Axos Invest Interview with CEO Greg Garrabrants

Posted on September 3, 2020

  • We had the privilege of speaking with Axos Financial CEO, Greg Garrabrants
  • Topics included the acquisition and integration of robo advisor WiseBanyan, clients’ reaction to the pandemic, and the future

How have the clients at Axos Invest responded to the market volatility?

Actually, it has been surprisingly calm. Our managed portfolio customers did not engage, by and large, in any form of panic selling. So therefore, we didn’t see, which is what you’d hope not to see, is at the absolute bottom of the market a bunch of selling and pushing to cash allocations and then missing an upturn. We actually saw that the nature of the customer and the focus on [the] long-term… were helpful. So we did not see any real behavioral change of any substance or materiality as a result of the market volatility.

Can you talk to me about the decision behind purchasing WiseBanyan? What were the driving factors behind the acquisition?

Our belief is, over time, most of finance is going to become increasingly digital. [The] utilization of data to provide relevant and personalized recommendations is going to be very critical to the success of financial institutions over the longer term. So our decision to buy WiseBanyan is based on the fact that we have, we think, a best-in-class digital bank offering and digital lending set of platforms and we wanted to round out the services so that we could offer clients very high-value banking, lending products, and also managed portfolio products as well.

What are the primary goals of Axos Invest within the larger company?

We hope to become one of the world’s best digital financial institutions that provides excellent customer service with strong value propositions. Meaning low cost, whether it’s lower asset management fees, or lower fee structures, or better rates for our customers on various lending products by utilizing digital platforms to reduce costs. And so, the long-term goal of the company is obviously continued growth of its customer base, and we want to continue to deepen the relationships we have with our customers by providing them more value-added products.

We also think of ourselves not only as someone who does retail, but really somebody who also distributes through a variety of intermediary channels. We do have a clearing company and that clearing company works with broker-dealers and those broker-dealers have RIA platforms, and we have an RIA custody business as well. So over time, we think that there is going to be a demand for RIAs to utilize a robo advising platform as well. We think that there will be long-term opportunities there.

Were there any gaps between expectations and results to the WiseBanyan integration and rebranding to Axos Invest?

No, I don’t think so. We always viewed the acquisition of WiseBanyan as a long-term investment. We clearly wanted to make sure that we maintained some of the features and functionality of the WiseBanyan platform, but at the same time integrated that platform from a single sign on perspective and from a seamlessness of account opening perspective between the banking and securities side. So we’ve been taking that as a set of goals and projects and whittling away at those. We are going to continue to invest in the platform and we have some neat ideas on how to make the offering more attractive over time and we are going to continue to execute those.

Can you share any features or exciting developments with me that are on the roadmap?

More broadly, we continue to believe that the ability for customers to integrate goals into their investing platform and status, to be able to link it to banking and savings goals so that customers that sign up for a checking account and have direct deposit can easily allocate certain funds to the market and make sure that they are saving in accordance with goals they set forth in either platform, either the banking or securities platform. Those are just a few of things we are thinking about as we try to work on the behavioral side of the investing model for people and try to help them with the goal of getting some emergency savings and a little bit of space so that they can feel a little more comfortable in situations when they have an unexpected event. Obviously the recent events that we have had in respect to the pandemic… highlights the need to really focus on having maybe a little bit longer term than financial advisors would have otherwise thought… We have spent some time on some of the goal items to make sure they are prominent on both sides of our platform.

What have you learned about the digital advice industry through this process?

I think there is this huge opportunity for growth. I do believe that the revenue streams and the benefit to the customer is clearly there, from a lower cost and the ease of use. The ability to make money on the platforms really does require a broad and integrated products set. I don’t know if that’s a learning [event], but I would say that the hypothesis has been reaffirmed to me. Given the cost of customer acquisition, given the revenue stream that is generated from those customers, it is critical that we optimize the products that we can sell to those customers across the board to make the business as profitable as possible and allow us to improve our products.

I think it is difficult to be an independent robo advisor. As a business model, it makes a lot more sense as an integrated platform.

You see that from these guys that say they are going to form a bank or start a bank or offer bank-like products. I do believe that kind of model is going to be increasingly common, or be the primary model.

What do Axos Invest clients care the most about?

We do surveys. They care a lot about user experiences. They do like the goal-setting features, they like the disciplined nature of some of the automated contribution features so they are contributing on a dollar cost averaging basis regularly to their goals. I think that helps, from a behavioral perspective, make the model work. I do think that’s one of the real benefits that these managed portfolios platforms have, particularly if they are hooked up to direct deposit… They are not really trying to time the market, which is why I think we didn’t have this huge set of withdrawals as the market turned and I think that is clearly… demonstrating a reasonable benefit in a relatively short period of time with the market rebound that we have had from the lows.

What do you see that will be the long-term impacts of digital advice on the financial services industry?

I would view it this way. When we started our direct bank, I would always get a set of folks that would say, “You guys will take over the world because you have lower cost structures and will be able to offer better deals and traditional banks won’t exist, etc.” I think some of the guys that were drinking the Kool-Aid too much would say, “Well, we are going to take the place of human [bankers] and we are going to be able to get a 40% market share in 5 years.” I think it really becomes more of a subtle type of inclusion of an interesting way of interacting, and I think that the technology will continue to improve.

I think you will see robo advisors move to hybrid models… I see it becoming an increasing part of the landscape but I don’t see some sort of revolution where financial advisors go away. I think it is going to become more where the robo advisory tool kit becomes part of a staged plan that incorporates different types of customer service in a lifecycle that allows folks to get started on a path, make progress, and then have a set of more complex needs answered over a lifecycle.

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