Passiv // transforming your brokerage account into a portfolio management tool [UP082]

Nick McCullum 0:00
Our mission statement as a company is we want to make DIY investing accessible to everyone. So to the extent that we can do that through like some wonderful software, that’s awesome. That’s kind of what we spend the majority of our efforts on. But to the extent that we can also do that by helping people get educated, that’s also super important to us.

Jay Clouse 0:16
The startup investment landscape is changing. and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to Upside.

Eric Hornung 0:44
Hello, hello. Hello, and welcome to the upside podcast, the first podcast finding upside outside of Silicon Valley. I’m Eric Hornung, and I’m accompanied by my co host, Mr. Richie Rich fat stacks, big money acquisition himself, Jay Clouse. What’s going on Jay?

Jay Clouse 1:03
Well, I must not have given you too much detail about the acquisition. Yeah, it’s been we’re a month into the post acquisition phase of Unreal Collective, my private accelerator and community that was acquired by Smart Passive Income. And now I am in a role as Director of Community experience for Smart Passive Income. And you know what, Eric, it’s awesome. Not a lot has changed, other than my life feels more full. And all good things.

Eric Hornung 1:32
What are you gonna do with all of that? I’m assuming you got paid Elon Musk style money here, you know, 9, 10 figures. So what are you going to do with all that cash?

Jay Clouse 1:41
Well, your assumption is wrong. And I’m going to put it towards the down payment on the house that Mallory and I are closing on a week from us recording this on the eighth. So actually airdate of this on the 10th. I will have closed on this house. And thank you, in some part to the acquisition. So exciting times, Eric, engaged, house, acquisition, mega moves. What are you doing?

Just watching you, man? When you buy a house, is that like, are you actively going in there? And are you have a lot of work to do when you buy this house? Or is this kind of like sit back, oh this house is ready for me.

It is move in ready, like we could move in there and it’d be fine. But there are things that we want to change. And honestly part of the excitement for me, and Mallory doesn’t quite believe this yet until she sees me actually doing it. Part of the excitement for me is actually doing some of these projects. Like we have a whole bunch of popcorn walls like that textured, painted 80’s style wall, similar with the ceilings, but that’s called like rosebuds ceilings. So Mallory has really been leading the charge on researching how to change these things and things we need to buy last week, went to Lowe’s and bought all the equipment, but it’s gonna be a lot of work and doing that we’re gonna redo a couple of bathrooms. It could be move in ready, the basement is half finished, it’s going to become the podcasting studio. So some work to do down there. Our lease here isn’t even up until the end of May, because we extended it for two months. So we have months to actually work on house and then we can move into kind of slowly.

Eric Hornung 3:11
What you need is more projects. That’s what you need under under your belt.

Jay Clouse 3:14
Exactly. It’ll be good. It’ll be good to do something like with my hands where I’m not on a screen. So working really really hard to make that the weekend type of projects. It’s very active Eric, I am taking a very active stance in this in this one life that I have.

You’re right you only have one life. So you should go to our friends at Ethos Wealth Management who are helping you live that one life you have the best way you can, you can go to upside.fm/ethos to learn more. Today’s guest is not about being active Jay, it’s not about getting out there.

Today’s guest is about being very passive. We’re speaking with Nick McCullum, the director of growth of Passiv that’s P A S S I V. Passiv turns your brokerage account into a modern portfolio management tool. It allows you to set a target portfolio and get email notifications when your portfolio drifts from that target. And then Passiv lets you rebalance with one click Eric, I can tell that this is a guest that you clicked with. And you found because this goes right over my head.

Every time we find like a FinTech product or a FinTech company. It’s always in one of two spots. It’s always in infrastructure, or payments. And those are very interesting. And they’re changing the landscape a lot, but very rarely are Do we have something that’s in invest tech. So I’m excited to have this. I’m excited to have Nick on to talk about this.

Well, I hope I don’t bore you too much with the low level questions that I’m sure I’m going to ask about things like ETFs I have no idea what that acronym stands for. Passiv was founded in 2017 is based in New Brunswick, Canada, a new territory for us. And what a pun.

Eric Hornung 4:53
I think all territories up in Canada, not states.

Jay Clouse 4:56
I’m gonna pretend I did that on purpose. And yeah, I’m excited to talk with Nick about This, we’d love to hear what you guys think about this episode. As you listen, you can tweet at us @upsideFM or email us hello@upside.fm. And we’ll get into that conversation with Nick, right after this. Hey, listener, have you ever wanted to get a message in front of the Upside audience but weren’t sure how to sponsor this show or weren’t able to do a long term sponsorship? Well, now you can just go to upside.fm/classifieds. And let our audience know anything that’s going on in your world, whether it’s an event, an application, a special coupon, or deal, or just letting them know who you are, what your company does, all you have to do is go to upside.fm/classifieds. And you can place an ad on this show, that’s upside.FM/classifieds.

Nick McCullum 5:52
I’ve kind of worked in professional investment management, I guess my entire career. Now, it’s all started back in college when I was originally enrolled in a biology degree because I had kind of had my sights set on medical school. Turns out that I didn’t really have exactly a passion for like plant physiology or mammal anatomy. So I got pretty bored of that. I went to my academic advisor, and I said, hey, what can I switch into that will still allow me to graduate in four years, because I don’t really want to stay here like any longer than I have to. So she asked if I had ever considered a math major, I hadn’t. But that’s pretty much my only choice. That’s what I switched into. And it turns out that a lot of the good internships and summer jobs for math majors are in finance and accounting. So after that, that summer, I went worked at an internship for a big mutual fund provider here in Canada, TD mutual funds. So that was a really cool opportunity for me, because in the same building, you had people doing all sorts of different kinds of investment strategies, from fundamental equities, to fixed income all the way down to, you know, synthetics and derivatives and some more alternative investment strategy. So that was kind of my first introduction to the markets. I’ve been hooked ever since. After that, I went and worked at a fundamental equity research firm in Houston, Texas, where we were doing like deep dives on kind of blue chip stocks for retirees, the dividend paying stocks in general things like Coca Cola, and Johnson and Johnson. And after that, that kind of led me to pass it where I am today,

Jay Clouse 7:09
What percentage of college biology majors do you think would embrace going into math and finance?

Nick McCullum 7:16
I don’t know. I’d say there’s probably a pretty low proportion or probably is dumb, decided to make those career choices. But here we are.

Jay Clouse 7:23
Tell me about discovering finance. You mentioned, you got this internship, it was where the money was. But so often, the people who kind of get into finance are kind of groomed that way from an early age. Like I’m in finance. Now. My dad was in finance. Most of the people who I know who are in the space investments, their parents were you know, it’s kind of like this, you do it because your dad did it. You do it because everyone growing up told you to do it, not you do it because you happened upon an internship in college.

Nick McCullum 7:51
Well, it’s interesting that you say that, because like, I’m definitely an outlier. My dad is a medical doctor, my older sister Grace is a nurse or a nurse shoot sloppy for saying that she’s in medical school. And then I my other sisters are nurses and teachers pretty much and my mom’s a stay at home mom. So I’m the only one who kind of had the unfortunate path and ended up in finance. I don’t know that I was necessarily super drawn into the whole finance aspect from the beginning. But I would say from a young age, I was always pretty entrepreneurial. I was like starting little businesses going door to door selling knickknacks, or mowing lawns, that sort of thing. So as I was older, I kind of learned that you could actually do the study of business and kind of do business without actually having to start a business that was always really cool to me.

Jay Clouse 8:29
So what was it about? And maybe it’s the idea of just like studying business, but is there anything else about finance? You know, you said, since that time, you’ve been hooked? What is it about the things that you do in finance that are so interesting to you?

Nick McCullum 8:42
For me, it was always, you know, finance as a subject matter was always really interesting, because there’s all sorts of different ways to to implement your different, you know, economic beliefs or investing viewpoints. And because of that, I think there’s just such a, an amazing diversity of schools of thoughts within the field of investing in finance, that you can meet people all day long, and talk to people who work in finance, and it never gets boring, because everyone does things a little differently. So it’s, I guess, one field where everyone has enough common knowledge that you can really talk together and learn from each other. But it’s also so diverse that it never feels boring, and every day in the markets is something new. So for me, it was kind of that combination of you learn this core skill set that allows you to kind of play and craft in the field. But everyone does things so differently, that you’ll never get bored of it. There’s always something new to learn. And the way that the finance and investing world is so closely tied to the business news, there’s always something new to learn and catch up on. So for me, it was kind of the combination to be able to learn a core skill set and then never get bored because of how things change over time.

Eric Hornung 9:40
It sounds like a lot of your experiences in the public markets. And my reading into that right?

Nick McCullum 9:46
Yeah, until I was, I guess, joined the team here at Passiv as an early investor employee, I was pretty much exclusively doing like public market equity research. Yeah.

Jay Clouse 9:54
In the finance game, to my understanding, especially in the public markets, you’re playing a lot of long term games. So if you’re if You’re going into a world where everybody does things a little bit differently. And you’re coming in with your strategy. How do you avoid just constantly second guessing what you’re doing based on everybody else doing something different?

Nick McCullum 10:10
Yeah, I mean, for us, it was always really important that when we had a view on a stock or any other type of investment, that we wanted to lay out that thesis on paper from the outset, so that whenever anything happened to make us go that thesis, we can always go back and read, you know, why did we originally invest in this thing in the first place, because right now it looks like a dud. So having that kind of original reference to your first, you know, first mover point of view was always really helpful for us from an investor’s point of view.

Jay Clouse 10:34
So what is Passiv? Before we get into how you joined the team, tell us what Passiv is today.

Nick McCullum 10:39
I think the best way to understand what passive does is a software platform is to really kind of recognize the problem that we’re trying to solve for investors. So I guess let’s just rewind to the early days of Passiv when kind of the original prototype of the product was being built, Passiv was kind of conceptualized with one of our co founders, Brendan wood. And what he was trying to do at the time was he was managing his own retirement account, he was managing his wife’s retirement account. And he was also trying to manage two education savings accounts for his kids, basically, the Canadian equivalent of five to nine plans. So Brendan was busy guy, he’s a software developer, he had a pretty demanding job, but he wanted to make sure that his family’s future was on the right track financially. So what he did was he set up target investment portfolios for each of these accounts, basically the mix of stocks and bonds and ETFs that he wanted to be invested in. And then he would track his contributions to all of those accounts over time, and measure how close they were to the target allocations using a spreadsheet, the spreadsheet would do all the calculations found what he needed to buy or sell to stay on track for the future. And then it would spit out basically like buy or sell recommendations, you need to buy this much of this and that much of that, Brendan would then go back to his brokerage account, input all those trades one by one. And that’s kind of how he would make sure that his portfolio was on track to stay rebalanced over time. So that solution did the trick. But it was super like manual, labor intensive, lots of manual data entry spreadsheet calculations, trade entry at his brokerage, lots of, you know, friction in that process. And he thought there had to be a better way. So the original prototype of pass, it was basically a little python script where instead of having to actually do everything by hand, the script would read his whole account holdings from his brokerage account, and tell him what trades he needed to make. Now, he still had to go back to his brokerage account to enter the trades one by one, but it did eliminate a lot of the manual labor component of that process. After that, he told some friends and family about it, and they were all super interested, they wanted to use the tool. And he had the idea that maybe this might be like a commercial venture someday. So that’s kind of the story of how Passiv started. Today, we’ve expanded beyond that core feature set of just reading your account holdings. So the way that Passiv works now is you create a Passiv account, you pair that Passiv account to your brokerage account through a native API integration. And once that’s done, you set a target portfolio. Passiv, then does all of the sophisticated complications to calculations to figure out what you need to do to get invested in your target portfolio. And then it allows you to rebalance with one click. So we calculate your trades, you do a one click rebalance, Passiv sends the trades off to your brokerage, they get executed. And then the broker sends us back trade confirmation. So with one click, you get rebalanced. And then we monitor your account every day so that whenever assigned to rebounds again, you’ll get notified via email so that you can log in and do it again, just with one click.

Jay Clouse 13:11
So Eric knows this. I don’t do a ton of brokerage type training. So I’m going to ask all the questions that helped me better understand what this means, but I’m coming at it from like square zero. So when you say set a target portfolio, what does that look like for somebody who’s never done it before?

Nick McCullum 13:27
Yeah, I mean, that’s a super important concept. And it’s kind of really important to understand for people who want to try Passiv. Because before you can use our software, you have to have some sense of what you want to be invested in, you have to I guess, self educate to the point where you feel confident to pick your own investments, and then Passiv’s the tool that you use to stay on track over time. So what most of our users do if they’re like, not super familiar with the market and finances, not something they’ve always done is they’ll go to some outside resource that publishes model portfolios, usually, from the website of a financial advisor or something like that. They’ll kind of read about suitability, and what kind of portfolio would make sense for them. So then they pick a model portfolio from this provider and use passive to implement it. Does that make sense?

Jay Clouse 14:06
Yes, but when you say, picking a portfolio, are you talking about the types of financial products are we going down into level of like which stocks

Nick McCullum 14:13
usually most of our users don’t pick individual stocks just because they’re like the risks and concentration kind of inherent to that, but usually, it’s like a portfolio of balanced funds. So for an example, you might pick a model portfolio that has like 50% US stocks, 25%, international stocks, and 25%, like global bonds for just to keep it really simple.

Jay Clouse 14:34
Got it. And that’s based on my risk tolerance. So your example with Brendan, who has two retirement accounts, a couple of college accounts, he has a model portfolio across those types of financial products for each of those four accounts, and he’s saying I want to think of them all as one portfolio.

Nick McCullum 14:52
Well, actually, in Brendan’s case, it’s probably more likely that he had separate portfolios for like each likes or separate target portfolios for each account. And then I guess you manage them all together. But you are totally right that it relies totally on your risk tolerance. And one of the core components of risk tolerance is like time horizon. So for his kids, you know, if his kid was just born, they have probably 18 years until they’re gonna have to start drawing that down. And for his retirement accounts to me and Brendan today, I think he’s only 34. So he’s still got way more than 18 years before he’ll need to retire. And his longer time horizon inside that retirement account, he’s that he probably could have had a more aggressive asset allocation in terms of what he’s trying to achieve from a return point of view, if that makes sense.

Eric Hornung 15:29
Take me back to the story. Real quick. When did Brendan, when was like that v1, when was that beta?

Nick McCullum 15:36
Passiv as a corporation was created, I think September 2017. I think the initial prototype was kind of developed earlier in that spring.

Eric Hornung 15:43
And when did you show up on the scene?

Nick McCullum 15:45
Yeah, so it’s kind of a it’s a great story. So Brendan and I know each other because we both went to university on the same scholarship. So we met through like the scholarship alumni network, we both kind of worked in finance and stayed in touch that way, basically, through having a lot of common interests. So passive was a term I had always kept my eye on. And then in 2019, they kind of came an opportunity for me to join the team. And I kind of like jumped at the opportunity, just as excited about what they were doing.

Jay Clouse 16:11
And what is what is your role look like what with Passiv today?

Nick McCullum 16:13
Yeah, so I’m the director of growth at Passiv. I kind of see a lot of different parts of the business today. I’m a software developer, I guess, by trade. So I do some coding work on integrations at new brokerages and those sorts of things. I’m a back end developer specifically. So for anyone who is listening to this, who actually is like a big nerd of software, like me, we use Python and Django for our back end. That’s kind of like a lot of what I work with. And then our friends actually totally open source on GitHub. It’s a it’s a react app. So if you want to just look us up our organization name on GitHub is Passiv P A S S I V, no E on the Passiv. So I do some coding and then also run some of our marketing projects, doing stuff with our blog and with you know, sponsorships and those sorts of things.

Jay Clouse 16:51
So back to kind of this Jay’s five and trying to learn some of the stuff that for the first time give me an example of a brokerage account.

Nick McCullum 17:00
Yeah, so a brokerage account is an account with a financial institution that allows you to buy marketable investments. So what what is a marketable investment, it’s anything that trades on the market, the stock market, so one example is obviously stocks is a marketable investment. You can also have exchange traded funds bonds, and and they have trades on the stock market you can buy inside of a brokerage account. So down in the US, which is kind of probably where most your eyes will be from common providers. brokerage accounts would be like TD Ameritrade, Charles Schwab, Interactive Brokers, companies like that are where you would go to open up a brokerage account, and then all of the major banks would offer them as well.

Jay Clouse 17:33
How many brokerage accounts does a typical person manage?

Nick McCullum 17:36
Yeah, most people are kind of like in that one to three range. And the reason why stays pretty low is because like, in a lot of ways, there’s not too many advantages to having multiple brokerage accounts other than tax reasons. So that’s kind of why many people have like up to two or three brokerage accounts, because they might have like, you know, one, that’s just a normal taxable account. And then they might have a self directed 401k, or maybe a Roth IRA, where all of those are kind of doing the same thing, buying marketable investments, but doing it different tax sheltered or tax evaded ways. And that’s why they have multiple account.

Jay Clouse 18:05
And so are you saying that if I have a brokerage account, TD Ameritrade, for example. And I know what my target portfolio is, people are typically going in and doing this very manually, whereas Passiv is helping them pick more intelligently, I’m trying to understand what brokerage accounts don’t do, that Passiv is helping me to do.

Nick McCullum 18:24
Yeah, brokerage accounts normally wouldn’t do any of like the rebalancing calculations for you. So if you know that you want to have like a certain asset allocation, you’d have to do what Brendan was doing before Passiv may track that all in a spreadsheet, and then go into your brokerage account, login, execute all your trades, one by one, it becomes very time intensive. And then you’d also have to monitor it over time. So anytime that you’re curious about whether or not your portfolio is close to your target portfolio, you’d have to log in pull your data, dump it in a spreadsheet, do the calculations, and the whole process probably takes 20 minutes with passive the whole idea is you spent a little bit of initial legwork getting it set out to getting connected to your brokerage account. And from there on, it’s just on autopilot for the rest of your life, ideally.

Jay Clouse 19:01
Oh, okay, so maybe I’m having a light bulb moment. So I go in, and I’m setting up my brokerage account, and I’m hitting my target allocations. But because time is passing, and I’m earning money on some of these things, that’s what’s throwing my portfolio out of whack.

Nick McCullum 19:13
Yeah, so just to provide a super basic example, let’s say you’re like super aggressive investor who loves like technology stocks, and you want to go 50% Apple stock and 50% Tesla stocks, that’s like your target portfolio. Well, if you did that a year ago, Apple’s gone up a little bit, but Tesla’s gone up a lot. So now you might be like at 70-30 Tesla, Apple. So Passiv would have notified you along the way to say like, hey, just, you know, you’re way off from your 50-50 it’s probably time for you to sell your Tesla and buy some Apple tv back closer to that 50-50 target that you told us.

Jay Clouse 19:41
You mentioned that it checks it every day. How do you think about over rebalancing because there’s an optimal amount of rebalancing a portfolio and over rebalancing a portfolio can have just as negative effects as never rebalancing.

Nick McCullum 19:56
Absolutely, super, super interesting topic that most investors don’t think of. That’s about so the way that it’s kind of set up in Passiv just from like an implementation point of view is that we rely on this metric that we call portfolio accuracy. So that’s just a measure of like how close your actual portfolio is to your target portfolio. So, portfolio accuracy of 0% means that you don’t own any of your target portfolio, whereas the portfolio accuracy of 100% means you’re perfectly invested in your target portfolio. And then there’s like a big spectrum from 0 to 100. So, in terms of how often we notify you to rebalance, it relies on this related metric that we call drift threshold, your drift threshold is a number that you tell Passiv that you want to be notified whenever your portfolio accuracy falls below it. So to put some kind of basic example behind it, if you set your drift threshold at 90%, we’ll send you an email whenever your portfolio accuracy falls below 90%. So that’s kind of how the the rebalance frequency is kind of configured in the Passiv dashboard. And in terms of frequency, I mean, anything from from quarterly to semiannually, kind of in that sweet spot, I think is ideal for a lot of investors, because that way, you’re never going to get too far off track. But you also never, you know, incur unnecessary fees from over rebalancing too frequently.

Jay Clouse 21:06
This sounds really smart to me. Why? Why don’t brokerage accounts offer you this type of control?

Nick McCullum 21:14
I think brokerage firms. I mean, I’ve never run a brokerage. But I think that they have a lot of kind of technical debt and legacy technology stacks that make it really hard for them to iterate fast on innovative digital products. I don’t know what exactly these brokerages are building their backends on but I would not be surprised if a lot of them are still rocking like Fortran and stuff like that. There’s totally exceptions to that rule. We’ve worked with some super innovative brokerages as well. But for a lot of them, I don’t think software is like a super big priority. They just have bigger fish to fry.

Jay Clouse 21:42
So yeah, so it’s not it’s not necessarily a you don’t think it’s because they’re not incentivized to not do it from like a strategic standpoint. It’s more of a technological barrier.

Nick McCullum 21:52
Yeah, I think so.

Jay Clouse 21:54
On the allocation side of things, I’m just kind of curious, a little bit more detail here. I come in, and I’m Jay and I don’t know what I want, I go out and I figure out, Okay, I know that I want a 60-40 portfolio, 60% stocks, 40% bonds, am I the one picking the securities or is Passiv is saying hey, here’s a set of ETFs that we have picked out,

Nick McCullum 22:18
You have to pick it all the way down to the security level, we’re not registered as like a financial advisor or anything like that. So all in the security. So as selection and kind of investment decision making is kind of dependent on the user. But once you can feel confident to pick what your target portfolio is where the tool that you can use to help you implement that along the way.

Eric Hornung 22:35
Are you guys integrated with wealth managers or financial advisors?

Nick McCullum 22:39
Not at this time, no. But we’ve we’ve talked to a lot of financial advisors who would like a better rebalancing tool for their firms.

Eric Hornung 22:46
And then how do you guys make money.

Nick McCullum 22:47
So we wanted our pricing to be like as simple and transparent as possible, just because like a lot of the finance world’s not like that. And we hope to be like a bit of a refreshing solution that way. So we’re a software company, we’re priced as a SaaS business or a software as a service business. And the pricing is dead simple. There’s two ways to use Passiv, there’s a free version, and there’s a paid version, the free version is $0. And pay version is $99 a year paid with your credit card.

Eric Hornung 23:11
So why is there a free version.

Nick McCullum 23:13
You can think of the free version as basically like really portfolio management. So it’ll still read in your accounts or and you know, do all of the rebalancing calculations and those sorts of things. But we don’t actually execute the trades for you, you can’t get access to that one click trade functionality that so many of our users love. That’s kind of why you’d have to go to the paid version. the paid version also has a couple other like more advanced features that people really like, for example, Passiv Elite, which is the name of our paid version allows you to connect to multiple brokerages at once. So if for example, you had some investments at TD Ameritrade, you have some other investments at Interactive Brokers and maybe some other investments that even a third broker. Passiv would allow you to connect all those places at once and provide one centralized dashboard to manage all of your investments in one place.

Eric Hornung 23:53
What’s the next feature that you guys are developing for Passiv that you’re the most excited about? Could be this year’s roadmap, next year’s roadmap, whatever it is?

Nick McCullum 24:01
Yeah, so we’re super excited about that, I guess. Help people invest in the cryptocurrency space right now. So we’re about to launch a an integration with a cryptocurrency exchange that will make Passiv I think probably the best place to go and build your own customizable cryptocurrency index funds. So if you want a little bit of Bitcoin, a little bit of aetherium, some tethers and Litecoin, whatever other kind of alt coins that you want, Passivwill be able to, like Passiv will be the place to do that.

Eric Hornung 24:25
Passiv kind of like The Mint, except for it has integration features for a brokerage account. Am I reading into that, right?

Nick McCullum 24:32
Yeah, I mean, we’re kind of an account aggregator, but it’s two way I think meant I’ve never used it, but to my understanding, it kind of links up to your bank account tells you whether you’re budgeting properly or not, but it can’t actually do any transactions in your bank account, which is probably kind of by design. We’re like Mint but with two way data sharing. So instead of us just being able to read stuff in and give you like summary information, you can actually use us to make executable trades in your brokerage accounts. So similar to Mint, but with some extra module, I’d say.

Jay Clouse 24:57
How big is your team?

Nick McCullum 24:59
We have a seven full time employees and a couple part timers too.

Jay Clouse 25:03
Are you guys bootstrapped? Or do you raise some funding?

Nick McCullum 25:05
We were bootstrapped for four years. And then we just kind of just raised assess friends and family seed round to help us grow a little faster at the end of last year.

Jay Clouse 25:12
Well, here’s what I’m thinking about. I’m thinking about this sounds super smart. But it took me you know, quite a bit of asking you one of the team members questions to even understand like, how to use this. So it seems like your your customer, your user is pretty financially savvy. Right? So if this if the model is an annual subscription, how big is that market of technologically or financially savvy enough people to use Passiv?

Nick McCullum 25:39
That’s, that’s super good question. And something we think about all the time, because like, on the one hand, how many, how many people are there that have brokerage accounts? It’s I think, millions and millions, right? We know the numbers, but and then how many people those people are technology technologically savvy, we have no idea. But even if it’s just like 5% of people, we could still build a big business out of this. We’re all just about raising awareness right now.

Jay Clouse 25:59
Is there anything? Awareness one, but what would it look like to lower the bar of savviness? Like, where do you guys play in terms of educating and making things even simpler for dummies like me?

Nick McCullum 26:11
Yeah, I mean, our I mean, you’re talking to a fellow dummy here. So I have a lot of expertise in this area, I guess. I mean, our mission statement as a company is we want to make DIY investing accessible to everyone. So to the extent that we can do that through like some wonderful software, that’s awesome. That’s kind of what we spend the majority of our efforts on. But to the extent that we can also do that, by helping people get educated, that’s also super important to us. So we have like a lot of initiatives on our website, where the main goal is for us to empower investors through education so that they feel confident to be able to use Passiv to manage their investments. And even if they say screw past, when they go do something else, where they’re still doing self directed investing, we still consider that a win because, you know, this stuff, I think, pretty manageable for most people do, they just need to get the confidence to get started.

Eric Hornung 26:53
My head just goes to b2c finance, tech finance products just seems so hard to sell. How are you guys getting in front of people? What’s your you’re the growth guy? What’s the head of? What’s the like, growth strategy?

Nick McCullum 27:07
Yeah, I mean, we have so the biggest problem I think we have is that I think people don’t like talking about their personal financial lives with their friends. So if you just look at like, you know, Net Promoter scores or kind of measures of customer satisfaction, people use Passiv they all really like it. So you know, if we were running like a, I don’t know, some kind of b2b SaaS business, where people is just something a tool that people use for like a non financial part of their life, we think we’d have pretty good like viral growth that way, but you know, where this is more like personal and has to do with like your, your personal financial life, it’s a bit tougher that way. So for us, a big way we’ve grown is kind of just by hooking up with people who are in the financial space, linking up with them and saying, like, Hey, you have an audience, we have a great product, is there any way we can work together to make this, you know, get this in front of more people make sure that you’re winning as well, from helping us out. So to the extent we can do referral, marketing, affiliate marketing, and pairing up with people like you guys who have an audience with smart, educated people who might benefit from this, that’s kind of a big part of what we do in marketing. On the marketing side, I say.

Jay Clouse 28:03
I love that you have like this premium model. And it sounds like a really smart differentiation between the free and the paid version. Like I can totally see where I get in, like, I can do the free version, and then be like, oh, wow, this would be so much nicer. If it was just automated. I didn’t have to do this all manually, super smart. How did you guys land on the $99 per year price point? How much did you labor over that? Like, what if it was $199 per year?

Nick McCullum 28:24
Yeah, I mean, it’s just SAS pricing is super tough, right? Because on the one hand, you might want to charge based on value. And so while people might be able to, you know, ditch their financial visor use past and save 1000s of dollars a year, so maybe we should charge a lot. But on the other hand, from just like a cost of goods sold accounting perspective, there’s no incremental cost really to get new users on the platform, like our server bill might go up .001% or something. But practically speaking, there’s pretty much no incremental cost to a new Passiv user. So how the heck do you price the darn thing? It’s kind of tough, I would say $99 a year is good because we get a good amount of value, the customer gets way more value, and hopefully everyone’s winning. So that’s kind of how I think that was conceptualized. I wish I could say there was a lot more science to it than that. I’m sure we’ll probably try experiments in the future and try to figure out maybe some that works better, either from a getting a lot more signups or from us getting more money for sign up or what but that’s kind of like I guess the intuition behind that.

Jay Clouse 29:17
What can you tell us? Or what are you willing to tell us about conversion from free to paid or even retention for paid year over year?

Nick McCullum 29:24
Yeah, I mean, we’re pretty, we take our customer privacy pretty seriously. So probably not going to comment too much on that. But I guess what I will say is, most people use Passiv like the killer feature for them is like the one click trade functionality. The free version is great if you want to just log in and kind of try out and see what you know, the platform looks like I think anyone who kind of tries our platform would be pretty pleased with just the graphical experience. We have pretty crap designer who helps us really make it look pretty. But yeah, the one click trade functionality is super core to what we do. So a lot of our users do offer that paid plan just because Passiv saves you time. If you are Just do the read only free version but especially a heck of a lot more times you have access to one click trades.

Jay Clouse 30:04
I see on your guy’s website that there’s a few brokerages on your quest trade interactive brokers trade here apoc ameritrade, TD Ameritrade, how open have brokerages that are not on that list been to these integrations and this partnership,

Nick McCullum 30:20
I think if you think about what it’s like to run a brokerage firm, one of the things that would probably keep that CEO up at night all day long is like cybersecurity risk. And that’s totally fair, it should be a huge thing that they think about it, it’s a super important factor of running a digital business right now. So we’re always looking for new integration partners, we want to eventually support every brokerage firm in the world. But from the perspective of the guy running that business, if you can reach out and say, Hey, we’re starting out, but we want access to your customers counts, it can be a bit tough sometimes, really, what we’ve done is we’ve partnered with brokerages that have open API’s that authenticate through the OAuth protocol. So basically, what that means is, we have an API, the user has the ability to provide us access to their account kind of on an account by account basis. And they can revoke that access at any time. We don’t store any of their login information on our servers and those sorts of things. So it’s a really amazing way to connect is really secure, I’d say it’s probably the preferred way to connect to open API platforms today. And that’s kind of how we’ve gone about finding brokerage integration partners. And it’s been great. I would say like, just broadly speaking, in the broker space, for the firms that don’t offer open API’s, it can be very discouraging, because if they don’t offer open API, it really prevents their users are getting access to any innovative new tools like Passiv and so yeah, to the extent that there’s any one of the broker space, listen to this, talk to your dev team and see if they’d be you know, considered about developing open API and trying to iterate integrate with us and other platforms out there, like maybe plaid or mint or something like that. Where you guys based? We’re based in Fredericton, New Brunswick, which is on the east coast of Canada, a little town of 1000 people or 100,000 people. I mean, yeah, it’s close to where I grew up and it’s where we call home.

Jay Clouse 31:57
What’s it like building a innovative financial services company in New Brunswick?

Nick McCullum 32:01
Yeah, it has, it has pros and has cons for sure. So on the one hand, being a kind of a big fish in a small pond, if you will, has a lot of benefits, we’ve been able to work really closely with the regulators here, which has been a super pleasant experience. And that’s good. The office space here is super cheap, our office lease is I think, 1500 bucks a month or something. So that saves us a ton of money. And on the other hand, you get to really invest in people who come from a pretty non techie part of the world, and give them a tech job. And without having to pay like a Silicon Valley engineering salary. So the employee wins because we get, you know, to provide them a technical job that they don’t have to leave their home for. The company wins because it’s a little bit more affordable, everyone’s winning. And that’s kind of really cool. On the other hand, I would say we don’t get access to as much, you know, if we wanted to go raise venture capital round, it would be a lot harder out here. So there’s certain opportunities that we don’t get as much access to from being from a small part of the world. But overall, we’re pretty happy with it. I think I don’t think we change it for the world.

Jay Clouse 32:56
Do you feel like if you were to raise more venture capital, you would have to raise it from Canada? Or would you look to the states first?

Nick McCullum 33:02
I don’t see any reason why we wouldn’t look kind of globally for Venture Capital Partners, especially if they because of their geography would give us access to potential brokerage contacts that would let us set up integrations more on a more global basis.

Jay Clouse 33:13
Did you guys travel a lot to talk with some of these potential brokerage partners before lockdown probably.

Nick McCullum 33:20
Yeah, the coronavirus pandemic has changed everything for sure. I would say that a lot of the talks that we have with people can be mostly done virtually which is good.

Jay Clouse 33:30
This is awesome. I learned a lot. You are an extremely concise and great podcast guest this is going to be a dream to edit. So thank you. If people want to try out Passiv or learn more about what you’re doing, where should they go?

Nick McCullum 33:42
Check out our website a Passiv.com that’s Passiv.com, there’s no e on the end of the Passiv just to be clear, I guess. And if you have any direct questions, or you’re curious about anything, or even if you’d like a demo of the software, just send me an email. My emails mixed up at McCullum@passiv.com. I’d be super pumped to hear from anyone who listens.

Jay Clouse 34:02
Alright, Eric, we just spoke with Nick McCullum, the Director of Growth for Passiv, I feel a lot more enlightened in the ways of tech. Good timing now that I missed all of the GameStop diamond hands tandy stuff. Buzzwords, I don’t actually know everything is going on there. But I shared it hit some of the highlights with those words. Where do you want to start with this debrief?

Eric Hornung 34:21
That was pretty good. You know, for someone who’s like in media, I would expected you to been all over meme stonks.

Jay Clouse 34:28
I read I read a little bit into it. I just never, I never quite understood how shorts work or why you’re allowed to do them.

We’re not going to get onto the end of that on this podcast, because that’s covered literally on the entire internet. But I’ll explain if you ought to sometime. I want to start with Nick because 98% of the time on this podcast. We’re talking to a founder. It’s very rare that we talk to an early stage employee actually I think we’ve only done that one other time with Titania from Bark so taking a little bit of a different perspective here on the interview, it was cool to hear from Nick from what got him excited about joining Passiv and thinking more as an operator than a founder.

Yeah, and the difference is very subtle. I mean, I can, I can tell in my own. In my own experience, when I’ve been a leader in a leadership position, and not a founder, there is like a slight difference, but I still feel a little bit removed from the thing. Whereas when you’re a founder, like you’re so wrapped up in it, I didn’t get much of a sense of that separation from Nick. But yeah, it’s a little bit of a different perspective. And I kind of like it, I don’t think we’re gonna like go in that direction all the time. But I’m open to it. And I especially like the idea of talking to people in the growth role, because growth is something that I’m interested in. And something that I think I’ve historically been kind of bad at, at least thinking about intentionally. And so to hear from Nick, some of the things that they’re working towards and tried to work on in this is really interesting.

I think that the product itself makes a ton of sense, instant auto rebalancing. And they’re not claiming to be a financial advisor, they’re not setting your portfolio allocation for you, you have to come with some level of, Hey, I know what I want. But one click auto rebalancing, or zero click auto rebalancing is huge, because most people either rebalance way too frequently or never rebalance, and then they don’t have an optimal portfolio. So if this does it for you, I think that’s always a big issue in the market, specifically, for financial advisors, and wealth managers.

The thing that stood out to me about this conversation about this product and company is their customer is pretty financially savvy has to be to understand and get this, which to me, I feel like that limits the market a little bit, at least at this stage in the way they’re talking about it. And secondly, for that market, I feel like they could just be pricing so much higher, but I’m sure that’s something they’ve tested, it feels like that market, appreciating this as a service in this part of their life, would also understand the value of this at a higher dollar amount than it is. So that’s like the one shadow or thing that couldn’t quite wrap my head around or feel like this is really hitting the nail where I want it to be. Because I feel like you either need to go downstream a little bit and make this more accessible to more people. And this price point makes sense. Or, I don’t know if it’s a positioning thing, and you just change the price. Or if you need to change the product to reflect that price. I think the product as is feels like $99 a year is a steal.

Eric Hornung 37:34
So I would say I would actually push back on that a bit. I think if we’re looking at this as a b2c product, then the end C is either someone who’s kind of in that fire movement mindset, in which case, cost is like a very important thing to them, or the see is someone who’s highly sophisticated in in that latter bucket, they likely are paying 1% to a financial advisor already, you know, they’re really well off, they’re paying 1% they’re expecting their advisor to be doing this. So I don’t know that increasing the price is actually going to help them if they’re going to continue to go b2c because their core user, which I assume is like a fire that stands for financially independent retire early fire style person, which is a huge group, by the way, like it’s one of the largest subreddits on Reddit, it’s like this whole movement. So there’s plenty of customers out there, that type of person isn’t going to want to pay a higher price because they are inherently cost conscious. Whereas on the other side, everyone’s expecting they already get the service. So they’re not going to pay a high price for something they already think that they have. Where I think the real opportunity here is, is getting this software embedded in like a b2b style service, something that goes directly through financial advisors, wealth managers, and makes their lives so much easier. They don’t have to review profiles, it just happens automatically.

Jay Clouse 38:57
That’s interesting. So you’re saying these people who are getting paid 1% to help me manage my money, because they have so many customers, it’s hard for them to manually go in and rebalance all these portfolios. So if they had ping, ping, ping email notifications, every time that changed from Passiv, they could go and click the buttons, kick their feet up and read about stonks in the Wall Street Journal.

Yes, stonks because that’s what wealth managers call them. I would say that there’s some components of that already, probably depending on how large of a wealth management shop you’re at. But I think that this software still has a place, especially if it can be fairly automated and single click in nature.

I will say I love the freemium model that they have here. Because it just it’s like a very clear separation between free and paid. And there’s a very clear and obvious introduction into that moment when you wish you had paid which I think is hard to get right for for products that are thinking about the premium or the freemium path. A lot of times it’s like well, where do we draw the line of usage. When do we get this and ask them to upgrade to paid. And this is very, very clear, which I think is a really great strategy to be able to go to, if you’re staying on the b2c side, go to a broader audience say this is free, you can use this try it. So I think I think there’s a lot of opportunity here for for this company. I didn’t have like an exact market size to try to pin out how big it could be at $99 a year, but their margins are extremely high. They have seven full time employees. So it seems like this could be a very, very healthy business.

Eric Hornung 40:32
Yeah, I think this is, and it’s in a huge market investments is massive. Fidelity alone has 30 million brokerage accounts. And that’s just one player. So the market is huge. They can find their niche and still be a very large company here. I think that integration will become the next kind of hurdle as to which brokerages can you get in with which brokerages Can you integrate with because that’s going to be how they get to market because even if they are b2c, they still need the integration with the right brokers to get to that C because if you’re a C, and you’re on fidelity, I don’t they’re on Fidelity right now, then it doesn’t matter that Passiv is an amazing product. You can’t use it.

Jay Clouse 41:16
It didn’t sound like Nick had much fear or concern of brokerage accounts coming in and replicating the technology themselves in app, how do you feel about that?

Eric Hornung 41:26
I don’t ever trust financial institutions to innovate well. So I would make that concern. It’s always worth it for them to buy rather than build.

Jay Clouse 41:34
Cool, well, then I have no shadow there.

Eric Hornung 41:37
What do you want to see in 6 to 18 months from Passiv?

Jay Clouse 41:40
I want to see growth, I want to see how they are expanding into this market. I mean, my presumption would be the more free accounts you have the more paid accounts you have. So the strategy is probably to get more free accounts, get this on people’s phones and get them trying it out. You know, as we’ve heard in the past, adding new apps to phones is behavior that people do very slowly. So I understand that’s probably difficult. That’s what I’m looking for. I’m looking to see is this getting on to more people’s phones, I wish we could have gotten more numbers about retention. So the NPS is really high. So I assume their retention for paid subscribers is really high. But new free customers and new paid customers are only as good as high retention. So that’s what I’d be looking for.

Eric Hornung 42:24
On my end, I would want to see how discussions and integrations are coming with Vanguard, Fidelity and Schwab. If we’re looking at this as a venture basketball business, I think it has to get into at least two of those three, to make the market massive. I mean, Vanguard is by far the largest of those three. And I think that their future growth and future market size calculations are based on their ability to integrate with those brokerages. So I want to see how those discussions are coming. I know that they’re large institutions, so maybe they’re not fully signed up contracts in 6 to 18 months, but at least some positive indications there.

Jay Clouse 43:00
All right, dear listener, thanks for making it this far. We’d love to hear what you think about passive and their opportunity. You can tweet at us @upsideFM or email us hello@upside.fm. If you have more companies that are playing in this invest tech space seems kind of fun, we’d be open to pitches on those types of companies. Again, you can email us Hello@upside.FM. Thanks for listening, and we’ll talk to you next week. That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest. So shoot us an email at hello@upside.fm. or find us on Twitter @upsideFM. We’ll be back here next week at the same time talking to another founder and our quest to find upside outside of Silicon Valley. If you or someone you know would make a good guest for our show, please email us or find us on Twitter and let us know. And if you love our show, please leave us a review on iTunes. That goes a long way in helping us spread the word and continue to help bring high quality guests to the show. Eric and I decided there are a couple things we wanted to share with you at the end of the podcast. And so here we go. Eric Hornung and Jay Clouse are the founding parties of the Upside podcast. At the time of this recording. We do not own equity or other financial interest in the companies which appear on this show. All opinions expressed by podcast participants are solely their own opinion and do not reflect the opinions of Duffin Phelps LLC and its affiliates under a Collective LLC and its affiliates or any entity which employ us. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. We have not considered your specific financial situation nor provided any investment advice on the show. Thanks for listening and we’ll talk to you next week.