushing a button for them, they still want somebody else to look at what they’re doing and validate those decisions and tell them, “Yeah, this is smart. You’re on the right path,” and those types of things.
I don’t think the traditional wealth advisor, especially for high net worth people or even just people of middle class trying to create a good financial plan, I don’t think those people are going to go away.
Even though software platforms are available and many people will choose to use those in terms of their day-to-day monitoring, or even in making decisions about what kind of investments they make, I think there’s still going to be a very large segment of people—and not just older folks, but millennials and gen-X—who are still interested in having somebody else look at what they’re doing.
Blind faith in a software platform has already been shown as maybe not the smartest thing. Of course, the more platforms prove successful, the more transition and the more adoption we’re going to see. As these types of programs and algorithms and so forth have proven, I see a declining market for traditional financial planning firms and those kinds of things. Apart from those who have a very complicated lifestyle, people who are high net worth and divest their investments over a wide range of different types of categories—I don’t see advisors for those folks going away even probably 25 years from now.
“People really won’t have to worry about market ups and downs. They’ll just look at what their software does with the money when the market goes up and look at it when the market goes down, and if they need to make changes to optimize the kind of things their software is doing, that’s going to be up to them.”
Q: What features of robo-advisors can improve and increase the investing culture and knowledge of end users who are not professional investors?
John: A perfect example is Betterment. Betterment have been around for a couple of years now and have had some success, but they’re not the be-all and end-all. They give you advice on where to put certain types of investments, but there’s a lot of things that they can’t do. These kinds of programs and platforms are always going to have their advantages and disadvantages.
I don’t foresee a total AI package, meaning somebody that can come across as a kind of investment manager with a very sophisticated wealth advisor who understands all different kinds of investments and where to go. I think a lot of those programs are going to continue to learn. A lot of them are going to improve very fast.
Within the next five years, we’ll probably see a software platform similar to what some companies use for customer service types of platforms.
Watson from IBM does all sorts of AI in different industries that basically replaces the need for call centers, customer service people, data platforms, and those kinds of things.
If somebody applies that kind of AI to a total wealth-advisory scenario, it may, in fact, end up replacing wealth advisors and financial planners for people who don’t need to have very, very sophisticated return plans. I mean, somebody who just wants to have a good direction on where to put their money in a 401K and where to put some excess cash, potentially in terms of annuities or investing in real estate or some other diversified type of category.
Those types of platforms will probably be able to help those people dramatically, without fees and without fail. They’re constantly improving what these folks are looking at and how they’re looking at it, so they’ll be able to monitor investments to a fine point. If somebody says, “Yeah, I want to put a warning on my system that if these investments that I have such and such in go down by 50% then you automatically switch over the kinds of investments, diversify or divest from one investment to another that isn’t going down.”
That can be done without so much as blinking an eye. That’s already available. It’s just a question of how good the application is, and will it work the next time the market tanks.
Q: Right now, financial advisors, as well as robo-advisors, use some kind of questionnaire that is somehow unique for each robo-advisor, and based on the answers the risk tolerance is calculated and then some kind of exit strategy is offered. Do you think this process is efficient? What do you think could be improved? What kind of data should be taken into account when calculating the risk tolerance?
John: That’s a really good question, and one that I don’t have the expertise to answer. As these products and services grow, I’m sure they’re going to find more and more links in terms of how to analyze data and how to efficiently use that data in what these algorithms do. From that standpoint, I think it’s going to be a natural progression or evolution in these software platforms.
However, risk tolerance I think is going to be more and more defined by AI and what people basically put as their own little criteria. Then the AI will look at it from the standpoint of, “Is this meeting the requirements of the person who uses the platform?”
From that standpoint, people really won’t have to worry about market ups and downs. They’ll just look at what their software does with the money when the market goes up and look at it when the market goes down, and if they need to make changes to optimize the kind of things their software is doing, that’s going to be up to them.
Q: Do you think blockchain technology could improve wealth-management solutions?
John: I think that’s going to be more of a B2B type of use case than B2C because blockchain is still evolving and there’s not a whole lot of people who, even on a sophisticated level, understand the best use for that kind of thing on an individual basis.
From a company standpoint, you can easily reduce the amount of transaction fees and have errors in terms of where data is or isn’t in terms of sending money back and forth and getting things done with blockchain.
I see a lot more use in the banking industry, the insurance industry, the investment industry. Tremendous growth in the investment industry is really where I’m looking for blockchain.
Q: Do you think that regulations will affect the implementation and introduction of Blockchain into all sectors of financial services?
John: I think they will. Unfortunately, our government is such that they like to have their fingers in everything. I’m not a big fan of regulation to begin with. But when you come down to things like blockchain, banking transactions, and investment transactions obviously regulation needs to be applied to them—I’m just not sure how much.
Q: In WealthTech, there are two major groups of experts: financial advisors, people with financial expertise; and software engineers, technology people who are basically building the wealth-management solutions. Is there any knowledge gap between these two groups of experts? If so, how can it be decreased?
John: I think there is a big gap between the language that software engineers and the language that wealth advisors use, and how they communicate not just with each other but with the end consumer.
I think that’s a byproduct of being isolated within their own various industries. I think the best way to change that is something that I’ve seen within the insurance industry, which is actually to bring in people from the outside that have nothing to do with the industry and then ask them to have a look at the best solution in terms of communicating with both types of communities.
It really comes down to finding a common language, and sometimes people who talk software and IT are so used to speaking with each other that when they talk to somebody outside of the industry it sounds like they’re talking a different language.
I’ve got guys within my organization that I’ve known all my life. If we’re out having a beer I can talk to them normally, but if I start talking to them about the types of platforms or software they’re using, they’re speaking Greek as far as I’m concerned. I don’t understand a thing they’re saying.
From that standpoint, I think there needs to be a dumbing down on both sides. Wealth advisors do the same thing; if they’re talking to a software engineer, they’re talking about things where software engineer guys have no clue what they’re saying in terms of investments and those kinds of things.
Q: How could this be improved? How could we get them to talk the same language?
John: Get rid of the jargon. If you’re going to talk about something, talk about what it is, how it works, why it’s important. Not this “AB257 platform that I’m using to do such-and-such.” I have no idea what that is.
Q: Let’s talk a bit about SafeGuard. Could you please describe SafeGuard’s main offering in terms of innovation in retirement planning?
John: SafeGuard Guaranty is a company that develops insurance products that are really aimed at retirement planning. Our flagship product is marriage insurance. Marriage insurance is a method for individuals to build wealth for themselves over time, and it really acts as a failsafe for people who are married and don’t have prenuptial agreements because it has an alternative trigger. It is very much like an endowment because for all intents and purposes the individuals are contracting with an insurance company for “X” amount of dollars at some time in the future.
But during that term, if they get divorced they also get an alternative benefit. So it acts like an endowment that maybe has a critical illness trigger. Instead of critical illness, our alternative trigger is divorce.
It also pays a death benefit to the insured’s spouse, so there are lots of good pieces to this thing, but ultimately it is a forced savings plan for people to save for the future. Now, whether that future is retirement or whether it’s some special amount of money that they want to use for a vacation home or Johnny’s college or a new boat—we don’t care what it is. It’s just a method for them to guarantee that they have “X” amount of dollars at a specific date in the future.
Beyond that, we also have a product that we call the 4P, because the real name is a ‘Personal Portable Pension Plan’. That is a micro-annuity, by which I mean an annuity for all intents and purposes. The best way to describe it is as a fixed indexed annuity that, rather than having to plunk down $100,000 to get a good rate of return, you’d literally be able to buy into for as little as $50.00 a week. Then you can contribute as much or as little as you want over an agreed-upon contributory period—meaning it could be 20 years, could be 30 years, could be 40 years. You could put it on pause if you’re unemployed for a certain amount of time.
Rather than something like a 401K, which is a defined contribution plan, there’s no government entity that’s going to say, “Oh, wait a minute. You can’t put any more in because you reached your maximum.” Also, because it’s an annuity, a defined benefit plan, you know that at the end of that contribution period it’s not a question mark like a 401K is.
I mean, a 401K is like a basket of investments, but if, two weeks before you retire, the economy goes down the tube, there goes your 401K as well.
But with an annuity you’re guaranteed to get “X” amount of dollars at the end of the term, plus, if it’s indexed, you’re taking advantage of the fact that when the markets go up, but don’t lose any money when the markets go down. That’s the beauty of that product. Both of them are aimed at basically the same audience, people who want to save for the future, in order for them to launch these products and get them approved by either an insurance industry partner or raise the money to capitalize an insurance company to do it ourselves.
Q: Do you use any kind of algorithms—software with certain algorithms to automate this process for yourselves?
John: We don’t because we’re not in the market yet, but once we are we’re going to be looking at that very, very closely.
Obviously, we want to outsource as much as we can to save money and pass that along to consumers. What we’ll probably do is find a very smart group that does that kind of investment for a living and outsource it to them. Obviously, we would be very, very interested, again, in companies that leverage that kind of AI, for obvious reasons.
It’s going to cost us less and probably make more for the consumers down the road.
Q: How did you build the divorce probability calculator that you have on your website?
John: When we started doing research for this project, we did really, really deep dives into statistics about divorce and who’s likely to get divorced, and so on and so forth. We came across an academic paper that was written by a professor of division sciences at the University of Illinois. His name is Christopher Westfall.
We spoke with him and looked at the paper he had presented to, I think it was the Journal of Sociology, many years ago, and it looked to us to be something that we could use. Eventually we ended up using that document.
To create the calculator, we used his dynamics of weighting certain categories and characteristics of an individual and where they are in their life, what’s happened to them in the past, to project what their probability of divorce in the future is.
According to Professor Westfall, it’s 87% accurate. I can’t qualify whether that’s true just yet but we’ll certainly follow up with a bunch of the folks that took this test and find out down the road.
The thing is, now we’re using it as sort of an entertainment tool just to attract people to the website and so on. It’s fun. It does ask some pretty intrusive questions though. It’s 20 questions and some are very easy to answer while others are kind of personal.
The thing is, of course, those personal questions weigh a lot on the whether the odds of divorce for you are high or low.
The interesting part of this is that when we launch our marriage insurance, it’s going to be guaranteed issue; meaning I don’t care if the customer is Larry King, who has been divorced eight times, or my 26-year-old son, who’s never been married before—we’re going to give you the same policy at the same price.
But down the road, we may be able to use the 20 questions as underwriting qualifications for people in order to determine whether they have a high probability or a low probability, and thereby determine their premium. It will save them money or cost them a little bit more, depending on their score.
“Everybody’s trying to find the best way to steal consumers away from somebody else by creating the better mousetrap. I think the ones that are going to be the most successful are those that are creating a completely different market where there is no competition.”
Q: Let’s come back to wealth management and robo-advisors. What do you think a typical company in the wealth-management industry will look like in five years, for example?
John: Well, I think it’s going to be much more software oriented. I think it’s going to be a lot of AI applied in various forms. I don’t think the person-to-person aspect of wealth management or wealth advisory services is going to go away, but I think on a consumer level, the people that will take advantage of the person-to-person types of formats are going to be more on the high net wealth side of the segment, as opposed to the average Joe trying to save for his retirement. I think most of those people will find a personal wealth advisor from a fee-only standpoint, but they won’t look at the fees being worth the cost unless they’re investing millions of dollars.
I think a lot of the smaller organizations whose existence is based on the middle class and the higher middle class will just go away. I see the industry being transformed into software-oriented types of organizations.
Q: The technology will be applied more and more to wealth management. We’ll see a rise in AI, Big Data analytics; however, the human touch, human direction, is unlikely to go away. In the event of disaster, for example, people will not rely just on robo-advice but will need to talk to somebody, as that will make it just psychologically easier for them to make decisions on what to do or what not to do with their portfolio.
John: Yeah, that’s my thinking too. It comes down to sometimes when people get mad they want to just go and sit in somebody’s office and look them in the eye and say, “What do I do next?”
I don’t think that’s going to go away. I do think though as AI gets more and more pervasive, there are certain AIs that can already pass the Turing test, where if you were talking to them on the telephone, you wouldn’t know that you were talking to a machine.
So, from that standpoint I can see where that can be applied. I think that’s going to be applied much more in the future, and sooner than we think.
Q: Could you please recommend maybe one or two books related to wealth management that would help people improve their knowledge and build their wealth?
John: I don’t have any good books to recommend for consumers. But from an industry standpoint, I’ve just picked up a book called Blue Ocean Strategy. If you’re familiar with the red ocean/blue ocean idea, from a financial-advisory, wealth-advisory standpoint, that’s very much going to apply because within the industry we’re definitely in a red ocean.
Everybody’s trying to find the best way to steal consumers away from somebody else by creating the better mousetrap. I think the ones that are going to be the most successful are those that are creating the blue oceans for themselves, in that they are creating a completely different market where there is no competition.
That’s what we’ve done with marriage insurance. We are the only company in the world that offers anything remotely similar. The same thing with the 4P.
From that standpoint, once we launch these products, eventually we know there’s going to be competition. But the point is, at least for Marriage Assurance(sm), it won’t be around for a while and we’ll have a big enough time gap to make a pretty large footprint for ourselves. There are going to be wealth-advisory firms that do the same thing; they’re going to find a way to create their own niche that nobody else has and they’ll be über successful.
That’s the only book I can recommend right now: Blue Ocean Strategy.
Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also author of the WealthTech Club blog, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.