Welcome to episode #9 of the Fiduciary U™ podcast. My guest today is Eugeny Prudchyenko, who is co-founder and CEO of EvoShare. EvoShare is an innovative cashback rewards platform that enables people to save for retirement while shopping online and locally at stores, bars and restaurants. Their service allows individuals to spend money at their favorite businesses and through booking online travel and receive up to 30% cashback rewards towards things 401(k), 403(b), HSA, 529 and brokerage accounts.
On today's episode, we discuss how the idea for EvoShare was sparked by a billboard, how they got their start in the 401(k) and 403(b) space working with employers, the challenges and risks he and his team faced as they architected their solution and how they overcame these obstacles. We also talk about the counterintuitive way that EvoShare creates alignment between spending and saving and the growing opportunity and demand for EvoShare in the wealth management space.
And be sure to listen to the end where Eugeny shares has advice on why 401(k) advisors need to continue to put pressure on 401(k) recordkeepers to innovate and offer solutions that include advisors rather than dis-intermediate them. And so with that introduction, I hope you enjoy this episode of the Fiduciary U™ podcast, with Eugeny Prudchyenko from EvoShare.
“I said, 'What if instead of channeling money to charities, we'll do this for 401(k) plan.'” - Eugeny Prudchenkyo
“If the 401(k) industry is not going to embrace new technologies, new technologies will kill the 401(k) industry.” - Eugeny Prudchenkyo
“We need to let financial advisors innovate.” - Eugeny Prudchenky
Josh Itzoe: Eugeny Prudchyenko, welcome to the Fiduciary U™ podcast. Thanks so much for being a guest today.
Eugeny Prudchyenko: Thank you for having me.
Josh Itzoe: So you are the founder and CEO of EvoShare, which we'll get into, but I think for just simplicity purposes is a technology solution that provides cash back for purchases that can be contributed into different financial accounts. So things like 401(k) plans or IRAs or HSAs or 529 plans, did I get that correct?
Eugeny Prudchyenko: Yeah, that's true.
Josh Itzoe: Right. Well, why don't you for listeners that may not be familiar with EvoShare? Why don't you provide a little bit of background about you and about the company and really kind of tell your origin story? Where did you EvoShare come from? How'd you come up with the idea and talk a little bit about your business?
Eugeny Prudchyenko: Yeah, sure. Thank you. Well, EvoShare isn't a short story. The idea of this platform was born in Ukraine. About 67 years ago. Well, it was just an idea we were doing something else. I was in charge of the largest microloan provider. It was a pawn shop network and of course it evolved to a financial organization that has payday loans. And that's exactly what I didn't like. I don't like making poor people even poor. So I left the company and we founded a couple of tech startups and we sold them eventually to competitors.
In 2015 it became obvious Ukraine is doing not so good. We felt not really comfortable developing our ideas. So we actually compiled the list of 100 cities. And by we, I mean, myself and my co-founder, Dan. My friend and co-founder we been high school friends. This is not our first business together. He's a CTO, I'm the CEO. So the tech guy and sales guy perfect combination as the heart from our venture capital partners. So we compiled the list of 100 cities and we boiled it down to three. And it was a San Francisco, Singapore and London. And I've been in London many times. Singapore is like my second home.
But I never had a chance to visit United States. So we flew to US just to see what's going on, right? And we landed in Detroit. So I still have my cell phone number from Michigan. And landed in Detroit and, no offense Detroit, but in two weeks it was a really depressive era that we had a chance to see. I said, "If all America is like this, I'm going to London." But of course we had tower. Flights booked, and we flew to San Fran. That was a different story. We decided to found the company here. So that's how you have share a story and began.
But the idea that we brought to the United States was completely different from what we are doing right now. It was similar to what AmazonSmile does when we buy something, a portion goes to the charity of your choice. We were trying to do the same stuff with a choice, but on a brick and mortar level. We working with moms-and-pops shops, restaurants, groceries. Well, and then in a year from that moment, it became obvious that we are not getting any traction.
Josh Itzoe: I think you might've picked the wrong company to fight with.
Eugeny Prudchyenko: Yeah. Yeah. Surprisingly we failed to compete with Amazon. Well, but everything worked out well. When I saw a Prudential billboard, I don't know who wrote this line, thank you very much to this person. So the line was something like, "The best donation is donation to your retirement." It was a donation period, maybe like September through December. And they were introducing this billboards to US people and it clicked. I said, "What if instead of channeling money to charities, we'll do this for 401(k) plan."
That's how the idea was born. And I called our attorney and I said, "Hey," his name is Eric, I say, "Eric, I have an idea. Can we talk about it?" Well, he said, "Well, give me your money and we're going to talk about it." So I did and in a week he said, "Well, it's impossible. There was no third-party contributions allowed in 401(k) plans, only employee and employer can contribute to 401(k) plan." So I was a little bit disappointed. We drank a bottle of vodka."
Josh Itzoe: And the light bulb went off?
Eugeny Prudchyenko: Yeah. But, it was not a bottle but it was a pretty descent amount of alcohol and in the morning I came up with a plan then I called them. I explained what we could do. Eventually it became, it became our proprietary process of putting party contributions into strictly regulated DC plans. So now we can do this and we are the only company that are doing this in the United States. So basically we can vouch all these cash backs mileage points someday, not now, but we are in conversation with the airlines.
We are converting them into something tangible. Into contributions to 401(k) plans. We also help people to pay down their student loans. We can forward this money toward IRA accounts, 529 accounts. And we partner with many organizations that I would say enhanced their products with our technology. We do not compete with anyone. We don't compete with financial advisors because we don't do advice. We don't compete with record keepers because, feel free to record keep. What we do, we just collect money from merchants and deliver them to financial industry. We don't manage assets and essential where increasing participation and contribution rates. That's what we do.
Josh Itzoe: So to be clear, essentially, what you've created is this kind of two-sided marketplace in some ways, right? You have people who are spending money and you're helping drive kind of traffic to different merchants. Those merchants when people are buying things with their credit card or so on and so forth, there is essentially for that traffic, if you will. You're getting kind of rebates. And then you're passing through some of those savings back to individual investors. And technically it's not a third-party contribution you're making, for instance, into the 401(k) plan.
What you're doing is more of an offset or a credit. So if somebody gets $50, let's say for a quarter of, savings or rebates through kind of using kind of your network, if you will, then you will essentially communicate with their company to say, so-and-so, make sure this quarter that you increase their contribution into their 401(k) account by $50 and effectively for the participant. They're getting $50 in kind of rebates or credits if you will deposited as a cash back. And then putting that $50, their own contribution, if you will, into their 401(k) plan. And so it nets out that way. You're not actually taking those savings and depositing them directly in the 401(k) plan, but it's more of an offset or a credit. Is that kind of a correct way to think about it?
Eugeny Prudchyenko: Yeah. You cracked the code, but it's not an offset. It's actually in that positive because if you are doing pre-tax contributions as an individual, if you're doing pre-tax contributions, your decision to increase your contribution rate will impact your taxes because now your adjusted gross income will be lower. So you will pay less taxes from that paycheck. When we send money to you to offset this additional deduction, it's non-taxable according to IRS because you're actually net positive—oh, it's just a one, it's just a wash. If you are doing rough.
Josh Itzoe: Rough yeah. But the beauty of it, a rebate being non-taxable that's where some of the magic happens? I have so many questions, obviously you started in the 401(k) space, just a quick little question, ERISA is a pretty complex set of laws. I'm sure the billboard from Prudential didn't necessarily say how complex it was. So if you had known how complex ERISA was, do you think you would use kind of 401(k) plans as the first place to go and try to build a better mousetrap?
Eugeny Prudchyenko: Well, if I knew everything, what I know right now about 401(k) plan, I would never come up with this crazy idea. This is for sure. This is super over-regulated industry, IRS, SSE, DOL, I'm not jealous that I'm not a financial advisor. At all. So I don't know how you guys, how you are doing this because it's just normal amount of pressure from compliance perspective, from a Fiduciary perspective, it's not an easy profession to be in. So, luckily for 401(k) industry, five years ago, six years ago, I didn't know that 401(k) plan exist.
So there was no such a thing in Ukraine, we've done many researches and many surveys, nationwide surveys and people were saying that they would love this rebates to go to 401(k) plan rather than an IRA. So I knew about IRAs then I learned about 401(k). Which tried to accommodate for this request. That's how this proprietary process was born. But again, we've started from the hardest and most complicated industry in the United States. I think it's much easier to sell weapons or drugs. I don't know.
Josh Itzoe: How complex and regulated?
Eugeny Prudchyenko: At least, that you are doing something wrong. With the 401(k), you never know, right? One compliance department will say, "Hey, this is something that we don't like." So what should you do?
Josh Itzoe: So I want to dive into kind of the experience from a plan sponsor perspective. So from a company perspective, before that from a participant perspective and from an investor perspective, so talk a little bit about kind of the network. How many merchants are you guys working with? Is this something that is national? Is it localized? Is it a small network? Is it a big network? How many merchants do you have? What's the size of that? What's that look like? How do people get those rebates? Do you send them a check? Do they have a credit card, talk a little bit about what the experience is from a participant perspective from an individual perspective.
Eugeny Prudchyenko: Sure. A little bit of history again, probably four years ago, we tried to acquire merchants one by one. We were trying to do this. And you're in six months we acquired seven notions. Not 7000, but seven. That's it. So it became, it's not scalable approach. So then we looked into affiliate network industry and the next year was dedicated to build a product that is integrated with the major affiliate networks. Now we are integrated with nine major affiliate networks. So they aggregate notions.
We don't need to go notion by notion. They aggregate notion. They aggregate offers. We just connect to the systems will deliver the user, which is participants in the 401(k) case. Whether we want the participant to them, they make a purchase affiliate networks and arrange everything including collecting the money from the merchant and passing this money to EvoShare And instead of keeping this money, we use our process to put it into 401(k) plan. So for the participant, it looks this, their employer sends a link, employer-specific link to join the program.
They click the link. We ask a very general information, name, email, and date of birth. And they're ready to go. They have their portal. They have their mobile apps that they can download. They can download browser extension, which we recommend to do because our browser extension will remind you about the cash back opportunities while you are just browsing the web, not exactly shopping. And then you just click the link, activate the cashback and that's it. We register this transaction and we do everything on the ground to collect the money. If you'd like to show up offline on brick and mortar level, you have to link your credit or debit card and it could be any card. On the condition then it shouldn't be discovered. So Visa, MasterCard, and American Express are good to go.
Josh Itzoe: So, Discover, you just haven't created a partnership with them or?
Eugeny Prudchyenko: No. We connected only to these three major guys and we discovered it's a different situation. But eventually we're going to be there as well. I think so.
Josh Itzoe: So as a participant, do I have a dashboard or a portal or anything that I can go on to see how much I've saved, month to date, year to date, to be able to track kind of my purchases and whatnot.
Eugeny Prudchyenko: Yeah, of course you have your dashboard, you have your mobile app, you have your browser extension. All these products will show you how much you would earn if you buy here and how much you've earned during the period. And what's more important. And this is what distinguishes us from many cashback programs. We always show the future value of this particular door that you've just earned. For example, if you're a 30 years old individual, you have 40 years until retirement, we will apply a percentage and an APR and calculate what's going to happen with your particular door when you retire.
So we call it future value. The same way are doing for 529 users. We calculate how much it will become when a child will go to college, same situation with a student loan, we calculate how much less you're going to pay the interest if you apply this to the principal. So this is what we do. So we always show the future value of the future impact. And you know what? We've managed to convince people to change their contribution rates. And I'm going to tell you one story. One lady called us when we in our diapers maybe four years ago, five years ago. She called us and she left a voicemail, "Okay, guys, call me back. You don't know what you've done."
It was like scary message. And we of course called her back. And she said, "Well, no. Everything is great. I just wanted you to know that every time you send me this email with, with a cashback, his dollar will become five dollars up on your retirement?" I thought to myself, if this $1 will become five, will my hundred become a 500. So she decided to contribute out of her own pocket because we showed her. Over and lower again, we show her this future value. So the result is that she saved, do a share somewhere around 40 bucks, 36, 40 bucks. And she contributed $800 dollars to her IRA from her own pocket that she was not contributing to her IRA for two years before that. So this is what we do. We change behavior.
Josh Itzoe: So you guys are using some call it behavioral design techniques, if you will, to kind of frame what the savings could look like. These kinds of relatively small amounts, but small amounts turn into really big amounts over time. And Franklin had a great sang. I often use this when I talk about retirement plan fees, he once said that small holes sink big ships. But on the flip side of that, right? Small amounts of savings that have the ability to compound over time and grow can turn into really big amounts over time.
So just in looking kind of on your website and doing a little due diligence in terms of, today's episode, it looks like that through these affiliate networks, that there's about 10000 plus kind of businesses that people can shop at and receive cash back and credit. And just in looking at some of the names, things like Walmart and Macy's and PetSmart and Expedia and J.C. Penny, and Target, and I'm sure, there's quite a bit more Groupon, Nordstrom. I mean, you name it Barnes and Noble, you name it. Most of the companies that people probably shop with what’s available, and I'm assuming you're getting access through these affiliate networks, right? So that's kind of your distribution mechanism, if you will.
Eugeny Prudchyenko: Correct. There are one to 1400 major businesses that we work online with, like you just mentioned Walmart and Groupon, all the major ones. And around 9000 businesses locally, and it's nationwide. Even if you go to Hawaii, you will find an opportunity to shop locally in Honolulu and other cities there. So we are nationwide. We are proud to build this network and our website isn't updated here. It's under development. Starting January you will see that we added almost 700000 hotels that offer great opportunities to save and give cash back.
So what will happen if you're an EvoShare user, you will spend less money that you would normally spend through Orbits or Expedia or hotels.com probably 10 or 20% less than they offer. And you will get up to 20% cash back on top of your savings. This is what we are launching right now. So it's available for all users, but our website is—
Josh Itzoe: Is it just a web-based app or do you guys have a mobile app as well that people can use?
Eugeny Prudchyenko: Yeah. We launched both mobile apps for Android and iOS in September. So now they're available.
Josh Itzoe: Right. Just of curiosity, you had mentioned that, obviously it's easy to track these types of savings if you will, when people are shopping online, but you also have call it roughly 9000 or so local businesses. And in order to track that people have to essentially link up. And I think it's for free, but link up their credit card or a credit card with the system. Is that correct?
Eugeny Prudchyenko: Correct. Yes. And I'm glad you asked because the technology that we're using allows us not to store credit card number or any other information. We don't ask for any other information besides credit card number, but we don't store even that. So we'll pass this information to credit card networks and we receive a identifier. So it's much safer way to work with them because in the case of the breach, we could possibly lose identifier. There is no use for this, for that people.
Josh Itzoe: So there is a breach of EvoShare that data is basically—there's nothing there. So it's different story if it's a breach of the credit card network. But if it's, God forbid a breach of EvoShare, just out of curiosity, with a mobile app and with these local businesses, are you guys tapping into geolocation services or something along those lines where if I'm out and my wife and I are going to go to dinner or something that, that I can go on the EvoShare app and say, "Okay, I wonder, is there a restaurant we can go to in downtown Baltimore where we live?" And if we're choosing between two restaurants, we can see, "Oh, this one here, we can get cash back."
Eugeny Prudchyenko: Yeah. That is exactly how it works. And if you wish you can set the app and the way that the app will notify you, that when you are near the location. If you are driving, we will not distract you from driving. But if you are walking or standing still we will share, "Okay, Josh, this is a couple of restaurants near you and maybe you'd like to visit them. So here's the deal."
Josh Itzoe: Safety first, Eugeny, safety first no distracting driving. Okay. So very cool. From a user-experience perspective, sounds like once you're set up, it's pretty easy. What kind of burden is this then putting back on plan sponsors because that's most of us that work in the retirement world. I think what we're seeing is that there's a lot of talk within the industry. And a lot of fear-mongering. I've said this on previous podcasts, but a lot of fear-mongering around things like fiduciary breaches and, ERISA litigation and all that stuff.
And while that is certainly possible for most companies, it's probably improbable they're going to get sued for breach of fiduciary duty, where more of the financial risk is when companies have operational failures as it relates to their retirement plan. Because these plans, they're not super easy to run. They're complex. There can be administrative headaches, and you can have errors if it comes to payroll or bad data or whatnot. And so does this create a lot more work for a plan sponsor when you guys are sending them these amounts to essentially withhold from participant paychecks on a periodic basis? What's the experience for plan sponsor? What do they have to do and how do they get set up? And then what does that look on an ongoing basis?
Eugeny Prudchyenko: Good question.
Josh Itzoe: I only ask good questions, Eugeny.
Eugeny Prudchyenko: Well then let me answer like my attorney answers me all the time. He has one answer to all my questions and he says, it depends. So it depends, Josh. Let me give you a couple of scenarios. So first scenario is, when we are connected to payroll company like ADP or Paylocity, we are integrated with them. So we can feed the data directly to the payroll and what will happen over the course of three months. You just, let's say you saved $100, we'll send the ACH transfer to a checking account and we'll feed the data to your payroll file to withdraw these 100 dollars from your paycheck. This is how we are doing this.
And we see if you're eligible through the API that we have access to with ADP and Paylocity. These are two companies that we are integrated with. So from operational standpoint, as a plan sponsor, you have to request an integration set up and that's it. Then we'll take it from there. If we do not have access to payroll file, we'll use our own standalone process, which is not so complicated. And it's four times a year. We send the file to plan sponsor and plans sponsor says, "Okay, these guys do with us and it's eligible. There was no max-out situation. So this person is eligible for additional contributions."
And it's an easy process. It takes probably 30 to one hour and it's per quarter. The problem is that people don't believe us. And when we say, okay, it's 30 minutes, HR people say onsite, "We don't believe you. It's going to take a lot of time." And in some cases, when you overthink the situation, it does take a lot of time. Back and forth, they call us, we answer, they call us, we answer. And that is because it's so complicated to be in compliance with the 401(k) rules. In some cases, we even have to amend a plan design document to allow one-time deductions, not the percentage, but one-time dollar deductions.
So, when you ask how complicated for plan sponsors to work with us, I answer this question. I'm asking another one. How complicated for EvoShare to work with plan sponsors? Well, we have to include everyone plan sponsor. Plan sponsor 401(k) committee, COC for a Head of HR, the financial advisor that is a consultant for the plan, maybe record-keeper and always payroll. So this is a lot of people to convince that we are not doing something wrong and it takes probably three months to onboard one plan sponsor. If we talk about 401(k). If we say, "Okay, let's put aside 401(k) component, let people to save toward their emergency savings accounts, which we provided to their IRAs, 529s, HSAs, and even taxable brokerage account. If we talk about the wealth managers, right?
Wealth managers, their clients are not eligible for IRAs because they're wealthy individuals. So we let people do for this monitor taxable brokerage accounts, all of a sudden our system becomes very easy to implement. It probably will take company to lunch. I don't know, half an hour, what 30 minutes to launch the program and it's completely hands-off. So no deductions, no payroll connection, no eligibility files going back and forth. So it all becomes very easy implement.
Josh Itzoe: So the path of least resistance is usually outside of the 401(k) plan. It's easier to get set up. And what's interesting is the fact that you guys can do, whether, you can do HSAs, or you 529 plans or I really think what's interesting is you brought up kind of emergency savings. That's one of obviously financial wellness is a really hot topic right now. And one of the issues that a lot of employees are living paycheck to paycheck. And so this is a way potentially that using kind of their normal spending patterns. There's a way to essentially get some of that back. And there's a mechanism.
So you do have employers where it may not be going into the 401(k) plan, but if they're able to set it up and set up some type of mechanism, I've heard more and more from some companies, especially based on their demographics, that if they have a lot of people living paycheck to paycheck, that's one of the things they're trying to solve for. So that's another way that potentially they can do it. And quite frankly, probably be easier on everybody, because there's not the compliance and kind of regulatory hurdles, you have to jump through. Is that a fair way to describe it?
Eugeny Prudchyenko: You are spot on Josh. It's a hot topic in the industry and believe it or not, 401(k) record-keepers are really concerned about people not have an emergency savings and it's not only about, well, they are good people, right? But they're doing business. And what they see right now that people are very deep into their 401(k) plans, accounts and withdraw money from them even with penalty, current administration made it very easy to withdraw money without penalty. So of course they are leaking in assets and they want to prevent people from doing this. They cannot prevent but what they can do is to educate and let them save for the rainy day. And EvoShare's solution is very simple.
You don't have to open a new bank account to start saving for the rainy day with us. So we spoke with many non-profits in this space, some companies that are tied to how much words you've heard about this black rock saving initiative, they committed $15 million to three nonprofits to develop and not just a savings solution but could be implemented nationwide. So we're talking to them, it's a very interesting conversation and very timely COVID-19 made it a hot topic.
Josh Itzoe: Sure, sure. Absolutely. Yeah. Buffett once said that you don't see who's swimming without, naked without a bathing suit until the tide goes out, right? When the tide's in and everybody's swimming, it looks everybody has a bathing suit on. And so I think COVID-19 obviously has exposed those are probably who are most financially vulnerable. Let me ask you this. Can you do just out of curiosity, what if, I'm saving plenty for retirement, but I'm charitably inclined. Is there any way to do charitable deductions or anything like that with the savings? Can you facilitate any of that or can you put it into a donor-advised fund or?
Eugeny Prudchyenko: Everything is possible in FinTech as you know. And as you know, we've started from this.
Josh Itzoe: And you started with Amazon smile, that kind of idea of competitors that is that kind of in the wheelhouse.
Eugeny Prudchyenko: We are hearing this request over and over again. So probably we'll work on a date for this. Not sure if I can say in the near future, but certainly in 2021.
Josh Itzoe: You said you're the sales guy. So you put it out there and you say it, and then all your developers, they yell and scream at you because you promise this stuff and put them under the gut.
Eugeny Prudchyenko: That is what I do.
Josh Itzoe: I started my career right out of college for a couple of years, I worked in the technology space and you'd get the sales guys who would sell what the developers called vaporware. And there was always this fight back and forth of you'd get the sales guys who'd sell something that didn't exist and then developers had to build it. But that was the term they used in vaporware. So one of the things you mentioned was for scale purposes, right? Getting integrations or partnerships, whether it's through the affiliate network, instead of this kind of one to one acquisition model that you have to go out to individual retailers if you will.
Or you have to go individually and knock on doors to companies and plan sponsors that the way you can grow is really through being kind of baked into solutions are integrated with solutions. And you had mentioned a couple of payroll companies, was it Paylocity and ADP? As two of the payroll companies that you're integrated with any other who are some of the integration partners that you guys currently work with and there's some FinTech solutions out there or obviously I think this fits really well into financial wellness, which is a really hot topic right now. So maybe talk a little bit about some of the partnerships that you guys have and that you've developed.
Eugeny Prudchyenko: Sure And I'm glad you mentioned the scalability component of this. So as a startup, we are focused on scalable solutions. And we thought that working with financial advisors and financial advisors shops and financial advisor aggregators like GRPA, for example, or resources, investors, advisors that our partners will give us this scalability, but because of the complexity of 401(k) solution, as a whole thing, we weren't able to scale EvoShare.
As we planned, we on board and hundreds of employers plan sponsors during this year but the total reach of people that we have access to isn't even close to what we were hoping to get from this partnerships. So then a couple of organizations reached out to us and actually it was 401(k) record-keeper, and I can name the company, the company called VPAS that's a record-keeper and 401(k) space. They serve from around 500000 participants. So they said, "Okay, guys, we want to do it. We'll like it, but we don't want to do it for 401(k)."
So it was a really weird situation when 401(k) record-keeper wanted to do it for something else and specifically for IRAs. So together with this company, we developed a product named IRA Rewards, and well, as you can imagine, they are responsible for IRA and we are responsible for the rewards. And it is a very clever move because they will offer it to 401(k) participants as a sidecar IRA and when participant change the job. They are not going to lose the—under the management.
So this is the major thing why they developed this and it was first assigned to me, but I didn't pay attention to that. I thought, "Well, that's kind of weird situation We're a small company it's scalable solution. We will accommodate for it for this, but we were still hoping to convince retirement advisors to push EvoShare forward." While they're pushing managed accounts that they're making money on, right? And they don't make money on EvoShare. So it's hard situation. It's really hard to make them feel comfortable to push us forward.
Then a couple other companies approach approached us and said, "Okay, we have a similar repayment solution. Can we add EvoShare?" Then another one, so the company named Thrive, we started with them. Then couple of 529 providers. One of them is a great visor. They embedded they were sharing to their user portal and their user experience. They even value a sharing to their pricing. Then it became obvious that this capability of Syntech partnerships is much higher than what we would work with individual financial advisors.
And even if we work with broker dealers or advisor aggregators. Now we are in the process of integrating EvoShare into seven platforms. Unfortunately, I can't disclose the names, but they are major HSA record-keepers and major financial wellness tools. The major ones with the millions and millions of accounts. We also starting many interesting conversations with payday loan providers to help people.
Josh Itzoe: I thought you said you don’t like payday loans—
Eugeny Prudchyenko: I don't like payday loans, but this company, we're going to do press release soon, they work with Fortune 500 companies. They provide payday loans at 19% APR, which is lower than major credit cards do. And we will help people to even lower this interest to pay. This exactly what I wanted to do. When they said that they are interested, I said, "Guys, whatever. I just want to do this because I hate payday loans. I don't like them." But they're doing a good job by themselves. And we're going to enhance their solution with our technology.
So from that perspective, working with FinTechs is much easier for us when we exclude 401(k) plan from the equation. And don't take me wrong, we don't drop it. We just make it phase number two. If a plan sponsor is seeing how we're doing good with emergency savings accounts or HSA accounts or whatever accounts and then they want to take it to another level and they want to go through the hustle but it's deliberate action. It's not like okay, you have to do this. Now it's their decision to do this. We are happy to help. We are happy to connect with them.
Josh Itzoe: So it sounds like in some ways, because you started in 401(k), you're obviously now kind of expanding out. And just some of the additional hurdles or headaches with 401(k) not that you wouldn't do it, but there might be an easier way to establish a beachhead with a lower kind of hurdle rate with a company by deal. Let's do emergency savings or let's do it in the HSA where it's just easier. And that might be a great way to do a proof of concept if you will or kind of a pilot with a company that once they kind of... I think it's funny that you said that a lot of companies, a lot of the HR folks, they think you're lying to them.
That's probably because they'd been conditioned. Because quite frankly, lots of folks, in my business like to lie to people and they've been burned one too many times because they've been told, they'd been, they'd been promised the moon and it hasn't lived up to expectation, but it sounds like maybe whether it's emergency savings or it's HSA, or if there's an IRA, something along those lines where it's not kind of the compliance burden, that might be an easier way for them to get their feet wet with EvoShare. And then it can expand beyond that maybe they bring in the 401(k) plan or maybe they don't have to.
It is really interesting around, I think you mentioned, was it BPA whoever the record keeper was adding this as an IRA put money in there and a lot of these record keepers, their big battle is when people retire or they leave a company, they roll their assets over. And so all the major record keepers are trying to do everything possible to keep assets on books. And so it sounds like this is, if I understand it correctly, with this record keeper, if somebody's got their 401(k) account and they've got their IRA where their cash back rewards from EvoShare are coming, and then they wind up separating from service or they wind up leaving.
It's easier for the record keeper to probably engage in a conversation like, "Hey, we already have an account set up with you. That's got X amount of dollars with it from your rewards. Why don't you roll your 401(k) balance into the IRA that's already set up and you don't have to go to a new custodian and you don't have to fill out all this paperwork it's already there. It's easy. It's simple. And it's a great way for them to keep assets on books instead of seeing those assets go out the door.
Eugeny Prudchyenko: That's correct. Their goal is not to add $501,000 per year to the account. Their goal is to keep $500,000 under the management this what they—
Josh Itzoe: That makes sense. One of the things I want to ask you about is just kind of FinTech in general. And you had mentioned that and this is anybody who has heard the previous episodes. It might be on every single episode so far that I have brought up the idea of just the ERISA space being the forgotten child when it comes to FinTech. That most of the FinTech is focused in kind of the wealth management retail, private client-focused world. Presumably because there aren't some of the regulatory compliance issues with a risk.
I mean, you still have FINRA and you still have the SCC but you don't have this additional burden of ERISA. Why do you think FinTech in general has not focused that much in the ERISA space? You guys are kind of interesting that you're one of the quite frankly, few kind of well-known FinTech startups out there that has really focused in the ERISA space. Why do you think that is?
Eugeny Prudchyenko: Because I was stupid enough to take this decision. And as I said, if I knew what you what I know right now, I wouldn't do it. If I were insider, it would be impossible for me even think in this kind of manner, of put in third-party contributions to strictly regulated plans. So I was liking not just having that information. And we had nothing to lose. I'm not licensed it. We are not financial organization. So it was easy for us to take this risk. It's not easy for any financial advisor. It always comes with a fiduciary responsibility. And this is what holds say, ERISA-related industry or ERISA-related part of financial industry from innovations.
But I don't know how to change this because unless you guys are going to fire everyone from compliance departments, then maybe come up with a new law. It's not easy to penetrate this industry, but what I want to worry you is two things. Just saying, if you do not invest in FinTechs, you're losing a lot of opportunity. I'm not saying about you. I'm just talking in general, the FinTech solutions are going to change this industry. So the second thing is if 401(k) industry is not really embrace new technologies, new technologies is going to kill 401(k) industry.
And we are seeing this already. So Betterment, they're disrupting IRA space, but now they are launching their product for 401(k) plan. Vestal, Guideline, Vestal is working with financial advisors. They are kind of good people who are financial advisors, but Guideline, no. Betterment, they're doing it directly. And they're charging ridiculously low fees. It's zero 25%. It's 25 BPs. And there is no fees for their IRAs. And they're doing a lot of IRAs. So what they do, they actually pull money from conventional time in the industry and manage this money.
Companies like Acorns are doing this. Companies like Dash, companies like Robin Hood, pulling people away from financial advisors and they're building a relationship with even younger generation right now. So once they earned a certain amount of money, $250550, $500000, they are not going to approach financial advisors because they know how to trade. They read this article that Robin Hood sends to them. So Robin Hood, Acorns, Dash, Betterment, all these companies are trying to pull money and pull people away from conventional financial industry, from financial advisors and they are building relationships with them now.
So what can we do? We need to let financial advisors to innovate because I'm hearing a lot of great ideas and zero implementation. Why? Because of the compliance, because of the fiduciary risks, it's just too risky to innovate within this space. And there are many examples of such a situation. If it's too risky to innovate, it's going to be a disruption. Instead of disruption, you guys can evolve. This is what I think is a good path for initial advisers, but it has to be—it should start now, otherwise all this robo-advisor school are the FinTechs—
Josh Itzoe: It's interesting. I think certainly you're seeing some of that. I mean, I do think when you look at the numbers and this is going back a few years from our report, but if you think about the robo-advisors and kind of the past five years have kind of been littered with robo-advisors that had a really hard time crossing the chasm and really succeeding in the B to C space. You've got a couple, you've got obviously Betterment, you've got Wealthfront that have a huge amount of investment behind them.
It's not hard to not have to make money when you've got kind of a war chest. It's a lot harder to survive when you actually have to be profitable and whatnot. And I don't think there's a land grab right now. I do a lot of the lot of the robo-advisors have struggled and have kind of either, been acquired by larger advisors, whatnot. I think the real opportunity, and we've definitely seen this. You've got robo-advisors from a FinTech perspective, but I think the real opportunity, especially in the ERISA world, and I know some of the FinTech providers are a Betterment, which obviously has been a lot of brand recognition, their success in the real world of the ERISA space and retirement plans is a very specialized area and it's hard for kind of generalists, even really good wealth management firms.
It's really hard for them to break into the legitimate 401(k) space because it is so specialized. But I think the real opportunity for FinTech in the ERISA space honestly, is not necessarily building another advisory service or a record-keeping platform. I actually think it's about building the pickaxes and the shovels, if you will. What I think the FinTech community needs to do is build the tools that help these really specialized advisory firms do their job better. Better decisions. Exactly. It's the picks and shovels if not necessarily the platforms.
And that's, I think a lot of advisory firms to your point, there hasn't been a lot of innovation. I don't think there's been a lot of VC money that's been invested. And most of the VC money I've seen has gone into the more retail kind of business to consumer space. But I do think there's a real opportunity. And whether that's you get industry insiders who say, "Hey, we're going to build and invest in building some of these shovels in these axes, that we're going to give to advisors." Or you get advisory firms who say, "You know what? I have a business problem that I need to solve and I'm going to figure out a way to kind of build technology to solve it for myself."
And then maybe there winds up being a business case around there. But I think as the industry evolves, especially as you see these record-keepers that are putting a lot of money into their technology stack, advisers who don't innovate are going or don't leverage more innovative FinTech tools are going to have a real hard time competing and scaling over time or finding partners like in EvoShare if you will, to kind of round out a solution for clients.
So really for clients, part of the value prop is your advisor. There are certain things I'm going to do for you, but I'm going to be on the lookout for trends and solutions that are evolving to help you plug holes that you need. And I'm going to kind of bring them to you. So I may not be delivering it directly, but I'm going to be the one who's kind of putting the puzzle piece in if that makes it.
Eugeny Prudchyenko: Yeah, but I'd to comment your notion about profitability. And I think this is the one thing that prevents, for example, a single financial advisory shop to innovate, you have to stay profitable. I don't have this problem. I have a line of investors that are willing to invest in EvoShare and to support the growth. It's not like this with financial advisory shops and it's not common that financial advisory shop approaches venture capital and says, "Okay, we want to innovate. Can you invest in us? Can you support?" It's not happening. Another thing is decision-making process. It takes years. If you talk to record keeper within 401(k) space, it takes years to take this decision, right? To make the decision.
Josh Itzoe: Or to integrate, right? If you want to integrate with them, it's a long time to do it.
Eugeny Prudchyenko: It's a long time to do this. And so the decision-making process takes more time than the lifespan of a startup. So the startup as a startup you have, 18 months, that's it. Then you drop. If you're not so stupid as me, you drop it. And believe me we've been through very hard times, but now we are okay. So this is the second one and the third one. And I think this is the way to go for financial forms. They have to develop a way to work with startups.
They shouldn't treat the startup company as just a vendor on an auction they work with, because if you put a startup company through the process of vendor onboarding with all this questioners, with all this question about SOC 1, SOC 2, from security standpoint, startup is not going to invest $500000 doors in two years into obtaining SOC 2 without validating the business model. So they have to make sure that they have a procedure that accelerates the process for a startup company. So they have to have a dedicated department to work with startups. That's how they should innovate in my opinion.
Josh Itzoe: And this is part of the issue quite frankly. I think in the ERISA space, especially around retirement is everybody wants stuff for free and as whether it's advisors or record-keepers, we try to accommodate that. But, just to kind of your point, we were talking a little bit before we started recording for the episode and just advisory firms that as you guys are bringing advisory firms on board, to be able to offer this solution out to their clients, one, there's an implementation fee that needs to be paid. And then there's obviously a monthly fee. But that implementation fee, I think it's important for you guys to be able.
You can't do it for free. And I think to your point, it kind of flows downhill. We get pressure around, we need to do more and we have a hard time charging for it. And so then the people that support us, we expect them to do it for free. And, in the long run, it's in your customer's best interest to make sure that quite frankly, EvoShare is profitable over time. Because if you can't make a business out of it, if you can't run a profitable business, you'll cease to have a business.
And I think that's a good point that you bring up, it's interesting when you talk about the investment, there isn't traditional VC money that goes into most RIA firms, advisory firms. There's a lot of private equity money that's coming in, but that's usually for one of two things, it's either to buy out existing shareholders or it's to provide capital for quite frankly, firms like mine, Greenspring Advisors, where we would take outside capital for the purpose of trying to acquire other firms like us. But not for, "Hey, we're going to put capital in and you're not going to use that capital to buy other advisory firms."
You're going to use that capital to build out a FinTech product or to build out a number of FinTech tools or anything that. And I'm just not sure most IRAs that appetite for kind of that risk probably isn't really there. So, but I do think that we need as an industry, folks like me, we need better pickaxes and shovels, and we need better tools. The better tools we have. I write about that actually in my latest book, the Fiduciary Formula, I talk about how, better tools and better analytics is going to allow people within the industry to make better decisions for clients. So I love what you guys are doing.
I had heard about you a couple of years ago and obviously you and I connected for the first time a few weeks ago, but I just love the idea that you guys have the fact that you guys are making it real. I think in this day and age, it's a pretty cost-free benefit that companies can offer to their employees as part of a total benefits package. And I'm always impressed when really smart entrepreneurs are able to see a problem that seems unsolvable and come up with a solution or a fix. So I give you a ton of credit. And one thing I did want to ask you, and I like to ask this of other kind of founders and entrepreneurs. What's the biggest mistake you've made since you tarted EvoShare. And if you could do it differently, what would you do?
Eugeny Prudchyenko: Well, I don't think that we've made mistakes. We've made some decisions that we've learned from, I can't name them a mistake. So the fact that we started from the 401(k) industry may seem like a mistake, but I don't think so. Now when we talk to 401(k) record-keepers we are very confident in what we are doing. But when we talk to IRA or HSA record keepers, where even overconfidence say, "Hey, we've done it for 401(k). So it's a piece of cake" And everyone. "Oh yeah. Now when you are with ADP and went through this due diligence processes, including visa and MasterCard."
So it took a lot of time to put together the platform. We were doing something that no one wanted us to do, or maybe I can call this a mistake. So the mistake is to listen to yourself, if you listen to yourself and do what you want, you may find yourself in the situation that you are the only one who wants it. So instead of doing this, you have to listen to market. And that's what we were doing all the time. Sometimes we were … and this is my fault.
Josh Itzoe: It sounds like it's worked really well. It sounds like, you've gotten through the difficult time that flywheel is starting to really spin. And like I said, there's a lot of great press around what you guys are doing a really unique spin on a problem that seems like it couldn't be solved. And so the purpose of this podcast is to make ERISA fiduciary smarter. And it all goes back to that billboard it's … fault. But it goes back to that billboard and you spend time in this space.
So what would be your single best piece of advice to make ERISA fiduciary smarter now that the kind of space, some of the challenges, if you were talking to people who are fiduciaries, what would be your greatest piece of advice when it comes to whether it's FinTech or whether it's employee benefits or participants, what would be your best piece of advice for them?
Eugeny Prudchyenko: So the audience of this podcast are mostly financial advisors, right? And I'd to give my 10 cents to what you guys are doing. There are many limitations within the business and most obstacles come from this fiduciary notion. You are a fiduciary on the plan, and you have to act in the best interest of everyone, including participants and employers, basically your clients. So you have all this limitations and there is no room for innovation, but you guys work with asset managers that have a lot of money and they can invest in new technology, new processes, new procedures that you work with 401(k) record-keepers, these guys have money to invest, and they have capacities to develop new solutions or integrate with new companies.
So my piece of advice, if I may, is just say it. Just tell this to your partners, tell to asset managers that, "We want something new, give us this." To 401(k) record-keepers and how can we improve all the procedures? Some record-keepers are sending faxes to plan sponsors. I mean, I don't remember when I saw a fax machine last time, but we just learned that there is a process through fax. So stop doing this. Stop working with record keepers that don't innovate and ask for innovation from those who do innovate. So this is my piece of advice.
Don't keep the silence. Don't wait, companies like Fidelity just to exclude you from the equation totally. It's a lot of buzz about disintermediation when large financial organization, one to approach clients directly without advisor being involved, well request from this organizations, a support and let them know that you are serious by saying that you are serious to just switch to another one. You provide the most of the assets to all this organization, you are the biggest force behind the asset movements. Well, fight for this and ask for innovations. If you don't ask, companies like Betterment and whatnot will come and they will get your clients. Not current but future ones.
Josh Itzoe: Right? Good advice. Well, where can people go to connect with you or follow what you're up to at EvoShare? We'll put it in the show notes, but what's the best way for people to connect with you?
Eugeny Prudchyenko: We have a contact form on our website. So it's evoshare.com and just contact us. We'll respond almost immediately. I'm not going to say immediately but almost immediately.
Josh Itzoe: Okay. Well, Eugeny, thank you so much for being a guest on the Fiduciary U™ podcast. I've really enjoyed our conversation. I love what you guys are up to and I'm excited to be able to help tell your story to the audience of this podcast and beyond.
Eugeny Prudchyenko: Thank you very much for inviting me and bearing with my English. So I hope your audience will stay with after you publish this podcast but next time my English will be improved. So this is my promise to you.
Josh Itzoe: All right. Sounds good. Thanks for listening to today's episode with Eugeny Prudchyenko from EvoShare. I hope you enjoyed our discussion and have a better idea about how cashback rewards can help your employees or clients save more for retirement. If you'd like more information or to learn more, go to fiduciaryu.com. I've got some great resources there for you, including each episode, along with show notes, articles, free tools and online courses. And make sure to sign up on the site so we can stay connected.
I'd love to help you stay in the know about what's happening in the world of corporate retirement plans. And if you've got questions, you'd like me to answer, topics you'd like me to discuss, guests you think would be a good fit for the show or any other feedback, I'd love to hear from you. Also head over to Amazon and check out my two books, The Fiduciary Formula, and Fixing the 401(k). And if you want an easy way to support the show, I'd really appreciate you leaving a review on iTunes. It's the best way to help other people find the show and I read each one.
Until next time. Thanks again for listening to the Fiduciary U™ podcast.
Greenspring Advisors is a registered investment advisor. The opinions I express on the show are my own and do not reflect the opinions of my guests or the companies they work for. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. The information and content presented on the show is for educational purposes only, and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk, and unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation, or objectives, and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment advisor to determine whether any information presented may be suitable for their specific situation. And past performance is not indicative of future performance.
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