Re-inventing private banking - the Easyvest story
Interview with Matthieu Remy, CEO at Easyvest.
Interview by Bjorn Cumps and Marion Dupire
Matthieu Remy, can you introduce yourself and tell us the story of Easyvest?
“I am 32 years old, I got educated as a civil engineer at UCL with a specialization in robotics and artificial intelligence. I worked for 4 years at Deloitte Consulting where I was implementing cloud computing systems for many financial institutions. Then I decided to pursue an MBA at Harvard Business School and that is where the project of Easyvest started. At the end of my MBA in 2012, the product was finished and I came back to Belgium. My big challenge was to distribute the product and make it comply with regulations. Meanwhile, I worked as a Manager at Bain & Company where I was mainly focused on helping Fast Moving Consumer Goods companies in their eCommerce strategy. At Bain I also worked in private equity. In parallel Easyvest was starting, we were negotiating a partnership with Leleux Associated Brokers that helped us get accredited by the FSMA. At the beginning of this year, I really started to work 100% for myself.
Corentin Scavée, my co-founder, has a background in finance. He worked in consulting at Roland Berger for 2 years, did its own entrepreneurial project in renewable energy, then moved back to finance in a hedge fund, and he is now also 100% at Easyvest.”
What is your product?
“In a nutshell, Easyvest re-invents the classical work of a private banker: a finance professional who invests the money of his clients on the stock and bond markets. In remuneration for facilitating the process, that person typically takes a percentage on the Assets Under Management. We propose to do that job in a smarter, simpler and more affordable way.
Why are we smarter? If you talk to finance professionals, they will always pretend that they can beat the market somehow, as if they had a crystal ball. We do not believe that we can beat the market, we simply buy all stocks in the proportion of capitalisation that they occupy in the whole world. We try to reach that ideal to buy all 50,000 stocks that are quoted and traded in the world. How did we come to that? We built one of the first robo-advisers, at a moment when the name did not even exist, back in 2012. I analysed all possible portfolio combinations. Despite the intelligence of that robot, it came back again and again that the market was unbeatable. If you have less than 20 million euros to invest, the best that you can do is to invest in two ETFs: one that is closest to the full global market, and one that is composed of a risk-free government bonds. In doing this you can reach any risk profile that you need just by using these two assets. That is where the intelligence is, it is very simple.
Why are we simpler? Finance is usually difficult to explain to people who do not know anything about finance. The investment approach of Easyvest is probably the easiest that you can find around in the market. Secondly, everything is online but clients receive an Easyvalet: one of the employees of Easyvest is assigned to you, you have her mobile phone number, and you can call her at any time.
Finally, our service is more affordable. In Belgium, depending on their risk profile, clients pay on average between 1.5% and 1.9% if they are high-net-worth individual (with a private banker), if you are less influent it is between 3% and 6% when you consider entry costs, exit costs, transaction costs, taxes etc. What we propose is a flat fee between 1% and 0.5%, depending on the invested amount: 1% below €25,000 and 0.5% above €250,000.
From a regulatory standpoint, it is important to note that Easyvest is not a bank but an agent in investment and banking services. Among others, this means that we do not do discretionary portfolio management. We do investment advice. Our clients are always in control and we don’t execute any transactions without receiving their prior consent. We advise them and it is up to them to follow our recommendations or not. Our clients appreciate to have that control and transparency on what is happening on their investment portfolio. Considering our smart and simple investment approach, it takes less than 30 minutes per year to our clients to review our recommendations, so it is not very time consuming.”
When you developed your product at Harvard, were your professors involved?
“Yes, absolutely. It all started back in 2011, my father called me. It was not a good year for private bankers and for the market in general. The returns on my father’s investments were not good, but he was still paying a lot of money to his banker. Being at HBS, he challenged me on how to manage his money with less costs. I talked to a few professors and made my own independent study. It was actually two projects: one was to develop the algorithm, the other was to develop the business model.
For the algorithm I worked with Prof. Esty who was the head of the finance department at HBS, Prof. Greenwood who is very well-known in the area of behavioural finance, and Prof. Sunderam who is an expert in asset pricing. We used insights from the behavioural finance field for the way in which we coach people with their finance. We know there are all sorts of biases when people invest. A famous one is the home bias: you tend to invest in stocks that are in your country. We were also advised by experts in asset pricing: the CAPM, Modern Portfolio Theory, and market risk theories, which helped to build the algorithm.”
How is your product different from the robotic advisers which already exist?
“It is similar to Wealthfront, Betterment or Nutmeg, the pricing is a bit different because regulation and transaction costs are different in Belgium. Our approach is also slightly different. These players put more funds than necessary in their portfolios. I think it is again to give people the illusion that they invest in something that is extremely smart. The truth is that in most of their funds there are huge overlaps or redundancy. Instead of investing into a US fund, a European fund and an emerging market fund, we directly invest in the worldwide fund, which means less management costs and less transaction costs. This is our vision and we believe it makes more sense for our customers who end up paying less for more returns.
We are not the only one to have that approach. For instance, Vanguard is a major ETFs issuer globally. They could virtually use all their ETFs in the portfolios they recommend. However, their own robo-adviser offer in the US puts only a couple of funds in their portfolios. So they also recognize that there is no added value in adding more funds.”
Banks could also do it if they wanted. Do you see that as a risk?
“Sure, they could do it. When I came back from Harvard in 2012, I visited most of these banks and asked them whether they wanted to develop this with us. They were not so much interested. They would actually get smaller margins than what they do today. So they would need to accept to have lower margins and make sure that they have enough volume to compensate. Maybe they will do it, but it is not so obvious to me. Economically I believe our model does not match for them at the moment.”
And do you see banks as partners?
“First, banks are de facto partners in some parts of our processes like the custody of our clients’ investment accounts. I guess your question is more about if banks can help us develop Easyvest.
Maybe. Now that we are alive, some banks are coming to us for white labelling. Everything is possible as long as there is no compromise on our vision. We started this thing because we thought that the system was fundamentally flawed: the consumer was not at the centre and could not get a reasonable price for a good service. If we give the technology to somebody who does not share the ambition to offer something simpler, smarter and at a lower cost, that person might pervert our product and use it to harm people. We would not allow it.
I do not have any exit strategy. I want to be there in the long term, and I do not even want to compete with these guys. They do what they do and that is fine. Many investors won’t be attracted by our offer and will always believe that their banker can beat the market. Again I just want to address people who want to do it smarter, simpler, and at a lower cost.”
How easy is it to find customers, how do you inspire trust to your prospects?
“Concerning the trust element, it is important to have in mind that we do not have the money of our clients on our own bank account. This money is at a custodian, ING in our case. If we go bankrupt, ING is hopefully still there. And even if ING goes bankrupt clients still have the ownerships in the different funds. Then, we have our partnership with Leleux Associate Brokers, they provide us with their back office and execute the transactions for us. They are well known in Belgium, they do not only online brokerage, they also have a very large remote brokerage service. When you do transactions at many financial institutions in Belgium, what you see is the website of the bank or the insurer, what you do not see is that Leleux is doing everything behind the scene. And we use them as well, so security in our case is a non-issue.
Concerning the acquisition of new clients, it is difficult to say because it has just been one month that we are really public. We have a client acquisition strategy that consists of making as many experiments, trials, and errors as we can until something really sticks. Recently we had an article in Trends, and it brought a lot of traffic on our website, and a lot of conversion. This was unexpected. We now have more than 200 people in the customer pipeline (in-between signing documents and finalizing the subscription). The minimum amount that we ask is €5,000 but the average oscillates between €30,000 and €40,000.”
Who are your clients?
“We have two big segments:
(1) the HENRY: High Earners Not Rich Yet. They are people in their 30s, they are not rich enough to have a classical private banker, not fool enough to ask a big bank to do their private wealth management, and they recognize themselves in what we do. Those people are typically McKinsey or Bain consultants, lawyers, doctors who just started their career.
(2) the DORA: Disappointed Older Rich Already (we invented that word, for the record). They are typically in their 60s, they used to have a private banker but they consider that this private banker did not bring a lot of value to them, so they want to try something new.”
One of the biggest Fintech’s challenge is how fast they can scale. What is your scaling strategy?
“Before scaling we try to be profitable at every stage. What we see in the US, with Fintech’s being considered as unicorns, seems totally crazy to me. The valuation of Wealthfront or Betterment is just through the roof when you compare it to the level of AUM that they have. It is about 10 times more than what you would typically pay in the industry to buy a company with the same AUMs. They get financed with hundreds of millions so they scale very fast.
As we speak, I do not have the ambition to be the European leader. I believe that the regulation is very tough by country and I would be happy to have just 10% of all AUMs in Belgium. I do not have crazy dreams to have 100,000 people working for us and billions and billions of AUMs. I do not have a Silicon ambition, I just want to be profitable at every stage and grow step-by-step. We get our kick when our customers thank us because they feel we helped them better manage their money or because they learned something new and valuable. If we do that consistently, profitable scaling will take care of itself.”
How important do you consider Fintech ecosystems?
“I think ecosystems are great if they can help other entrepreneurs to get ideas out of the ground more easily. In our case, it took us three years to get to the market, it was difficult because no ecosystem existed. To my knowledge, we are the only independent start-up that does what we do. In Belgium we hear about other ideas but they are probably where we were one year and a half ago. It would be fantastic to have a true Belgian Fintech ecosystem. A key element for that ecosystem to work, would be to have the regulator present in it.”
What are your major difficulties?
“Everything is going quite well actually. But when I compare with my previous life at Bain & Company, everything that had no added value to the job was outsourced. Here, it is a start-up, we do everything ourselves, including low-added-value tasks. One important difficulty is to focus my time and energy on things with the most added value.
Today I spend most of my time on three things: (1) customer acquisition, (2) administration, (3) product and IT development.”
How do you see the next future?
“We have an objective of €100 million of assets under management at the end of the second or third year. In terms of customer satisfaction, we use the net promoter score system, invented by Bain & Company, in which we ask one simple question to customers: on a scale from 0 to 10, how likely would you be to recommend Easyvest service to a friend? Our goal is to obtain a net promoter score of 10 or 9. If maximizing that metric means growing less fast, we will do it.”
What type of employees will you need in the future?
“The type of employees that we want is typically consultant post-MBA. They need to master the finance part of our product, which for these people can be understood in about 2 weeks. The more difficult part is client acquisition, education and explanation. So we are looking for people with talents in digital marketing, who can explain concepts, write blogs, present analyses to clients. We target people who are more data-driven than sales-driven. The profile that we love is typically a former consultant.”
What is your scenario for the future of the financial sector in Belgium?
“I think it will stay more or less the same as it is today and move very slowly. Big players will still be there, with maybe a couple of new entrants. But nothing will change dramatically. It is true that banks are changing a little bit but the regulatory pressure is very tough and they now have to deal with negative interest rates. From my experience, working with banks as a consultant, I can say that even when the public is ready for a fast change, we do not see it happening internally at banks. And they have a lot of good reasons for that, their legacy and IT systems have been there for ages and it is difficult to change them. They try to talk about digitalization, and they will probably get there. But I am not sure that they will ever provide the best service.
The financial sector is a very mature market. In the next 10 to 15 years we might see a defragmentation of it, with players like Easyvest reinventing the way very specific services are done. Customers might use different applications for different purposes. And then, within the next cycle of 10 to 15 years, we might see an aggregation again of all services via mergers and acquisitions, and the whole game will start again.”