Individual investors directly and indirectly own nearly 80 percent of US equity markets, and 54 percent of US adults own stocks. “That means the general public owns corporate America,” says Josh Levin, co-founder and chief strategy officer of OpenInvest, an online investment advisory service that helps everyday investors align their portfolios with their values. “We’re in charge; CEOs work for us, report to us. But no one’s using their legal rights.”
According to Levin, that’s because the average American investor has up to 16 intermediaries between her and the companies she owns, with up to 100 fees in that chain. “It’s insane,” he says. “Welcome to the entire Northeast.”
Levin and his two fellow OpenInvest co-founders, CTO Phil Wei and CEO Conor Murray, want to shift the power in that chain away from unnecessary intermediaries and towards the actual owners of capital — regular investors. Their secret weapon: transparency. The company’s core product is a socially responsible investing (SRI) software platform. It allows mainstream investors to apply filters to passive, index-fund-style portfolios and easily divest from, for example, carbon emissions, the prison–industrial complex, or fossil-fuel producers.
Both the platform and OpenInvest’s company culture rely heavily on honesty, openness, and a flow of information way beyond the norm. We spoke with Levin and Murray about how their investment platform and their culture are helping create a world in which ethical investing is easy and personalized.
OpenInvest At A Glance
- Location: San Francisco, CA
- Founded: 2015
- Team Members: 10
- Impact: Has helped clients collectively avoid contributing to the production of thousands of tons of carbon dioxide and thousands of bullets and cigarettes, for example.
- Structure: For-profit Public Benefit Corporation
- Certifications/Memberships: OpenInvest is one of the first venture-backed Public Benefit Corporations
- Major funders: Andreessen Horowitz, Y Combinator, and more.
Mission statement: “To bring honesty and transparency to financial services by making it easy for anyone to apply their values to their investments, and to subsequently use their ownership status to drive change on the issues they care about.”
The Interview
At the highest level, what are you guys at OpenInvest trying to do in the world?
Conor Murray: Our overarching goal is to make it very easy for people’s lives to be aligned with how they want the world to be. One of the most powerful avenues people have for doing that is their capital: their long-term investments, their retirement portfolio. When you aggregate all the capital of everyone investing for retirement, it adds up to something very powerful, something that can influence corporate behavior and public policy. Through technology, we think it’s feasible to put that power back in people’s hands. We can manage your finances on your behalf by knowing what values you care about. It’s giving you control.
Tell us more about how OpenInvest is different from other impact investing options out there.
Josh Levin: An important nuance is our portfolio construction method: this is passive investing. Good sense says you should just be buying to hold the market, not trying to beat it. This is called passive investing, and it’s been supported by the growth of index funds replacing mutual funds. But the problem with passive investing is you traditionally can’t incorporate the things you care about. Usually, if you have personal views, like you don’t want to hold stock in weapons companies, you end up going to an active manager: someone who’s picking stocks.
Most mutual funds are active investing. They’re trying to beat the market. Unfortunately, over 90 percent of these funds fail to beat the market, plus you’re paying high fees and you also don’t have any shareholder rights. Through OpenInvest, we skip the fund manager and directly manage the portfolios. Our algorithms buy up the underlying stocks in a broad-based, diversified index fund.
It’s the first time you can buy and hold the market, so you’re minimizing fees and maximizing diversification, but it still reflects your
personal values. Not only does that keep more money in your pocket, but it also allows us to then deliver a lot of innovative tools. For example, we provide granular customization to your personal values, real-time impact reporting, and proxy voting engagement. That’s all only possible because we bypassed the fund manager.
In 2017, we rolled out the ability for people to vote in shareholder resolutions with a swipe on their smartphones, like Tinder. We let normal people weigh in on the things they care about — environment, society, politics. It’s never made sense to aggregate the views of all the millions of shareholders before, but now it’s totally possible for all the shareholders of Chevron, for example, to be having a conversation about what their company should be doing. That’s what we’re driving forward.
Tell me about the company culture at OpenInvest. What are your values? What are the practices you hold close?
CM: The origin of OpenInvest was myself and my co-founder Phil — Josh hadn’t joined us yet — talking about what we wanted to do next. We had both been at Bridgewater Associates . If you’ve read about the Bridgewater culture, it’s based on radical transparency. It’s hard to look at yourself objectively; welcoming other people doing that is a much faster way to grow.
Phil and I spent about four to six weeks exploring what we wanted to work on and how we wanted to work on it, delving into what values we had and what types of things would be appealing. The stuff that popped out was working on something we were excited by the mission of instead of some of the other offers and opportunities we had.
As we were going into business together, we wanted to extend a bunch of the Bridgewater principles: being very transparent with each other, being open about our weaknesses, being objective, looking at yourself and others, trying to get the truth, trying to get to the right answer in an open, straightforward dialogue. Those are the things we talked about at the outset.
When Josh joined us , he came from a different world. He’d heard about the culture, and we’ve been friends for a long time, but when we started, we had a conversation about how we wanted to run things and be with each other. As a lot of people are, I think he was excited about it in theory, but it plays out in ways that are uncomfortable and that people don’t really expect at the outset.
But Josh has become a major proponent, we still operate in this way, and I think he would agree it’s been a learning experience and somewhat freeing and refreshing to start operating in that open, transparent way.
JL: It was definitely an adjustment for me. We sometimes call it “radical transparency with a heart.” It ultimately leads to a lot of trust because you know that people are telling you the truth. If no one is saying anything to you, you know you’re doing a good job. In fact, a major violation is to ever say something behind someone’s back if they’re not there to defend themselves. If anyone has feedback, it’s always delivered to the person. And that’s just an example. That’s the type of workplace culture we’re trying to develop.
What are some concrete ways that your culture, values, and ways you operate have contributed to your product?
JL: It connects to the type of future we’re trying to build in financial services. In the past, competitive advantage in finance was based on black boxes and relationships. OpenInvest is building for the future of finance, in which we add value through technology and transparency.
CM: That said, I don’t think it follows necessarily that because you have an open and transparent company culture and way of being with each other, that relates to your products being open and transparent. That’s the case for us, but I don’t think one follows from the other. I don’t think Bridgewater, for instance, is like that. They’re not transparent about their investment process, the rules, all of their internals.
For us, are somewhat similar in that we believe in a high moral standard, we believe in transparency, we believe in owning mistakes and being very open about why they are , who was at fault, how they came about. You’ll see that in our customer interactions, being very forthright about anything we need to improve, setting up processes around getting critical and negative feedback from our customers.
Lots of companies thrive on feedback from their users, but are not necessarily working on Bridgewater principles in terms of their internal structure. I don’t see one as flowing from the other necessarily.
It seems like having both internal and external focuses on transparency would be additive. Has that not been your experience? It keeps you from being hypocritical, for one thing.
CM: I don’t mean that there aren’t benefits to being both at the same time; it is an easier story. It helps when you don’t have to have two modes of thought. It’s not that there’s no synergy or overlap, it’s just that one doesn’t imply the other.
What are some of the specific routines or tools you’ve brought from Bridgewater and found helpful, either internally or externally?
JL: If we make a mistake in a blog post, in a citation, in an execution on something operational, we publicly state to our stakeholders what the mistake was and take responsibility.
CM: We have an internal incident log reporting when things go bad. When things go wrong, it’s not natural to announce to the company why you made a mistake or how you messed up. That’s something that’s very encouraged at Bridgewater. They have a series of tools around how to do that, and we do as well. That’s a systemic process that’s carried over.
How would you recommend starting an internal incident log with no special software?
CM: The lightest thing could be a Slack channel just for errors, improvements, and incidents. Get everybody on the same page as to the goals of this reporting, and start with a standard template: “Any post in this channel will follow this format.” For instance, you have a description of what happened, the main parties involved, their responsibilities. And then you can get into what went wrong and why.
Focus on root cause, what’s behind that. You can’t ever say that a process broke or software failed, it has to come back to who did what: either the person who designed the software, the person who tested it, the person who thought up the requirements in the first place. Somebody did something wrong, and that doesn’t mean that person will be fired, but that’s the thing you have to understand, and you can’t shy away from “who did what wrong” if you want to get better. A high-severity incident will be a longer write-up, or a quick thing can be more of an FYI. You’ll want to iterate and evolve the format as your company grows and you learn about what makes sense.
Underlying all of this, though, the process relies on a layer of trust. You can’t just introduce these concepts at a place with a lot of internal politics. It doesn’t work. You need a shared understanding and buy-in that we should be objective with each other, we should be critical, we should be giving people straightforward, honest feedback, but there’s an agreement that the reason you’re doing that is so everybody can learn and grow faster. Without that common base, it’s just not going to work. People aren’t going to do it. People are going to feel threatened or attacked as opposed to seeing it as a learning experience or opportunity.
How else does this honesty and commitment to feedback show up in how you relate to your customers?
CM: It’s about how we sell our message through the website, the terms and conditions, our customer experience and onboarding, as well as things like being a public benefit corporation, committing to certain values, committing to be transparent about who our data partners are, why we think those are good, what we think the weaknesses are in their systems.
If our customers come in and we don’t think their financial health is ready for them to invest, we tell them that. If they’re not getting the most out of our services and there’s a cheaper option out there better suited to their needs, we tell them that. This is all part of the contract we want to have with external folks, which is very straightforward.
We believe that operating this way is the right thing. This is the brand of the future, the way more and more folks are going to be demanding companies operate — in a transparent and forthright manner. In 10, 20 years, large companies are going to have different values. They are going to be required to take stances on things. They are going to be required to be very forthright and transparent with their customers. That’s the kind of company we’re building.
