Taylor Matthews on his Wealth Management Company, Farther

Taylor Matthews of Farther - Podcast Transcript

Scott:	Hey, it’s Scott Orn at Kruze Consulting and welcome to another episode of Founders and Friends. And before we start the podcast, let’s give a quick shout out to Rippling. Rippling is the new cool payroll tool that we see a lot of startups using. Rippling is great for your traditional HR and payroll. They integrate very nicely, but guess what? They did another thing, they integrate into your IT infrastructure. They make it really easy for when you hire someone to spin up all the web services and their computer, which sounds like not a huge deal, but actually we did the study at Kruze. We spent $420 on average just getting a new employee’s computer up and running and their web servers up and running. It’s actually a really big deal. It saves a lot of money and the dogs are eating the dogwood. We see a lot of startups coming in to Kruze now using Rippling. So, please check out Rippling. Great service, we love it. I think we have a podcast with Parker Conrad. You can hear it from his own words, but we’re seeing them take market share. So, shout out to Rippling, and now to another awesome podcast at Kruze Consulting’s Founders and Friends.
Singer:	(singing). It’s Kruze Consulting. Founders and Friends with your host, Scotty Orn.
Scott:	Welcome to Founders and Friends Podcast with Scott Orn at Kruze Consulting. And today, my very special guest is Taylor Matthews from Farther. Welcome, Taylor.
Taylor:	Well, thanks, Scott. Glad to be here.
Scott:	Yeah. Great to have you. So, I’m a huge fan of Farther. You’re a Kruze client. You became a client right when you were getting off the ground, but maybe you can retrace your career a little bit and tell everyone how you had the idea for Farther and give a little update on Farther.
Taylor:	Yeah, happy to. So, my career is somewhat atypical I guess. I started off just way back there. I was a philosophy major in college and like all good philosophy majors, I decided to go straight into investment banking. A pretty natural step.
Scott:	I was actually going to make that joke.
Taylor:	Yeah. But it really was a fantastic experience in the sense that it gave me the foundational tools for finance. And I’ve stuck with finance or technology from then on. The financial crisis claimed that bank, but I then transitioned over to strategy consulting at Fidelity, really got a fantastic overview of personal finance there, every aspect of it from brokerage to asset management. And then, went to business school at MIT where I launched a wildly different business than Farther, a distribution company in southern India called [inaudible 00:00:02:44]. And then, used management consulting as a stepping stone to come on back. But for the last five years or so, I’ve been in the FinTech space, most recently at ForUsAll where I led account management and helped to grow that company to about a billion dollars in assets.
Scott:	That’s right. And ForUsAll’s our 401k provider. They’ve done an excellent job. Shout out to ForUsAll. So, that’s amazing. And you and I are about the same age, I think. I’m not too much older than you, but we’ve seen the same ups and downs in FinTech, but also seeing all the opportunities for just development and new stuff and new things coming out. Was there something in the last 10 years that made you think that Farther… Well, first of all, maybe explain what Farther is before we get too ahead of things and then talk about some of the catalysts.
Taylor:	Yeah. So, in a nutshell, Farther is a wealth management firm that uses modern technology to pull that really high class experience that you might expect from a private banker. We’re laser focused on professionals in that asset accumulation phase of their life, and we’re building tools to really help them get farther faster. And when you think about how the FinTech landscape has changed, there’s so many different directions you can go there, but from a wealth tech perspective, I think the biggest change is just how democratized the experience of investing has become. You have starting way back in the late 2000’s, early teens, you had folks like Betterment and Wealthfront come along, you had really great tools like Robinhood come along more recently to democratize the brokerage process and eliminate some fees that I think were challenging for folks who were just getting started. And you’ve seen this maybe more recently in the last five years or so, this influx of new FinTech entrants, like Acorns, Digits and Stashes, that are really bringing investing to meeting more people. That I think is a fantastic trend, and one that we’re building on top of. Where we come in is we saw that there were all these really great tools for people who were just starting out, but we didn’t see so many tools for people who were entering that place in their life where things are a little more complex. Where they had private stock or equity compensation that they needed to handle, or they were starting to have kids and get married and deal with all of the other different financial products that were out there. That’s where an actual human can be a little bit more helpful.
Scott:	I totally agree. And you’re right about all these innovations that’ve led to this moment in time. And one of the reasons I love what you guys are doing, and this is a little selfish here, but I see a lot of crews in what you’re doing and that were taking that advisory aspect and building processes, building technology for startups founders. That’s really our customer base. You’re doing the exact same thing for young professionals, people who have some money, but are, as you said, in that accumulation phase. And I love it because I would probably put myself in that stage where I’ve never had enough money where someone was really interested in managing my money. The advisors never were interested. I would love that advice, but I wasn’t a good value prop for them. They weren’t going to make money on me. Whereas what you’ve been able to do with technology and automation is you’re opening up the world for people like me. And I’m 43, but there’s a bunch of 25-year olds out there that should be signing up for Farther, to start this journey 18 years younger than I am. I just really believe in what you’re doing. The market opportunity is there.
Taylor:	The sooner you can get started, the better for sure. And I think part of the reason that this opportunity presents itself is that the way that the asset management industry is structured. So, historically the reason that you’re not getting calls all the time is because in a traditional wealth management practice, you can really only handle about 100 clients. And your job as a financial advisor is a sales job. It’s not actually investment advice, it is a sales job. And your goal is to bring on roughly 10% of your book and cut the bottom 10% of your book each year. So, that means that unless you’re in your first three years or so, you’re not going to try and focus on anybody that doesn’t have a couple million dollars that you can manage because it’s just not worth your time.
Scott:	Yeah, that’s exactly it. And so, I hadn’t thought about the cutting aspect, but you’re totally right. The little guys and little ladies get pushed out because it’s like, “Oh, I want the $10 million client because that’s going to make my total assets managed way more attractive, and the fee structure on those is way more attractive.” So, little guys just don’t get attention is basically what you’re saying.
Taylor:	And if you do find yourself in that position where you were one of those early sign-ups, some firms handle this really well and they’ll pass you off to somebody new who’s coming up the ranks.
Scott:	Yeah, exactly.
Taylor:	Some firms or the advisors will keep you on their books, just not talk to you. And that’s where things are probably not too bad until the market takes a downturn. And then, all of a sudden, you’re trying to get somebody on the phone that’s just not interested in dealing with you when their bigger clients are at stake.
Scott:	Totally. That’s really amazing. Well, maybe talk about some of the automation and some of the technology that you brought to this market.
Taylor:	Absolutely. So, we very much believe that where you can lean on technology, you ought to. And I think Kruze is a good example of that too, where when we came on board, we had to set up some certain technology solutions to make your life easier, but also to bring down the costs. So, anyway, that’s how we look at things, where we don’t want an operations person to do work that a computer can do.
Scott:	Totally.
Taylor:	So, that starts for us from the very beginning. When you sign up for Farther, one of the choices you have to make, if you want to, is you can choose to activate a cash management solution, which we call the optimized solution, that will allow you to set a floor in your bank account and sweep anything over that floor in. So, you don’t actually have to pay attention. It’s not like a recurring deposit that you usually lowball because you don’t want to run out of cash. You always will have however much you set in your bank account. Anything else will actually earn some money for you.
Scott:	That’s such a great point, and it hits home for me really quick, because just the other day I was looking at my bank account and I happily had an extra $10,000 from some debt repayments and things like that, that I had invested in, that I had forgot about that were just sitting in my bank account. And I sat there and I was like, “I wonder how long they’ve been in here, and I probably could have been earning 10% annually in the stock market.” Now, I know that’s not a normal stock market average, but I was like, “Oh, I probably cost myself $1000 just by not putting this in a Schwab S&P index.” It was one of those moments. So, this active sweep, it sounds simple but it makes so much sense.
Taylor:	Yeah. And you’d be surprised at just how much cash folks keep in their bank accounts. Not because they intend for it to be in there, but just pure inertia.
Scott:	Totally.
Taylor:	We’re trying to help with that from the get get-go. And then, once cash does come over to the Farther platform, we have what we call the cash waterfall. So, we’ll waterfall that new money across all of the accounts that you set up. So, let’s say you had an emergency fund, an IRA, you’re saving for a home, all three of those accounts there’s an order that you want to go in there from an at least tax optimized solution. We can drop it in there, fill up each bucket in turn, so that you’re always taking full advantage of tax advantaged accounts.
Scott:	It feels like you relieve the cognitive load a little bit too. I don’t have to think about transferring 25% in this account and 36% in this other account and that kind of thing. It just drops in and gets spread evenly.
Taylor:	That’s right. And honestly, this was a problem I saw for myself because I found it frustrating to make sure that I had maxed out my IRA every year, to consistently follow up on those things that you know you ought to do, but take time and mental resources to do that. And then, I mentioned you could save for a home. So, in those goal-based accounts, we also have a bit of automation for adjusting your portfolio over time so that, let’s say you’re saving for a house in 10 years, five years, whatever it is, it might start off in a more aggressive portfolio and then ratchets back that risk as you get closer and closer to that goal. So, you’re earning as much as is prudent along the way, but your cash is going to be there when you actually need to write a check.
Scott:	That’s so smart. And the other thing I think that’s super cool about Farther is, we were talking about this a couple of weeks ago, there’s this tech layer but there’s also this advisor layer of real professional advisors. And we were talking about someone that has been on board for a while, but was ex Goldman Sachs money manager person. You’re not just using tech and then hoping to get by with the not super experienced people. You’re hiring really excellent advisors, you can make the math work because you can make them so scalable.
Taylor:	That’s exactly right. So, we’ve built from the ground up a brand-new wealth management company. And when you do that, and when all of those operational tasks are API driven, everything from an operations perspective is very automated. That means that you can allow those operations folks, those relationship managers to focus on what they do best and hire very high-quality people to work across your client base. And that’s what we’ve done.
Scott:	Hey, it’s Scott Orn at Kruze Consulting. And before we get back to the podcast, quick shout out to ChartHop. ChartHop is one of my favorite new SAS tools on the market. And basically, what ChartHop does is it puts your org chart in the cloud. And I always like to say, it brings transparency to your organization. And so, everyone in your organization can see who they report to, they can see the full organization chart of the company and how their group relates to other groups. It also has a lot of information on individuals in the company. And so, you can click on the ChartHop profile and just get where people live, their experience, Slack handles, all this stuff. And it’s just a really great tool. The other thing is ChartHop has started doing some cool stuff around compensation and budgeting planning. And so, you can actually start seeing what the cost structure of the company will look like during certain scenarios. So, I’m loving ChartHop, check it out, charthop.com. We use it at Kruze, really like it, and I can’t recommend it enough. All right, back to the podcast. So, what are the entry points to Farther? Are they 25-year olds or 30-year olds, 40 year olds? Is it all the above? Who’s listening to this podcast should be thinking about reaching out?
Taylor:	So, I would love to say that we’re for everybody and I think that we do have a solution for everybody, but we’re really focused on professionals that are in that asset accumulation phase of their life. So, I think the bulk of our clients, they tend to be in that 35 to maybe 50-year-old range. They’re at that point where they’re entering or have entered their peak earning years. They’re generating more cash. That’s where a lot of those cash management features can really… And they’re just extra powerful there. And we also tend to find clients that have more complicated situations. So, if you have equity compensation that you’re you’re working through, or if for whatever reason you have an asset that’s very concentrated, that’s where we can help you work around that and build a portfolio that makes sense for you in a way that’s maybe a little bit more tailored than a traditional robo advisor, or even advisory service is going to drop you into a standard model portfolio.
Scott:	Yeah. Especially the options or equity component is really important, and maybe just talk about that for a second. So, we have a lot of founders that we work with who are on paper… Well, first of all, when they first come to us, it’s not very valuable on paper. And then, as the ones that are successful, they start doing larger rounds and raising at higher evaluations. And all of a sudden, on paper they’re worth $10, $20 million, something like that, which is amazing. How should those people be thinking about planning? Because I think there’s a lot of stuff around USBs and other things that on a personal financial level, it can really pay off to work with someone like Farther to do the planning. You’ll just save so much money on taxes later if you do have an exit.
Taylor:	I think that’s the biggest component is making sure that you’re not paying more taxes than you need to. For founders, often there’s early liquidity that way. You can get access to a little bit beforehand, but that comes in a windfall situation and how you allocate that windfall and to hopefully take advantage of long-term capital gains to hopefully allocate those funds to appropriate accounts, including using donor advised funds to the extent that you’re going to be charitable to reduce that tax burden in the event of a windfall. All of that is very particular to each individual situation, but we work with folks that are going through these thought processes all the time.
Scott:	That makes total sense. If I’m a founder, should I be reaching out to Farther when I’m starting the company, when I’m starting to get an inclination this might be the big thing or before… I’m making an extreme example, six months before an exit or something like that. When’s the right time to reach out and start getting advice?
Taylor:	Same sort of story, the earlier, the better, but let me give you an example. So, if let’s say you reached out before you even started your company, there’s often a margin of safety that you want to build for yourself as a founder. And actually, if you do have a family or other people who rely on you for income, so building that buffer in those early uncertain first months and years, I think that’s a part that we can help on and help define how to do that. Then, as you start the company, making sure that you’re checking the most important box, which is getting your 83B election and [inaudible] shares.
Scott:	I was hoping you’d say that because that is a huge issue. For those that don’t know, you have this once in a lifetime opportunity, when you start a company to do an 83B filing, which you basically buy your stock ahead of time, even if you haven’t invested at all. And you can lock in a really low stock price, so all your appreciation at that point is capital gains, which is taxed at a lower rate than income. So, it’s really important, but you have a 30-day window. If you don’t file in 30 days, you lose it. And it’s so painful. We have probably once a month someone emailing us asking about 83B, or they didn’t do it or whatever, your lawyer is supposed to tell you, but also your financial advisor is supposed to tell you to file that 83B.
Taylor:	Yeah. We can be a second check there for you. And then, again, as you move forward, whether you’re a founder or an early executive of the company or whatever it happens to be, there’s usually an opportunity to exercise your shares as you vest. And if you do that, then you’re starting to take off the counter for long-term capital gains earlier, you’re likely doing it at a lower risk of hitting your alternative minimum tax. So, working with a financial advisor and a CPA to help you manage that, I think it can be very meaningful to you from a wealth generation perspective.
Scott:	Yeah, that’s amazing. And that’s really good advice. So, the earlier, the better. I hadn’t really thought about this, but you’re totally right. Before you start a company and when you’re starting to think about starting a company and building up that cash base, because the unfortunate thing is a lot of founders end up taking below market salaries while they’re building a company at least for the first couple of years. So, you do need some of that cash base and you need a little extra in the bank account, especially if you’re married or have kids or things like that. Life can surprise you. And so, I think that’s really good advice to just get professional advice as soon as possible.
Taylor:	That’s it. Just like you want to do a physical every year, just even a little checkup on those sorts of things might be worthwhile.
Scott:	Yeah, that’s a great point. And then, when someone’s a customer at Farther, what’s the cadence? Are they logging into their Farther account? Are they having a check-up call, like that yearly physical, with an advisor? How does that advisory aspect of the business work?
Taylor:	Yeah, so we think transparency and communication are probably the most important things here, that, at the end of the day, wealth management is a trust-based business. So, the more frequent that communication is, or to the extent that you want it, the better. So, what we typically do is we have mobile apps, we have a web app. You can log on any time, you see everything that you should need to see. Constantly adding new features to that. Again, bring more transparency to everything that we do, but from an actual talking to a human perspective, what we try and do is at least every quarter we’ll just have a quick check-in. See how things are going, make sure everything remains on track, let you know if we noticed anything interesting in your accounts, that thing. We also are a little bit different in the sense that we’re constantly monitoring everything that goes on, collecting all sorts of data from your accounts so that we can surface an opportunity when we see it. For instance-
Scott:	Oh, that’s cool.
Taylor:	… We see you open up an account or just start to save more or less, that might be a good trigger for us to reach out and have a conversation with you. It might be a change in your situation. So, we’re not limited to some particular cadence. We will be more proactive when we see an opportunity to be.
Scott:	That’s cool though. The smart diagnostics of knowing, “Oh, Scott set up another account over here. Better get that one in the mix,” and make sure it’s taking advantage of the deposit waterfall that you talked about earlier and things like that. Or, “Let’s have a conversation with Scott, that might be a slush fund account that he may not actually need to do.” And maybe teach about the power of compounding and getting that money in the market instead of having a slush fund just sitting there. That kind of stuff.
Taylor:	There you go. And of course, you can link all of your other accounts, from bank accounts and other investment accounts. So, we can incorporate all of that and into our thinking and what advice we do provide.
Scott:	I love it. Can you talk about the mobile app for a second? Because I think that’s really one of the big differences, even just the last year or two. You talked about some of the other savings apps like Acorn and things like that, but what functionality do you have in your mobile app? And then, maybe talk about some of the mindset that went into developing it and why you thought it was so important.
Taylor:	Yeah. So, I think just kind of looking at how especially that 25 to 40-year-old generation interacts with pretty much every aspect of technology is mobile [inaudible 00:23:03]. So, we knew from the get go that having a robust mobile app was going to be really important. So, our mobile app can do just about everything that our web app can. You can sign up, you can manage your accounts, can change the allocations in your portfolio. You can schedule a meeting with your advisor or even chat directly in the mobile app. So, all of those things, we just wanted to be native to that experience. There are some things that make a little bit more sense on the desktop, that don’t translate quite as well to mobile. So, some of the tools that we’ve built out, like rent versus buy calculators and financial health questionnaire checklist, that sort of thing. Those make more sense to live in the web app experience. But we’re very conscious on trying to deliver as much value as we can in the mobile interface without being overwhelming.
Scott:	Yeah. And I didn’t realize you had the rent versus buy and things like that, tools for key decisions in life points. I think that’s a really… I was just talking to one of the Kruze team members yesterday who just bought a house and I was very proud of him and happy for him. And we walked through the math on everything and it was great, and he had clearly done his homework and knew exactly what he was getting into, but also getting back to that asset accumulation phase of his life, that’s what he was doing. He’s a Kruze cruise team member and scrimped and saved and bought a house. And now, he’s got that compounding working for him in the housing market, which is really cool.
Taylor:	Yeah. That’s great. Yeah, we try and build tools that are built around decisions that you would make-
Scott:	Yeah, that’s smart.
Taylor:	Just insane detail about the investment allocations that you have, or things like that. We want them to be useful and something that you can drive to a decision on.
Scott:	That’s really smart. I love it. Well, I’m a huge fan. I can see where this is going, and I also can see… I think I’m really excited for you personally because I just think this is a huge market opportunity. And I think a lot of people might look at this market and say, “Oh, that’s a service-based market, that’s too scary or service-based businesses are too hard.” So, I give you a lot of credit for jumping into this, but I think you’re going to find that it gets easier and easier to automate stuff and make these incredible advisors you have more scalable and spread. I believe that the advisors really appreciate… There’s obviously a financial benefit to working, but also a lot of them probably do it because they want to help people and help people make better decisions. Is there this affirmation they’re getting working with Farther instead of the Goldman Sachs version where they’re touching so many more people’s lives?
Taylor:	Yeah. So, when I think about some of the advisors that we brought on more recently, they had the option of going to storied investment management houses and things, and chose Farther mostly because they view us as the future. A lot of those incumbents, they’re built on legacy technology, legacy processes that make it really hard to deliver the same level of service at the scale that we can. And that’s where I think the industry is going, you’re going to see increasing automation that’s going to be become more and more commoditized. So, how you balance that human connection with the automation that you can provide, that’s where you’re really going to drive value in wealth management going forward.
Scott:	I love it. That’s amazing. That’s the investment thesis for some venture capital firm, the first paragraph of their investment memo into Farther. Well, Taylor, it’s been awesome getting to know you, and maybe you could just tell everyone how to reach out to you, how to reach out to Farther, how to sign up. Is it maybe the mobile app or through the website? What should people do who are interested?
Taylor:	Sure. So, as far as signing up goes, farther.com is where you can get a little bit more information. You can sign up there either on web or mobile or download from the app store. As far as reaching out to me, you can find me at taylor@farther.com. Always happy to have a conversation.
Scott:	Awesome. Congrats. I’m excited to see what the future brings. Just keep going. We should also mention Taylor had a new addition to his family, so he’s doing this interview on very little sleep right now. It’s amazing, so you’re-
Taylor:	You can’t see the bags under my eyes, so that-
Scott:	The audience can’t see, but I can, but congratulations on your new addition, very happy for you and your wife and excited to see what happens with Farther in the future.
Taylor:	Appreciate it, Scott. Thanks for having me on. Bye bye.
Singer:	(singing). It’s Kruze Consulting. Founders and Friends with your host, Scotty Orn.

Taylor Matthews of Farther, a modern, judgement-free wealth management company built on the idea that your money can go farther

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