Robo Advisor Interview – SoFi

Posted on March 16, 2021

In our latest edition of the Robo Report™, we spoke with the SoFi team about their platform and future growth plans. SoFi has emerged as one of the most ambitious fintech platforms and has rapidly grown its product offerings in recent years.

Founded in 2011 as a platform for consolidating student debt, SoFi has steadily expanded the types of services it provides. Now SoFi offers lending, self-directed trading, managed accounts, financial planning, cryptocurrency trading, proprietary ETFs, and bank accounts. Following its recent announcement of going public, we thought it was a great time to catch up with the SoFi team to discuss its position in the market and its plans for future growth.

Who is the SoFi client? Which types of clients is SoFi having the most success attracting to the platform?

Our members are typically around 25 to 40 years of age, well educated, and relatively high earners who are not well served by the traditional financial service options. Many of them are at a point in their lives where they recognize the importance of investing and have a desire to get started but don’t have as much hands-on experience, oftentimes because they’ve been held back by student loan debt.

What do SoFi clients care about the most?

Their specific concerns depend on which stage of life they’re in. Their goals are certainly individual, but on the whole, they want to pay off their debts. They want to secure their financial future, and they don’t want money to stand in the way of their dreams, such as having a fulfilling career, buying a home, starting their own company, or starting a family.

SoFi recently announced an additional capital raise combined with going public. How will SoFi be using the funds from the most recent raise?

We’ve had accelerating year-over-year member growth for the past six consecutive quarters, but we believe we’ve just scratched the surface and are in the early stages of the digital transformation of financial services. As a result, we have a substantial opportunity to continue to grow our member base and increase the number of products members use on our platform.

To complement these products and services, we believe in building vertically-integrated technology platforms designed to manage and deliver the suite of solutions to our members in a low-cost and differentiated manner.

What was behind the decision to use a SPAC as opposed to the traditional IPO route of going public?

Time efficiency in the process and the access to capital were both compelling reasons to pursue the SPAC route. Our business is complex. A SPAC process enabled us to spend sufficient time with investors to educate them on our mission, differentiation, strategy, and business units (vs 30-45 min roadshow meeting). Providing detailed forward financial projections is a critical element of getting a fair value for a growth company with three different businesses in different points in their lifecycle. The SPAC process allowed us to provide projections to credentialize our future growth.

SoFi has been rapidly expanding the products and features of its platform. What is next on the roadmap for SoFi regarding products and features?

Yes, in just the last few months, we’ve introduced Social Investing and launched the first-ever ETF—the SoFi Weekly Income ETF (TGIF)—to pay out income on a weekly basis. We will certainly continue to push the envelope to the extent we can provide features that are innovative and engaging to meet our members’ needs.

I saw on a recent ADV that SoFi has a financial planning service that does not appear to be live yet. What can you share with me about what SoFi currently offers for financial planning, and what changes users can expect with any new financial planning services?

We currently offer all SoFi members complimentary personal financial planning sessions with Certified Financial Planners™, as well as complimentary career planning services through a partnership with Korn Ferry. We are always evaluating our offerings to ensure that they best meet the needs of our members.

SoFi offers many of its services for free. Currently, there are no commissions on trades, SoFi’s ETFs currently have the fee waived, and no management fees for managed accounts, the bank accounts do not have fees. Do you expect that some of the free services now will have costs associated with them in the future?

We don’t have anything to announce at this time in regard to future fee structures, but it’s worth mentioning that we applied for a de novo national bank charter through the OCC in July of last year and received preliminary conditional approval that October. If and when we receive final approval and become a national bank, our lower cost of funding will ultimately be beneficial for our members, as we intend to pass those cost savings on.

How does the SoFi platform differentiate itself in this crowded space amongst other fintech investing and finance platforms?

Certainly from an innovation standpoint, SoFi has distinguished itself in the marketplace in a relatively short period of time. We were the first major fintech firm to offer fractional-share trading, we debuted the industry’s first zero-expense-ratio ETFs, and we introduced the first weekly income ETF.

Aside from that, our mission and the breadth of our financial services offerings differentiates us as well; we aim to help all our members achieve financial independence, and we don’t see any single one of our products operating in isolation. Unlike a traditional asset manager or brokerage firm, we see our relationship with our members as a broader one in which we can help them at any stage of their financial lives, backed by the solutions they need at that moment.

SoFi has been quickly adding products and features to the platform. Has the launch and reception of different products met expectations? What products are you finding the most success with, self-directed trading, managed accounts, banking, proprietary ETFs, cryptocurrency, etc.?

The pandemic has accelerated the secular trend away from physical branches and toward digital financial services, and our platform was no exception. We saw tremendous growth in every sector of our investment offerings. In 2020, our number of brokerage accounts grew by over 300%. We also saw strong interest and performance in our ETFs; our SoFi Gig Economy ETF is up about 182% since market lows in March and our Weekly Income ETF is one of our fastest-growing   funds, with strong interest even off of the SoFi platform. About 90% of the buys in TGIF have been from outside the SoFi platform.

What are the long-term effects fintech investing and banking platforms will have on the industry? What changes do you see happening to the consumer banking and investing industry over the next 5 to 10 years?

We’ve seen fintech companies have a tremendous impact already on driving a shift away from legacy infrastructures, democratizing finance, and disrupting some of the old assumptions about how a financial services company should do business. For our part, we hope to continue making sure that anyone who needs access to financial tools always has them, literally, at their fingertips.

Is there anything else you would like to share about the platform?

We are always evaluating our product and feature offerings and are committed to continuing to drive innovation in the investment industry. To that end, we have some exciting new projects we are working on, and we encourage anyone interested in learning about them to follow us on our social media or our blog.

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