Syndicate content Business Insider
The latest news from Finance

More layoffs at SoftBank-backed companies, Salesforce faces questions, and another alt-data shakeup

Sun, 01/12/2020 - 10:30am

Hello! I'm advertising/media editor Lucia Moses, filling in for Matt Turner while he's on paternity leave. Welcome to your weekly roundup of our hottest and most insightful stories of the past week.

First, if you're into ads and media coverage, sign up for my Advertising & Media Insider newsletter here or my colleague Amanda Perelli's Influencer Dashboard newsletter here.

Now, on to the news: SoftBank has a big problem, and WeWork was just the tip of the iceberg. In the first week of 2020, four SoftBank-backed companies laid off 2,600 people in total as they struggle to get to profitability. As Megan Hernbroth has been reporting, startups from robot pizza-maker Zume to discount hotelier Oyo have swelled with backing from the Japanese investor, only to slash their workforces. And those layoffs don't include the contractors that many of these companies rely on and who have fewer protections than full-time employees do.

Salesforce swirls with questions

And after a big year, Salesforce is at a pivotal time as this is the year Wall Street will want to see results from its $15.7 billion Tableau acquisition and how it makes good on lofty sales targets. Analysts are predicting everything from Salesforce doing more acquisitions to Google acquiring it to compete with Amazon and Microsoft and Marc Benioff stepping back from his co-CEO role to focus on advocacy.

Finance and Investing

PE shop Vista Equity Partners paid $100 million for 7Park to get in on the alt-data craze. Insiders describe the management turnover, amped up sales pressure, and change in strategy that followed.

Alternative data's breakout year in 2018 brought interest from deep-pocketed investors hoping to cash in on the gold rush. But with new funding comes high expectations.

Construction tech is looking to disrupt an industry that's been notoriously slow to embrace change — insiders say these are the 10 contech startups to watch in 2020

Demand for cheaper construction has led to the application of new tech like machine learning, robotics, and drones. 

Goldman Sachs lost at least 36 partners last year. Here's a list of all the names we know — and details from insiders about how the exits are being celebrated

They've being feted with marching bands, celebratory dinners, and video montages, to name a few.

'High earner, not rich yet': How to tell if you're a 'Henry,' based on your salary, savings, and lifestyle

They earn over $100,000, are in their early 30s, and struggle to balance their lifestyle while still saving for the future, the experts say.

Online brokers like Robinhood are hyping fractional share trading — here's why they want to get you hooked on $1 slices of stocks

They're marketing the offering as a way for average customers to own popular but pricey stocks like Amazon and Alphabet.

Tech, Media, and Telecoms

Jeff Bezos said Amazon's third-party sellers are 'kicking butt' — these are the 7 most important issues for Amazon marketplace merchants in 2020, according to experts

They include first-party suppliers moving to the third-party marketplace and more big brands ending their relationship with the retailer.

With Grubhub reportedly looking to throw in the towel, SoftBank may finally have a winner in the food delivery market. But it may have a loser too.

Grubhub has been profitable, but it's duplicated some of the unprofitable practices of its rivals as growth has slowed.

Silicon Valley is facing an exodus of young employees. Here's why one tech investor is betting on Pittsburgh to take up the mantle.

"We like to say, 'If it's good enough for Google to go to Pittsburgh, isn't it good enough for XYZ?'" tech investor Patrick McKenna said.

The president of Marc Benioff's Time reveals how he plans to restore the neglected title and make it a billion-dollar business

It plans to expand the title to verticals like health and business and is even eyeing acquisitions.

Netflix insiders describe how movie boss Scott Stuber made Hollywood stop worrying and love the streaming giant

He's one of the streamer's most important executives.

How Hearst's effort to modernize its antiquated magazine business stressed out employees and led them to unionize

In a jittery media climate, many people want more certainty around pay raises and career paths.

Healthcare, Retail, and Transportation

Respira raised over $2 million to disrupt the embattled vape industry with a heat-free vaporizer. Here's the pitch deck that made it happen.

It claims to be safer than traditional vaporizers.

$2.2 billion Bright Health just struck a deal to buy a health plan and gain a big foothold in the lucrative Medicare Advantage market

The acquisition would substantially increase Bright Health's Medicare Advantage business.

Only 18% of the trucking industry's governing boards are women and Morgan Stanley just highlighted it as a potential industry risk

The average trucking company had a corporate governance board gender-inclusivity rate of 18%, lagging other public firms.

Inside the sneaker empire of Urban Necessities, which brought in nearly $21 million in sales last year and has plans to expand globally

The multimillion-dollar company combines consignment with traditional buying.

'We didn't ask for a meditation app, we want to be able to pay our rent': Starbucks is offering new mental health benefits, but employees are demanding different kinds of support

Some say free subscriptions for the mindfulness app Headspace don't cut it.



Join the conversation about this story »

NOW WATCH: WeWork went from a $47 billion valuation to a failed IPO. Here's how the company makes money.

Meet EQRx, a startup that just raised $200 million to take on Big Pharma by making drugs cheaper

Sun, 01/12/2020 - 10:13am

  • Meet EQRx, a company that's developing new drugs it plans to charge less for that'll compete for some of the highest priced drugs on the market. 
  • The startup just raised $200 million from investors including GV, ARCH Venture Partners, and Andreessen Horowitz.
  • CEO Alexis Borisy told Business Insider he's aiming to get the startup's first drug approved in 5 years, with the goal of having 10 approved in the company's first decade. 
  • Subscribe to Dispensed, Business Insider's weekly healthcare newsletter.
  • Click here for more BI Prime stories.

A new startup just launched that plans to take an unusual approach to the pharmaceutical industry.

EQRx wants to develop new drugs that work similarly to pills and infusions that are already on the market.

In the past, drugmakers that have taken EQRx's approach have been derided for manufacturing "me-too" treatments at high costs. But EQRx wants to make drugs that rival Big Pharma's costliest offerings, and then sell them at lower prices.

On Monday, the company said it had raised $200 million in a massive Series A funding round from backers like GV, Andreessen Horowitz, and ARCH Venture Partners.

New kinds of drug companies have cropped up to take on the high cost of treatments. For instance, a group of hospitals created a nonprofit generic drugmaker called Civica Rx, which has the goal of making generic drugs that are in shortage or have artificially high prices. This month, California governor Gavin Newsom debuted a proposal that could make California the first state to sell its own prescription generic drugs. 

EQRx's founders are big names in biotech: ex-Third Rock Ventures VC Alexis Borisy is serving as the company's CEO and chairman, and former Foundation Medicine chief business officer Melanie Nallicheri is coming in as EQRx's president and chief operating officer.

It's Borisy's first endeavor since leaving Third Rock this summer after a decade building and investing in biotech companies. 

Dr. Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center and an outspoken critic of pharmaceutical drug prices is a cofounder and will serve as an advisor to the company.

Also advising is Dr. Sandra Horning, a former executive at Genentech who's also a cofounder.

The idea is to develop entirely new drugs that rival some of the highest-priced drugs in the world, get them approved, and charge much lower prices for them. 

"I don't buy the argument that the pricing as we've seen it, that that needs to be the solution," Nallicheri told Business Insider. 

The approach

Already, drugmakers develop their own drugs that work similarly to one another. For instance, there are six drugs that target the proteins PD-1 and PD-L1 in the treatment of certain kinds of cancer.  Heart medicine Lipitor, which went on to be a blockbuster drug for Pfizer, was one of a number of drugs known as statins that worked in a similar way.

Typically, the drugs all come in around the same price as their competitors, drawing criticism for driving up the cost of healthcare.

Instead, EQRx's plan — if it gets its drug approved — is to charge a fraction of the price of rivals.

It still wants to make a profit, in part by keeping the price of developing the new drug much lower with the help of new technologies and processes

"If we achieve that, we should be able to charge a small fraction and still be as profitable as the businesses out there today," Borisy said. 

EQRx will look to compete with high-priced drugs that are on the market or are expected to hit the market within the next five years in areas like oncology, immuno-inflammation, and genetic diseases. As part of that, Borisy said, it plans to strike up partnerships with health systems and other organizations who ultimately pay for prescription drugs. 

When first starting the company, Nallicheri and Borisy reflected on their own experiences working within the drug industry. Both had experienced instances in which patients who needed the therapies the two had worked on weren't able to get access to them without assistance programs. 

"What we're saying is, take an innovative novel cancer therapy, can that be priced differently, still reward innovation, but therefore become so much more accessible for patients?" Nallicheri said. 

Changing the drug industry's economics

As it stands now, drugmakers have no restrictions on how high they set the price of a given drug. Prices often increase over time, and even in markets where there are multiple drugs competing, prices only seem to go up and up.

So why wouldn't a company — and its investors — expect to charge as much as the market can bear when developing a rival new drug? 

"What we're proposing is really good business," Borisy said. "I think at the scale of what we do with our products, we think we can build a highly profitable, high revenue, high growth business based on what we're doing."

From an investor perspective, Andreessen Horowitz general partner Jorge Conde likens it to how Amazon charges a lower price and can still make money.

"A better process will give you a better product," he said. Ideally, Conde said, investors stand to make more if EQRx can reimagine the pharmaceutical market. 

The promise of shifting the market was also attractive to GV, and made EQRx stand out compared to other biotechs the team has looked at.

"We're really interested in changing this part of the market," GV's Krishna Yeshwant said. 

Yeshwant said that when investing he committed to devote 20% of his time to working with EQRx, including making introductions to hospitals and health insurers who might buy its drugs.

"It's been one of the great joys of 2019 to take someone like [Borisy] who's developed tens of drugs and walk him into the door of a provider or payor he's never met before," Yeshwant said.

The timeline

To pull off the economics — getting to a place where drug discovery, development, and commercialization can happen much more efficiently than it does today so EQRx can justify charging a cheaper price for them — EQRx will have to move quickly.

Borisy said he's aiming to get the startup's first drug approved in 5 years, with the goal of having 10 approved in the company's first decade with a dozen more in development.  In 15 years, ideally, EQRx will have dozens of drugs on the market, he said.

So far, Nallicheri said, the company has 16 employees. Their focus during the first year will be on identifying a half a dozen to a dozen targets to get started on. 

It won't be easy, Conde said. 

"It's a great example of a hallmark of good engineering," Conde said. "It's simple, but not easy, elegant but not obvious. That's what these guys are building."

Join the conversation about this story »

NOW WATCH: Here's how to escape a flooding vehicle

The Fed's payments to the Treasury hit a decade low in 2019 as the repo crisis raged

Sun, 01/12/2020 - 9:16am

The Federal Reserve paid the US Treasury its smallest sum in a decade in 2019 as the central bank faced higher operating costs and income fell through the year.

The Fed paid roughly $54.9 to the government last year, compared to $65.8 billion in 2018, according to preliminary estimates released Friday. The central bank's net income for the year reached $55.5 billion, down $7.6 billion from 2018.

The Fed's market repurchase agreement, or repo, operations drove expenses higher through the second half of the year. The central bank added billions of dollars to the US financial system through repos and Treasury-bill repurchases after its key lending rate spiked on September 17. The rate spike prompted economists to fear the Fed lost control of its lending rate.

The scheduled repo offerings generally held the rate in its intended window, but a standing repo facility would be more efficient for the banking system, former New York Fed chair William Dudley said in a Monday Bloomberg Opinion column. A funding pool would effectively replace the Fed's capital injections and allow lenders to convert securities into cash reserves whenever they see fit.

"The spike in the fall was not a 'canary in the coal mine' signaling bigger problems in the financial system," Dudley wrote. "Instead, it reflects the difficulty in forecasting the demand for reserves given the changes in regulations."

The central bank's payments to the government peaked in 2015, pushed higher as its large bondholdings yielded massive interest income. Congress also called on the Fed to fund nearly $20 billion for a federal transportation bill, padding an already-large yearly payment to the US Treasury.

The Fed's income fell through 2019 as it cut down on its bond holdings. The central bank purchased a slew of bonds to help pull the US economy out of the Great Recession.

Operating expenses for the 12 Fed banks totaled $4.5 billion in 2019.

Final results are scheduled for release in March, the bank said.

Now read more markets coverage from Markets Insider and Business Insider:

Companies are on pace to pay more than $500 billion in dividends this year for the first time ever

The cost of Brexit for the UK will soar to $260 billion this year, a new study shows

Microsoft is rolling out new ad tools for retailers like Home Depot and Kohl's — marking its most brazen attack on Amazon's retail dominance to date

Join the conversation about this story »

NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption

Goldman Sachs says these 15 stocks are poised to explode higher as the economy thrives, based on an exclusive metric it developed

Sun, 01/12/2020 - 9:05am

  • Goldman Sachs says it's found a way to target the S&P 500 stocks that will benefit the most from continued and sustained economic growth.
  • That framing fits with the firm's view that the economy is going to improve this year, meaning those companies are very strongly positioned.
  • To find those promising companies, Goldman created a measurement called the growth investment ratio, which compares each company's capital and R&D spending to its cash from operations.
  • Click here for more BI Prime stories.

Everyone talks about investing for the long term, but how can that be measured? Which companies stand apart from the rest in planning for the future?

Goldman Sachs says it's developed a method to answer those questions, and calls it the growth investment ratio. It's based on the idea that the companies most aggressive about investing in their businesses will be best-positioned to take advantage of future economic growth.

"We calculate a firm's growth investment ratio as its total capital expenditures less depreciation ("growth capex"), plus R&D as a share of its cash flow from operations," wrote David Kostin, the firm's chief US equity strategist.

The ratio is based on the company's spending over the past three years. Kostin estimates that over that three-year period, the median S&P 500 has invested just 10% of its cash this way. But a few companies are making much bigger bets on growth.

Goldman's recommendations come at a crucial time, as investors look to overcome their most severe concerns about the trade war and its effect on economic growth. The firm's house view is that US growth will accelerate in 2020, compared to last year.

Below are the 15 stocks with the highest growth investment ratio, meaning that economic recovery could help them the most. Each company has a figure above 100%, meaning its capital spending and R&D is greater than its cash flow from operations.

The stocks are ranked from the lowest ratio to the highest.

SEE ALSO: A strategy chief at $7 trillion BlackRock reveals the 4 trends that will shape how the world invests for the next 10 years — and why the trade war won't scare her away from China

15. Bristol-Myers Squibb

Ticker: BMY

Sector: Healthcare

Market Cap: $153 billion

Growth investment ratio: 103%

Source: Goldman Sachs

14. Deere

Ticker: DE

Sector: Industrials

Market Cap: $55.1 billion

Growth investment ratio: 110%

Source: Goldman Sachs

13. Eli Lilly

Ticker: LLY

Sector: Healthcare

Market Cap: $132.1 billion

Growth investment ratio: 110%

Source: Goldman Sachs

12. NiSouce

Ticker: NI

Sector: Utilities

Market Cap: $10.4 billion

Growth investment ratio: 120%

Source: Goldman Sachs

11. Mattel

Ticker: MAT

Sector: Consumer discretionary

Market Cap: $4.9 billion

Growth investment ratio: 123%

Source: Goldman Sachs

10. Cadence Design Systems

Ticker: CDNS

Sector: Information technology

Market Cap: $20.5 billion

Growth investment ratio: 130%

Source: Goldman Sachs

9. Vertex Pharmaceuticals

Ticker: VRTX

Sector: Healthcare

Market Cap: $58.9 billion

Growth investment ratio: 132%

Source: Goldman Sachs

8. Alliant Energy

Ticker: LNT

Sector: Energy

Market Cap: $13.2 billion

Growth investment ratio: 137%

Source: Goldman Sachs

7. Regeneron Pharmaceuticals

Ticker: REGN

Sector: Healthcare

Market Cap: $41.5 billion

Growth investment ratio:140%

Source: Goldman Sachs

6. Synopsys

Ticker: SNPS

Sector: Information technology

Market Cap: $22.3 billion

Growth investment ratio: 152%

Source: Goldman Sachs

5. Diamondback Energy

Ticker: FANG

Sector: Energy

Market Cap: $14.8 billion

Growth investment ratio: 178%

Source: Goldman Sachs

4. Autodesk

Ticker: ADSK

Sector: Information technology

Market Cap: $42.4 billion

Growth investment ratio: 192%

Source: Goldman Sachs

3. Nektar Therapeutics

Ticker: NKTR

Sector: Healthcare

Market Cap: $4.5 billion

Growth investment ratio: 276%

Source: Goldman Sachs

2. Incyte

Ticker: INCY

Sector: Healthcare

Market Cap: $16.7 billion

Growth investment ratio: 394%

Source: Goldman Sachs

1. Advanced Micro Devices

Ticker: AMD

Sector: Information technology

Market Cap: $56.5 billion

Growth investment ratio: 1,140%

Source: Goldman Sachs

Credit Karma, known for free credit scores, has exploded into a $4 billion fintech. Here's why it's leaning on influencers and new products to woo Gen Z users.

Sun, 01/12/2020 - 8:04am

Credit Karma, long known for its free credit scores, launched as something of a marketing firm, connecting its users with credit cards and loans and getting paid by the banks that offered those products.

But today, it's one of Silicon Valley's hottest fintechs, with a $4 billion valuation and 100 million users. And its audience has grown fast. The 13-year-old company added 75 million users in the last five years alone and says 1 in 2 are millennials.

Reports from the Wall Street Journal and CNBC have pegged Credit Karma as a 2020 IPO candidate, though its CEO has said he sees listing as a means, not an end, and is more focused on launching new products than going public soon. Credit Karma has indicated it is profitable according to past media reports. 

As Credit Karma looks to do more than free credit scores, it's also eyeing the next cohort of spenders — Gen Z.

When it launched a high-yield savings account last year (its first financial product), it leaned on celebrity partners and influencers to get the word out to millennials and Gen Z.

At a press event in New York last November, Credit Karma and celebrity partner Jameela Jamil hosted journalists and influencers to talk financial wellness. Business Insider attended the event, which featured quippy personal finance-themed activities like a "nail your finances" manicure table, a "feng shui your wallet" organization station, and a tarot card reader to look into your financial future.

Jamil, an actor and activist, told her own story of going broke at 30 years old before booking a role on NBC's The Good Place, and spoke to the importance of managing your finances at any age.

We talked to Credit Karma's CEO Ken Lin and CMO Greg Lull about how the startup became a fintech, and the high stakes for making personal finance relevant for twenty-somethings.

Credit Karma raised $175 million in Series D funding from Tiger Global Management, Valinor Management, and Susquehanna Growth Equity in June 2015, and has since completed two rounds of debt financing and secondary sales.

Many are seeing a higher bar for IPOs in the near term, particularly for fast-growing tech companies. Across the board, thanks to high-profile, money-losing names like Uber and Lyft that have plunged in public trading, there's been increased scrutiny looking for sustainable growth. 

As we've reported, other buzzy fintechs like neobanks have based their business in part on referrals of their own — Chime, for instance, earns a portion of its revenue from referring customers to other fintechs like SoftBank-backed renters insurance startup Lemonade and fellow DST Global portfolio company Root Insurance.

Reaching Gen Z

As the first millennials approach their forties and Gen Z comes of age, marketers across industries are scrambling to figure out how to reach these digital-native consumers in a dispersed media world. 

Credit scores and personal loans aren't the sexiest products nor are they top-of-mind for consumers that are still in high school and college, so reaching this segment can be challenging for fintechs like Credit Karma.

For many brands, influencers have become a new way to get Gen Z's attention, and Credit Karma is no exception. Influencers can reach younger consumers — most of whom don't have cable — on dispersed media platforms like Instagram and YouTube.

But reaching them isn't enough. It's also about getting them to care.

"I don't think you can actually get 19 year olds to care about their credit and debt and finances," said Lull. "I've tried. I actually went to college campuses when we launched the app. One person told me that I should go talk to their mom."

Finances may not be that important to young consumers, and marketing can't fix that problem, Lull said. But Credit Karma still wants to be a relevant brand for the twenty-somethings.

"Even if we can't get them to use the product or get them to care, I think we can be in the background," Lull said. So when the time comes to get a credit card or refinance debt, they'll think of Credit Karma.

But Credit Karma isn't waiting around for Gen Z to start thinking about credit scores. 

It's launching new products that it thinks will attract customers of any age, like free tax filing and high-yield savings.

"A 22-year-old might not be interested in getting a credit card or an auto loan," said Lull, "but having a place to park their money that has a better interest rate than essentially zero — I think that's valuable."

Credit Karma offers 1.80% on its high-yield savings account product — on the higher end among the likes of Ally, Betterment, or Goldman's Marcus. With legacy players, the current national average savings rate of 0.09%, according to the FDIC.

In December, it also revamped its app, which was initially launched in 2012, to appeal to digital natives. Instead of just showing credit scores and credit card recommendations, it provides a summary of all open credit balances and Credit Karma savings.

Data is at the core of Credit Karma's business

Consumer data is at the core of Credit Karma's business. Without credit bureaus providing data around how consumers spend and borrow, Credit Karma wouldn't be able to recommend cards or loans to its users. 

"A credit report is so rich," said Lull. "It tells you how much debt you have, your creditworthiness. It unlocks your possibilities for refinancing or getting better financial products."

Now, with its free tax filing service, launched in 2016, Credit Karma has a view of what users earn, too.

"What's sort of magical about a credit report is also magical about tax returns," said Lull. With insight into the asset side of a person's finances, Credit Karma has a more holistic view, Lull said.

Credit Karma doesn't sell user data, even though everyone expects them to, Lin said. Instead, Credit Karma does the analysis and provides product recommendations to its customers directly. If a user gets approved for a bank's credit card or loan, the bank pays Credit Karma.

With access to both earning and spending data, Credit Karma is positioned to do more than offer credit scores and promote credit products.

At a press event for the savings account launch, Lin said that he has no desire to launch credit products or become a bank. Instead, his focus is on savings, and suggested retirement products could be in the pipeline.

The challenge of free

Credit Karma got its name not from Lin, but from Lull, a high school friend who would ultimately become the fintech's CMO. Lull joined in 2010, right as Credit Karma hit 1 million users. 

"The way we make money is we introduce you to a bank that might give you a better financial product and we get paid if you get their financial product," said Lull. 

Credit Karma will always be free, said Lin. But consumers are skeptical of the word "free," which almost always comes with a catch.

"If we are free, everyone expects us to sell their data," Lin said. "Everyone expects us to spam the hell out of them, because that seems to be the only way to make money these days."

As the company grew, Lin's promise of a free, spam-free business model was frequently challenged.

"I'd say, go create a brand new Gmail account, call it, register with that account, and the second you get a piece of spam, call me," Lin said. "I would just challenge people, promising that we don't do these things."

To be sure, for a free membership model where users have little incentive to delete accounts, stickiness is a less telling measure of success than customer engagement.

About 30% of its users visit the site monthly, Lull said.

Beginnings in marketing and getting buy-in

Lin got the idea for Credit Karma while running his own ad agency, Multilitics Marketing. Catering to financial services clients, Lin saw how banks and credit card companies' online marketing campaigns weren't targeted to specific consumers.

What if, Lin thought, you pre-screened consumers' credit and offer targeted credit products? Lin saw these tactics used by credit card companies for their mail campaigns, so why not online?

"It dawned on me that if you could create that model online, consumers would have a much better experience. They would know which products they were actually qualified for," said Lin. "Banks would be much more efficient, and there could be a really interesting business behind it."

By collecting credit score data, Credit Karma could recommend specific products like credit cards and personal loans to its customers and make money when they got approved.

So in 2007, Lin left Multilitics to start Credit Karma, which he cofounded with Nicole Mustard, the chief revenue officer, and Ryan Graciano, the chief technology officer.

But it wasn't always smooth sailing. Initially, Lin struggled to get buy-in from credit bureaus who saw Credit Karma as a potential competitor.

"When we were trying to look for partnerships, none of the bureaus actually wanted to work with us," said Lin. Bu Lin knew someone at TransUnion who helped him get a data contract through a channel that was mostly mortgage lenders, not consumer credit companies.

"He gave us the form, we filled it out, and we were very upfront about what we were doing," said Lin. "We got that contract through, but the reality is no one actually read what we were doing in that contract."

When word got out about Credit Karma's beta, TransUnion caught on and sent a 30 day termination notice, Lin said.

"In 30 days, we'd no longer have data. We'd probably be out of business," Lin said. 

So he called everyone he knew, eventually tracking down the email address of a TransUnion rep who agreed to meet him for breakfast. 

"The night before that breakfast is the most sleepless night I'd ever had. I really felt like everything that we've worked on was really dependent on that breakfast meeting," said Lin.

At breakfast, Lin insisted that TransUnion didn't need to worry about Credit Karma eating away at its small credit reporting business. If anything, Credit Karma would be taking market share from Experian, a TransUnion competitor and owner of

"We weren't gonna hurt them, and they could possibly learn things from us," said Lin. 

So TransUnion retained the contract. In 2014, Credit Karma added Equifax as a second credit score provider.

SEE ALSO: Credit Karma is launching its first-ever savings account, but its CEO says it doesn't want to become the next neobank

SEE ALSO: Neobanks like Chime are attracting billions in VC cash, but unlike most retail banks they don't do any lending. Here's how they've built a business on referrals and debit card swipes.

Join the conversation about this story »

NOW WATCH: WeWork went from a $47 billion valuation to a failed IPO. Here's how the company makes money.

Ray Dalio says that everybody is missing the key metric for saving America's economy from inequality — productivity

Sun, 01/12/2020 - 7:00am

  • Ray Dalio is the billionaire founder of the world's largest hedge fund, Bridgewater Associates. Last year he proclaimed that American capitalism had to be reformed. 
  • Now he tells Business Insider that people are misinterpreting that as a call for wealth redistribution, rather than for increasing the nation's productivity.
  • Productivity, or how efficiently a country is using capital and labor to create value, has been on a decline in America since 2004, and has been especially low since the financial crisis.
  • He told Business Insider that the US is headed in five years to an economic and social disaster on the scale of the era that saw the Great Depression and WWII unless it is able to take a bipartisan approach to reducing dangerously high inequality. He estimated there was a 30% chance of it happening.
  • To him, reforming capitalism means refocusing policymaking and financial regulation toward increasing productivity rather than short-term benefits. 
  • This article is part of BI's project "The 2010s: Toward a Better Capitalism."
  • The Better Capitalism series tracks the ways companies and individuals are rethinking the economy and role of business in society.
  • Visit BI Prime for more stories.

Ray Dalio sounded frustrated. He didn't want to debate policies, he didn't want to discuss presidential candidates. He wanted to focus on the priority no one was talking about.

I had called Dalio — the billionaire founder of Bridgewater Associates, the world's largest hedge fund — to get an update on his call to "reform capitalism" in America from last year, and his desire that the country's leadership declare inequality in the country a "national emergency." In the nine months since, the idea of rethinking capitalism had broken into the business mainstream, with advocates like the Business Roundtable, under JPMorgan Chase's Jamie Dimon, and CEOs like Salesforce's Marc Benioff saying that we needed to move away from shareholder primacy.

I went in wanting to see what he thought of these developments, as well as issues that Democratic frontrunners like Senators Bernie Sanders and Elizabeth Warren have been championing. When I asked what he thought about increasing wage inequality over the last four decades, Dalio jumped in. "You keep focusing on measures of inequality, as though those themselves…," he said, trailing off. "To me, the question is merely how from an engineering point of view, how to increase the size of the pie and divide it well." To be clear, he's written extensively about measures of inequality, and he's gone on the record about tax and healthcare reform. He emphasized that he wasn't going to make policy proposals on subjects he wasn't an expert in, but that, "If it increases the size of the pie and divides it well, I'm all for it." 

That message became his refrain for our phone call and follow-up emails: The economy's wealth and opportunities can be divided better, but it must above all else be grown to further benefit Americans over the long-term. 

And it reflected his point that over the past year, virtually everyone has been missing the most important metric: productivity, the measure of how efficiently a country is using labor and capital to create value. When workers are equipped with job-relevant skills, companies are innovating, and industries are growing, more products and services are created with more efficiency, and standards of living rise.

And yet: The United States' productivity has been on the decline since 2004, and has been low since the Great Recession. From 1990-2008, productivity rose annually an average of 2.32%, compared to 0.9% from 2010-2018. 

When Dalio talks about reforming capitalism, he's talking about any policies and regulations optimized to reversing this trend.

What it means to fix the system

Since the financial crisis, Dalio has been studying other debt crises, the rise and fall of great powers, populism, and polarization. He told me that he's giving the US five years before economic and social upheaval, akin to what it saw during the lead-up to WWII in the 1930s, hits it. He thinks it's an inevitability if the US either stays the course or takes a sharp turn left.


That's not to say he's opposing any liberal reform. Last year, in a "60 Minutes" interview, he said that "of course" rich Americans should be paying more taxes, but in our call he clarified that he is wary of any talk from the left that equates significant tax hikes with a solution, by default, to inequality.

"Let me be clear about something. Redistributing the wealth ain't going to do it. Because wealth doesn't last," he said, referring to the depreciation of assets. 

He's taking a basic free market macroeconomic approach here. If we took the current economy we have, he's arguing, and redistributed the wealth to reduce inequality, we would have different sized slices of the pie, but it would still be a lousy dessert. That said, if we continue on the current path, of relatively low taxes on the wealthy and corporations, that hasn't been helping, either. He wants policies that will allocate resources to improving our workforce and stimulating innovation, for the purpose of raising the quality of life for the least wealthy Americans (which could be done through new policies, as well). If raising taxes on the rich is done to fund such a policy, that's great.

Dalio sees everything in life, from nations' economies to person-to-person interactions, as composed of systems. These systems produce patterns that usually repeat, regardless of context. If you can recognize these patterns, you can then respond in the way that historically has yielded the best result. This is the approach that Dalio made famous at Bridgewater, from its investing algorithms to its work culture of "radical transparency" assisted by proprietary iPad apps. 

So, when a decade of economic and historical research is telling him that low productivity, drastic inequality, and polarity fueled by populism will lead to an upheaval of society that will hurt both our economy and social fabric, he's discouraged when others aren't on the same page. Or, that to some critics, he, as an investor with a net worth that Forbes puts at $18.7 billion, shouldn't be offering prescriptions to America's ailments. 

We've begun to demonize each other, he said, "And because of good and evil, 'billionaires are evil.' It's not like we could sit down together and figure out what's best."

He desperately wants Americans to turn to moderate leadership and keep productivity as their North Star.

It's all about productivity

In his LinkedIn essay about reforming capitalism that accompanied his "60 Minutes" appearance, Dalio included charts showing the ways that wages have remained stagnant for the bottom 60% of Americans since 1980 while the wages for the top 40% of earners have increased, how the percentage of young people making more than their parents has sharply decreased over that time, and that the income shares of the 1% and 90% are at 1930 levels. All of that means that even when unemployment is low and the stock market is doing well, as they are now, the winners have been those who have been doing well for the past decade.

Due to a variety of factors, like automation and moving jobs overseas, productivity has lagged, and its tied to the symptoms described above.

A 2017 McKinsey report noted that starting in 2004, labor productivity fell from growing at an average pace of 2.1% annually to 1.2% over the next decade. There was a "brief spike" during recovery from the recession, but the rate since 2011 has been only 0.6%. 

Dalio thinks there are multiple ways to reverse this, including a coordination of monetary and fiscal policy, as well as increased taxes. But redistribution will not be effective unless productivity is also invested in. 

"Keep in mind that we 'eat our productivity,' meaning that what we consume is what we produce," he said. "And what we have,  i.e. our wealth, won't last long, so we have to constantly be mindful about making our productivity greater, which is not what I'm seeing."

The country must invest in education

Dalio considers education "the most important example" of how to raise productivity.

As Dalio became more interested in how America's economic health fit into the wide expanse of history following the financial crisis, he became increasingly fascinated with empires' life cycles, and became a big fan of historian Paul Kennedy's 1987 book, "The Rise and Fall of the Great Powers." He undertook a research project into the subject, considering eight measures: education, technology, output, share of world trade, military, strength of the financial sector, and reserve currency status.

"Education is the best leading indicator of an empire rising. And its deterioration is the best leading indicator of a society declining," he said. American students currently test in the bottom 15% of the developed world.

It's why Dalio and his wife invested $100 million last year in Connecticut's public schools, an amount matched by the state. He's an advocate of public-private partnerships for education, because the private sector can impart what skills it needs to innovate. 

An example of what this could look like is IBM's P-TECH school model, in which public high school students can take skills-based classes in addition to the state curriculum, get access to exclusive internship and mentorship opportunities with a particular corporate partner, and go to a partner community college at no cost to work toward an associate's degree.

As Dalio sees it, if America is going to reform its economy, it needs to rethink public education as a way of building a workforce equipped for a rapidly changing world.

It's a dangerous situation

Dalio said that his research of the past decade led him to conclude that there is a clear cycle that can emerge from periods of extreme inequality. 

Step one: resentment. Step two: demonization of the other side. Step three: causes become more important than the systems for solving disputes. Step four: a revolution totally disrupts the system.

He said that he'd put the US right now at step two, with signs of step three. "Revolutions occur because modifications of the system are typically not enough to satisfy. And so what happens is you go through this cycle all the time. People demonize the other. And they make good and evil," he said.

Dalio instead wishes for a moderate president who would declare America's inequality a national emergency and create a bipartisan board to develop a plan for increasing the nation's productivity. Given the reality of America's polarization — and how Sanders, a top presidential candidate, is outright calling for a "revolution" of the system similar to what President Franklin Delano Roosevelt engineered — Dalio recognizes that it's a longshot. He put the odds of the country headed toward a bipartisan, measured course that would address his concerns at just 30%.

In an election year that's kicking off a new decade, America is at a turning point in its history, and staying the course is going to lead to upheaval. "These things happen over and over again. This is not new," he said. There's a faction of Americans who want that upheaval. Dalio wants to avoid that more than anything.

More from "The 2010s: Toward a Better Capitalism"

The mainstreaming of Occupy Wall Street: How rethinking American capitalism became the most important debate of the 2010s

This 33-year-old economist hasn't just helped shape one of Elizabeth Warren's and Bernie Sanders' boldest policies — he's been changing how you think about wealth, whether you know it or not

Here's how Elizabeth Warren helped ignite the largest antitrust political movement since the '70s

Big countries are refusing to tackle climate change, so companies are stepping in. Take an exclusive look at a tool the UN hopes will revolutionize the way these businesses track sustainability goals.

What investors need to know about opportunity zones, the controversial solution for inequality that has big bipartisan support — and that will be a top issue of the 2020s

Toys R Us is bouncing back from bankruptcy, and the way it's treating workers shows what American labor rights could look like in the next decade

America's most influential flight attendant helped end the longest government shutdown. Now she's on a mission to revive unions — and she tells us why labor rights will define the next generation.

As CEO of Patagonia, I have seen first-hand how collaboration between businesses can drive climate justice — and it's what we'll need to build a sustainable future in the 2020s

SEE ALSO: The best books of 2019 on how we can rethink today's capitalism and improve the economy

Join the conversation about this story »

NOW WATCH: Ray Dalio says the economy looks like 1937 and a downturn is coming in about two years

How the Strait of Hormuz, a narrow stretch of water where ships carry $1.2 billion of oil every day, is at the heart of spiraling tensions with Iran

Sun, 01/12/2020 - 6:17am

  • Recent tensions between Iran and the US are threatening the safety of the world's ships and movement oil in the Strait of Hormuz.
  • The narrow strait is the most important chokepoint for the world's oil supply. Some 21 million barrels — or $1.2 billion worth of oil — pass through the strait every day.
  • One way Iran could exact its revenge on the US and its allies is by shutting or harassing tankers in the strait, which would disrupt oil supply and send prices shooting up.
  • Visit Business Insider's homepage for more stories.

Tensions between the West and Iran bubbled to a historic height in recent days after the assassination of top Iranian military commander Qassem Soleimani and Tehran bombed two Iraqi bases that housed US troops.

They have sparked fears of wider US-Iran attacks in the greater region, which could take place in and around the Strait of Hormuz, a narrow body of water linking the Persian Gulf to the Gulf of Oman, which feeds into Arabian Sea and the rest of the world.

While Iran's leaders claim to have "concluded" their revenge for Soleimani's death — and President Donald Trump appears to believe them — many regional experts and diplomatic sources say Iran could unleash other modes of attack, which include unleashing allied militias to disrupt the Middle East.

One strategy could include Iran closing the Strait of Hormuz, which would stop oil tanker traffic, disrupt global oil supply, and send prices shooting up.

Here's what you need to know about this valuable strait.

Why is the Strait of Hormuz important?

Though the strait is tiny — at its narrowest point it is just 33 km (21 miles) across — it's a geopolitically and financially crucial chokepoint.

It's the world's busiest shipping lane, chiefly because there are limited alternatives to bypass the strait. Most of the oil that passes through the strait come from Saudi Arabia, the US Energy Information Administration (EIA) reported.

Some 21 million barrels of crude and refined oil pass through the strait every day, the EIA said, citing 2018 statistics.

That's about one-third of the world's sea-traded oil, or $1.2 billion worth of oil a day, at current oil prices.

How important is the strait to the US and its allies?

The US and many of its allies have billion-dollar reasons to protect the Strait of Hormuz.

The majority of Saudi Arabia's crude exports pass through the Strait of Hormuz, meaning much of the oil-dependent economy's wealth is situated there. Saudi state-backed oil tanker Bahri temporarily suspended its shipments through the strait after Iran's missile strikes in Iran, the Financial Times reported.

The UK Royal Navy has also sent vessels to escort British ships to protect them from potential attacks amid the heightened tensions, the Press Association reported.

It has good reason to worry: last July, Iran's Revolutionary Guards seized two British oil tankers sailing in the strait's international waters and, according to the UK, attempted to harass another British tanker.

Last June Iran shot down a US drone flying near the strait, and a month later a US warship — USS Boxer — also shot down an Iranian drone in the same area.

Shortly after Iran's drone attack, President Donald Trump questioned the US' presence in the region, and called on China, Japan, and other countries to protect their own ships passing through the Strait of Hormuz.

Trump noted that much of China and Japan's oil flow through the strait, and added: "So why are we protecting the shipping lanes for other countries (many years) for zero compensation."

While a large proportion — 76% — of oil flowing through the chokepoint does end up in Asian countries, the US still imports more than 30 million barrels of oil a month from countries in the Middle East, Business Insider has reported, citing the EIA.

That's about $1.7 billion worth of oil, and 10% of the US's total oil imports per month.

How do US-Iran tensions affect it?

Oil prices swung wildly as news broke of Iran's missile strikes on US targets and the subsequent relief that neither lives nor energy infrastructure were harmed.

Iranian leaders, who have also vowed retaliation for the death of Soleimani, have threatened to close down the strait multiple times in the past.

If Iran followed through with these threats, it would likely cause huge disruption to the global oil trade. As the strait is so narrow, any sort of interference in tanker traffic could decrease the world's oil supply, and send prices shooting up.

Global oil prices have proven vulnerable to tensions between Iran and the West before. After the Trump administration said in April 2019 it would stop providing sanctions waivers to countries who purchase Iranian oil, prices rose to their highest level since November the year before, Axios reported.

And because the US would be affected by global oil prices, regardless of the origin of the oil, Washington would still have an interest in protecting the Strait of Hormuz.

Kenneth Vincent, an economist at the Department of Energy, told a 2017 conference, cited by The Atlantic: "The origin of whatever molecules are consumed in the United States does not matter."

"What matters is that if there's a shooting war somewhere in the Middle East, those molecules will cost more and that will harm the American economy," he said.

How likely is Iran to shut down the strait?

Iran is more likely to disrupt traffic in the Strait of Hormuz than to engage in an all-out conventional war with the US, which is much stronger militarily.

But doing so comes with high costs to Iran.

To close down the entire strait, Iran would have to place at least 1,000 mines with submarines and surface craft along the chokepoint, security researcher Caitlin Talmadge posited in a 2009 MIT study. Such an effort could take weeks, the study added.

Disrupting oil traffic on the strait would also result in oil importers around the world looking beyond the Middle East for their sources, and further reduce reliance on the region.

Iran's oil industry is already suffering after the US imposed sanctions designed to stop countries from importing Iranian oil earlier this year.

As Michael Knights, a Middle East expert at the Washington Institute think tank, told The Atlantic last May: "They'd be cutting their own throat if they close the strait."

Join the conversation about this story »

NOW WATCH: We can thank the US military for the smelliest weapon in the world

2019 broke the record for biggest global box office year of all time with $42.5 billion

Sat, 01/11/2020 - 1:30pm

  • The 2019 box office hit some major milestones, according to Comscore.
  • The global box office for the year finished at $42.5 billion, an all-time high.
  • At the international (non-US) box office, the closing figure was $31.1 billion, also an all-time high.
  • North America finished strong thanks to "Star Wars: The Rise of Skywalker" and "Jumanji: The Next Level" and had a $11.4 billion total. That's the second-biggest year ever and the fifth-straight year it has surpassed $11 billion.
  • With no "Avengers" or "Star Wars" releases coming out in 2020, the box office totals for the year may not be as strong as what happened in 2019.
  • Visit Business Insider's homepage for more stories.


Thanks to a strong push to the finish line, the 2019 box office ended up with an impressive take, according to Comscore. 

The third-party media and analytics company reported on Friday that the global box office ended up with a $42.5 billion total, an all-time high. The international (non-US) box office also had an all-time best, bringing in $31.1 billion.

This was thanks to the big earners of the year like Disney titles "Avengers: Endgame," "The Lion King," and "Frozen 2," along with Sony's "Spider-Man: Far From Home" and Warner Bros.' "Joker."

The North American box office also turned out to have a big year, finishing with a $11.4 billion take, the second-biggest year ever and the fifth-straight year it has surpassed the $11 billion mark. 

A big help to the North American total was the performance by December releases like "Star Wars: The Rise of Skywalker," "Jumanji: The Next Level," and award-season titles overperforming like Sony's "Little Women" and A24's "Uncut Gems." It led to the deficit from 2018's record-breaking take of $11.8 billion going from 11% at the end of April to just 4% for the full year. 

The totals proved the strength of the 2019 slate for the entire year, but going forward there could be cause for concern. 

With no "Avengers" or "Star Wars" titles coming out in 2020, this year is lacking the number of event pictures compared to the last two years. 

Upcoming movies like "No Time To Die," "Wonder Woman 1984," "Black Widow," and "Top Gun: Maverick" will try to pick up the slack.

SEE ALSO: AUDIO: Netflix insiders explain how movie head Scott Stuber helped the company shed its outsider status in Hollywood

Join the conversation about this story »

NOW WATCH: Documentary filmmaker Ken Burns explains why country music is universal

Private-equity firms are sitting on tons of cash after dealmaking dipped in 2019 — and that could force them to lower their standards to spend money

Sat, 01/11/2020 - 12:14pm

  • Private equity executives appear to have had a harder time investing in 2019, with fewer deals clinched than the year before despite being loaded up with more and more unused investor dollars.
  • And a recent industry report indicates they have every reason to worry about a economic slowdown in the year ahead. But meanwhile, PE firms may also feel pressure to start lowering their standards to deploy investor dollars. 
  • Overall, private equity firms raised a record of more than $300 billion in 2019, while the deal count for the largest deals — valued at more than $1 billion — fell by 28 percent from the year before. 
  • Those findings come from an annual report on the PE industry offered by financial information company PitchBook.
  • Click here for more BI Prime stories.

Private equity executives had a harder time investing in 2019, with fewer deals clinched than the year before despite being loaded up with more and more unused investor dollars.

And a recent industry report indicates they have every reason to worry about a slowdown in the year ahead, and that PE firms may even have to start lowering their standards to deploy investor dollars. 

Overall, private equity firms raised a record of more than $300 billion in 2019, while the deal count for the largest deals — valued at more than $1 billion — fell by 28 percent from the year before. 

Those findings come from an annual report on the PE industry offered by financial information company PitchBook, which prefaced its findings with optimism.

"Despite year-end figures falling slightly short of 2018's mammoth $730.3 billion deal value, we believe the industry remains strong and that a minor [year over year] dip is not indicative of a pullback in PE dealmaking," it said. 

But then, the PitchBook report proceeded to detail several factors that depicted a challenging environment ahead, ranging from the U.S.-China trade war, to an upcoming recession. 

"Every one of our clients is focused on being prepared for the recession," the report quoted Alison Mass, Goldman Sachs' investment banking chairman, who provided the comments to Bloomberg in a December interview.

Recessionary fears could weigh on dealmaking activity, the report said. But record fundraisings will pressure firms that recently raised capital to "buy anyway" the report said. 

The report comes after PE firms have been saddled with trillions of investor dollars they haven't used.

In turn, they have been banding together to buy companies and rumors of mega-deals have run rampant, including a report that KKR had considered taking Walgreens private it what would have been the largest private equity deal ever. 

The frothy market hasn't gone unnoticed by attorneys and finance executives, who have observed similarities of the deal-making environment to the run-up to the 2008 recession.

The PitchBook report said that such an awareness of a future recession could limit PE deal flow by firms diverting capital away from cyclical businesses and toward healthcare or technology companies — industries that are considered more recession-proof. 

The report pointed to one notable healthcare deal in 2019 when Goldman Sach's bought Capital Vision Services for $2.7 billion.

This also signaled a more crowded competitive landscape for deals, which means PE firms will have a tougher time investing. 

"The deal sparked some concern among industry observers that as Goldman expands its PE capabilities, the firm could face conflicts of interest in which Goldman competes against PE firms that its own banking arm advises," the report said. 

Overall, the number of PE deals ticked down to 5,133 from 5,345 in 2018, while the volume of PE deals fell from $730.3 billion to $678 billion.  

Read more: Private equity had a slew of megadeals this year, and many ruffled a few feathers along the way. Here are 13 that showcase the trends that will dominate 2020

Read more: Goldman Sachs' push into private equity is ruffling feathers at Blackstone — and it might be a sign of big client skirmishes to come

Read more: 'Some of the conversations we had in 2006 we are having again': Bain and Carlyle are teaming up in rare deal that private equity has been reluctant to do since the financial crisis

Read more: Private equity giants like Blackstone and KKR are loading up on industry specialists to help squeeze out returns, and that's creating a new power dynamic inside the firms

Join the conversation about this story »

NOW WATCH: Most maps of Louisiana aren't entirely right. Here's what the state really looks like.

I reluctantly followed my father-in-law's advice to purchase life insurance 23 years ago, but looking back my only regret is not buying a bigger policy

Sat, 01/11/2020 - 10:25am

When I was 22, my boyfriend and I moved in together. I was delirious with joy at the idea of leaving my college roommates — and the grungy digs we called home — in favor of cohabiting with my main squeeze.

The whole experience made me giddy, until his father insisted we get renters' insurance — and my boyfriend dutifully agreed.

But, despite my thinking the idea ridiculous, it turned out to be a savvy move: Not one year later, when a freak fire at the bakery downstairs gutted our place, I was relieved to have taken what I'd thought was archaic advice. The renters' insurance saved us.

A handful of years later, after marrying that boyfriend and buying land together, my husband and I set out to build our dream house.

"Be sure to get life insurance" was my father-in-law's sage advice. I rolled my eyes, quickly calculating our combined years coming in well below retirement age. "Enough to at least cover the balance on your mortgage should one of you die," he added, causing my head to spin at the thought.

Getting life insurance as newlyweds

Before I knew it, a life insurance salesman was in my living room — swabbing the inside of my cheek and collecting a urine sample — and each of us became the proud owner of a 30-year term life insurance policy. Twenty-three years later, I am still prone to feeling giddy at the smart investment I made in my family's future.

I ultimately changed my mind about getting life insurance for two reasons: First, if someone who had walked this path before me could smooth my journey, I was in. Plus, the bottom line was so cheap at just $300 a year it didn't make sense not to invest.

This was our primary motivation as a young couple: If one of us died, would the surviving spouse be able to afford the lifestyle we had created for our growing family? With the addition of term life insurance, the answer became a resounding "Yes!"

Life insurance still makes sense two decades later

In the ensuing two decades, life has progressed rapidly, leaving many twists and turns in its wake. My husband and I refinanced our mortgage once or twice as a couple and, following our divorce, I went on to purchase the home independently. Each year, the balance I owe on my mortgage decreases while the value of my life insurance policy remains steady.

When our youngest daughter died, my now ex-husband and I collected a lump sum of $10,000 (unbeknownst to us, our respective policies carry riders for each of our minor children).

In the same way our renters' insurance alleviated the financial burden of replacing our personal belongings — leaving us free to focus solely on relocating in the aftermath of that fire — the life insurance benefit meant we were able to secure a family plot at the cemetery, cover cremation/funeral costs, and purchase a gravestone without added financial burden. This would not have happened without life insurance.

I continue to have huge peace of mind knowing that the term policies my now late (and former) father-in-law insisted we purchase will allow my children to remain in their childhood home — with a good chunk of cash leftover — should something catastrophic happen to me. All for what seems like pennies each month. 

Why we chose term life insurance over whole life

I was conflicted as to term versus whole life insurance.

The difference? In a nutshell, the dollars paid into term life insurance premiums provide a death benefit to your beneficiaries if you die during the specified term — in my case, 30 years. With whole life, the money invested in premiums builds cash value that can be used later in life or will add to the death benefit that is guaranteed, though whole life comes at a much higher cost than term life.

I made my choice following a general rule of thumb: My family's need for life insurance will likely end when the 30-year term expires. My kids will be grown, my mortgage will have been paid off, and I will have accrued retirement savings.

I don't really want to think about dying — especially at the tender age of 45 — but planning is the prudent thing to do. In the same way that we purchase auto insurance and homeowner's insurance, life insurance is a sensible choice. 

Life insurance still gives me peace of mind

Looking back, my only regret is that I did not purchase a larger policy. My term policy comes in at just under $300 each year — that's a cost of about 81 cents per day — a figure we landed on as the death benefit of $250,000 would have allowed me to pay off our mortgage and continue on as a stay-at-home mother in the event my husband died. Suffice it to say, I could have afforded twice that.

I stumbled upon a fantastic quotation the other day from "The Power of Moments" by brothers Chip and Dan Heath: "We feel most comfortable when things are certain, but we feel most alive when they're not."

From my perspective, this kind of sums up life insurance for me: I'm certain I have done my best to put my proverbial ducks in a row, in case the need arises, and I find comfort in this knowledge. In the meantime, I'm going to live my life — embracing all the messy and uncertain parts — no matter what comes my way.

This, I'm certain, is also what it means to be alive.

Life insurance can protect you in the event of a tragedy. Policygenius can help you get the coverage you need »

Join the conversation about this story »

NOW WATCH: Behind the scenes with Shepard Smith — the Fox News star who just announced his resignation from the network

'Hillbilly Elegy' author is launching a $125 million VC fund in America's heartland with backing from Peter Thiel and Marc Andreessen

Sat, 01/11/2020 - 10:23am

  • JD Vance, the bestselling author of "Hillbilly Elegy," has launched a new venture-capital fund as part of his continued efforts to restore prosperity to America's heartland.
  • The fund, Narya Capital, is targeting $125 million and has already raised $93 million from Silicon Valley royaltly like Marc Andreessen, former Google exec Eric Schmidt, and Peter Thiel.
  • The firmwill provide Series A investments in the $5 million to $10 million range to science and tech startups in cities outside of the coastal tech hubs, like Salt Lake City or Atlanta, that are often-overlooked by the vast poool of venture funding.
  • Vance was previously working with ex-AOL exec Steve Case on a similarly focused investment vehicle, the Rise of the Rest Seed Fund.
  • Visit Insider's homepage for more stories.

JD Vance, the bestselling author of "Hillbilly Elegy," has launched a new venture-capital fund with backing from billionaire Peter Thiel and other Silicon Valley investment elites as part of his continued efforts to restore prosperity to America's heartland.

Vance's new Cincinnati, Ohio-based fund Narya Capital is looking to raise as much as $125 million to cut checks to entrepreneurs focused in science and technology pursuits, Bloomberg reported

The firm has already raised $93 million, according to a regulatory filing, thanks to backing from the likes of Marc Andreessen, former Google exec Eric Schmidt, and Thiel, whom Vance has teamed up with on VC investing in the past.

Narya will provide Series A investments in the $5 million to $10 million range focused on cities outside of the coastal tech hubs, like Salt Lake City or Atlanta, that are often-overlooked by the vast pool of venture funding, Axios reported

Until recently, Vance had been working with former AOL head honcho Steve Case on a similarly focused $150 million investment vehicle called the Rise of the Rest Seed Fund. It secured backing from dozens of high-profile investors, including Amazon CEO Jeff Bezos, Bridgewater founder Ray Dalio, and the powerful Koch and Walton families.

Before that, he'd worked at Thiel's Mithril Capital investment fund. 

Vance's chart-topping 2016 memoir "Hillbilly Elegy" chronicled his white working-class upbringing in America's Rust Belt, laying bare the social and economic struggles facing large swaths of the country that typically garner little outside attention. 

The themes resonated across the country and dovetailed with political currents that catalyzed the 2016 presidential election cycle and helped produce Donald Trump's upset bid to win the White house. 

Join the conversation about this story »

NOW WATCH: 9 items to avoid buying at Costco

Cars will start paying for their own gas and parking as soon as this year. Here's why Visa is betting on a world of invisible payments.

Sat, 01/11/2020 - 10:03am

  • The internet of things (IoT) refers to the network of everyday objects that are plugged into the internet.
  • And as IoT continues to mature, experts and industry leaders are exploring applications through something we all do — buying stuff.
  • Visa is exploring IoT payments through cars, and it thinks cars could pay for their own parking in as soon as 12 months.
  • Citi Ventures is also eyeing the space. It's backing CarIQ, a startup that's already exploring payments initiated from vehicles without needing a credit card.
  • But VCs at Edison Partners caution that while the funding is there for startups launching IoT platforms, it may not happen as quickly as we'd think.
  • While tech moves fast, legacy infrastructures and consumer behavior could delay IoT adoption. 
  • Click here for more BI Prime stories.

You probably have heard of the so-called internet of things (IoT). It refers to the network of everyday objects that are plugged into the internet. Think: phones, refrigerators, cars, even lightbulbs.

Talks of IoT often conjure up fears of Black Mirror-esque dystopian realities. If the things you use every day are connected and communicating with each other, it's easy to see how privacy and security become top concerns. IoT devices can collect data including location, spending habits, and health information.

It's that rich trove of data and always-watching connectivity that has caught the attention of one of the world's biggest payments players, as well as venture investors and startups. 

And as IoT continues to mature, experts and industry leaders are exploring applications through something we all do every day — buy stuff. They're eyeing not only your wallet, but your car as the next opportunity to roll out IoT payments.

We talked with payments experts to learn what's possible when it comes to smart devices paying bills, and what some of the big hurdles to adoption will be.

Card network giant Visa has been investing in IoT payments for the past couple of years, Bisi Boyle, vice president of IoT at Visa, told Business Insider. 

Boyle heads up efforts around connected payments and is leading Visa's charge to make sure the card network's rails are connected on the IoT. And for 2020, she's focused on rolling out invisible payments in cars.

"We saw the opportunity because of this explosion of connected devices that make up the internet of things that people use every day now" said Boyle. Cars are first on the list, she said.

The four use cases Visa is exploring with cars are fuel, parking, food, and tolls. Cars, Boyle said, will likely be the first place consumers will see IoT payments — and she predicts that capability could arrive as soon as next year.

"The idea is you're just living your life and all these payment experiences happen," said Boyle. 

Take parking, for example. IoT enabled cars will be able to find open street parking and pay the meter, all without the driver needing to pull out their phone or wallet.

Visa is betting that fuel and parking use cases will surface in the 12 to 18 month range, said Boyle. And the card company has already partnered with car companies like Honda to start rolling out the tech.

Paying for parking and gas are just the beginning, though. Boyle sees drive-thru and curbside food pickup as the next step for the tech within three years. 

Tolls are another area with potential, but Boyle thinks adoption will take closer to the three years. The idea is to bring the toll payments into the cars using IoT, as opposed to the existing electronic toll providers like New York's E-ZPass and California's FasTrak.

"You have to work with different governments and municipalities, so that's why that one takes a little bit longer," Boyle said.

And while these payments may be "invisible," Boyle does not see a world where machines are initiating payments without the involvement of the owner themselves.

To be sure, IoT payments will eliminate the need to take out a wallet, but users will still need to authorize payments made by machines. 

"I don't mind it paying for me, but I want it to ask me first, and I want it to know that it's me," said Boyle.

"You have to design the payment experience in a way that people feel that they can trust it," she added.

Cars paying for their own gas

Like Visa, Citi Ventures' co-head of venture investing, Ramneek Gupta, is betting on cars to drive the first wave of IoT payments.

"It is a little bit nascent today — but I think there will be a lot more value creation there from the startup ecosystem—is the emergence of non-human or machine-originated payments," Gupta told Business Insider in November.

As everyday devices like cars and phones get smarter, Gupta thinks IoT payments are inevitable. "It's the natural next step," he said.

Gupta expects these machine-initiated payments to surface in the next two to three years. Citi Ventures backed an India-based startup called CarIQ, which is already exploring payments initiated from vehicles without needing a credit card.

The startup raised $5 million in a Series A in June, and in August, automotive manufacturer Varroc acquired a 74% stake.

Product-agnostic platforms are what some VCs are looking for 

CarIQ's platform model is one way for startups in the IoT payments space, said Dan Herscovici, partner at Edison Partners. The other is a product-driven approach.

"It's a very interesting conundrum, and has lived in IoT for a long time. It's the point solution versus the platform," said Herscovici. 

Home appliance manufacturer LG, for example, could create an IoT-enabled washing machine, then partner individually with repair servicing companies or payments networks.

"That's impractical," said Herscovici. "When we look at startups in the space, we're looking for people that are providing platforms or ecosystems as opposed to singular point solution ones that are agnostic to the device in which they're being inserted."

While building out a platform can be costly, the funding is out there, said Chris Sugden, managing partner at Edison Partners.

If you build it, they will fund

While large players like LG or Visa are making big pushes in IoT, winners in the space are far from being established. Sugden thinks startups, flush with VC cash, can compete.

"I think that can come from the startup world because the $50 million and $100 million and the multiples of $100 million rounds are available. That didn't actually exist in the past," Sugden said.

Sugden mentioned the so-called SoftBank syndrome — the concern around megarounds and over-funding of startups like WeWork — but with a great business model, investors are willing to provide enough capital to chase what some might see as lofty ideas, he said.

"We're seeing those things get funded now in areas where you couldn't actually get them funded to really take the market," said Sugden. "Someone else would actually frankly steal your idea before you got the scale."

Cars aren't the only use case, but it will take time

And while IoT payments may materialize in cars over the next couple of years, Sugden and Herscovici think other use cases will take longer than 10 years.

While tech moves fast, legacy infrastructures and tough-to-change consumer behavior could delay IoT adoption. 

In the home, for example, appliances like washing machines are purchased and replaced less frequently than cell phones. Some of these appliances can last in the home for more than 10 years, Herscovici said.

Smart phones, on the other hand, have high market penetration and are replaced often. And that paves the way for business to use IoT payments wherever there's a smartphone present.

Amazon is exploring IoT through smartphones with the launch of its IoT-powered Amazon Go convenience stores. There are currently more than 20 of the cashierless stores open in Chicago, New York, San Francisco, and Seattle. Amazon is reportedly aiming to open 3,000 Go stores by 2021.

Using the Amazon Go app, shoppers can scan their phones to enter, take whatever they want from the shelves, walk out, and get charged automatically after they leave the store. The ceilings in the stores are lined with cameras and sensors to keep track of your virtual cart. There's no checkout, so shoppers never have to pull out their wallets to pay for their snacks. 

Still, it's a long road ahead for the tech

"In fintech and financial services more broadly, and payments even more specifically, everyone thinks it's going to happen faster than it does," said Sugden.

SEE ALSO: WALL STREET 2030: Here are 26 predictions that tell you everything you need to know about the future of finance

Join the conversation about this story »

NOW WATCH: WeWork went from a $47 billion valuation to a failed IPO. Here's how the company makes money.

Financial advisers are worrying their profession will shrink — and they're blaming robo-advisers and waning interest in the career

Sat, 01/11/2020 - 9:55am

  • A recent survey of financial advisers found that 43% believe their population will shrink in the next five years.  
  • And of that group, 43% believe robo-advisers are the leading factor in eliminating financial adviser roles, according to the survey conducted by research firm Greenwich Associates. 
  • Startup robo-advisers enjoyed growth last decade, forcing traditional wealth managers to consider how to adapt to changing customer tastes. 
  • Visit BI Prime for more stories.

The end is near for financial advisers, according to financial advisers. 

That's the sentiment from some advisers surveyed as part of a recent report on the impact of technology on their roles. 

Research and consultancy Greenwich Associates surveyed more than 2,500 advisers on the state of their occupation in five years — and the majority of the group's outlook was pretty bleak, with 43% believing fewer financial advisers will exist in the future.

Of that group who see a decline in the cards, 43% said robo-advisers would be the leading factor in the decline of the occupation, closely followed by "less interest in becoming a financial adviser."

Meanwhile, the technology is actually helping advisers' business, according to their customers. A survey of 312 US investors found that 37% trust their adviser more because of the increased use of fintech as part of the adviser relationship. 

"Put another way, financial advisers expect technology to take their jobs, but clients expect technology to make their financial advisers better," said Brad Tingley, a market structure and technology analyst at Greenwich Associates, in the report. "The reality is somewhere in between." 

The results from the survey echo some findings from a recent CFA Institute poll.

More than half — 54% — of wealth managers, financial advisers, and planners, said they expected their roles to "substantially" change over the next five to 10 years, with 4% believing the job will cease to exist entirely in that time. 

Financial advisers have no love lost for robos, which spent the better part of the past decade growing in size thanks to their low fees and digital-first experiences. In a November survey of financial advisers by Greenwich Associates, 71% labeled robo-advisers and automated investing as over-hyped.  To be sure, pure-play robos still make up just a tiny fraction of overall global wealth assets, and some experts say the space could be overdue for consolidation.  

Still, despite their distaste for the up-and-coming tech, legacy players have been forced to consider how to use it. 

Business Insider first reported in November that storied asset and wealth manager Neuberger Berman was overhauling its client- and adviser-facing digital offerings in a firm-wide upgrade by the end of 2020.

In December, we surveyed executives across the wealth management spectrum to understand the skills human advisers would need to stay ahead of the curve in the future, and which technology would become ubiquitous in a decade. Many said artificial intelligence aiding advisers' decision-making for clients would only grow in popularity.

And while some advisers have come around to adopting new technology, most haven't been keen to share those capabilities with clients. Greenwich's latest report indicates just 29% of advisers make clients aware of all the tech tools available to them.

Industry-wide changes

Meanwhile talent in the business — comprised of players like traditional wirehouses, independent registered investment advisers, and retail banks — is aging, and firms are trying to combat the industry's realities.

The average US financial adviser is 52 years old, according to research provider Cerulli Associates, and those under 35 comprise just 9% of the total workforce.

And over the next decade, some 37% of advisers overseeing about 39% of industry assets are expected to retire. The majority of those retirements are expected to come from wirehouses and independent broker-dealers.

UBS, the world's largest wealth manager by client assets, said last month that it would bring back its wealth planning analyst role, a position more junior to full-fledged financial advisers.

Rival wealth manager Morgan Stanley has been turning to a group of junior wealth staffers to assist advisers in getting up to speed with new capabilities; it's one way to create a pipeline of younger employees to full-fledged adviser roles.

And we first reported last year that Merrill Lynch raised trainee financial advisers' starting salaries by $10,000 as it looked to attract fresh talent and maintain a competitive edge. 

Read more: Robo-advisers like Wealthfront and Betterment are in a tricky spot — here's why one fintech banker thinks buyers and public investors will be hard to win over

Read more: WEALTH MANAGEMENT 2030: Read the full responses to our survey about wealth management and the financial adviser of the future

Join the conversation about this story »

NOW WATCH: WeWork went from a $47 billion valuation to a failed IPO. Here's how the company makes money.

The 7 types of accounts you need to accelerate your wealth, according to a financial adviser

Sat, 01/11/2020 - 9:45am

  • If you've got all or most of your money in a single investment account, you're missing serious opportunities to build wealth.
  • One of the biggest wealth secrets is to earn money on your money, whether it's in checking, savings, or being put aside for retirement.
  • It's a good idea to designate specific accounts for specific purposes, like paying your taxes (especially if you're self-employed) and investing in yourself.
  • SmartAsset's free tool can help find a financial adviser to create your own wealth-building plan »

If you're serious about building wealth, there are seven types of accounts you need to have to make it happen. Don't worry if you don't have them right now – that's the whole point of this article. I didn't have them either when I began my wealth-building journey, but I added them as I moved forward. You can do the same.

And once you have them up and running, you're going to see your wealth begin to grow faster than you ever imagined. It's all about creating the right mix of accounts.

Let's jump right in with the seven types of accounts you need to accelerate your wealth.

1.  High-yield checking accounts

I know what you're thinking: What does a checking account have to do with building wealth? After all, just about everyone has a checking account.

But the arrangement tends to be a bit different with the wealthy. The wealthy make sure their money is working for them, even in their checking accounts. That's why they favor interest-bearing checking accounts, paying rates at the top of the yield curve for that account type.

The basic idea is to make sure you're earning some kind of income, even on funds you expect to spend in the current month.

This is the exact opposite of how most people think. They may believe that since the money will be in the account only for a few days or weeks, there's no point worrying about earning income on it. But for the wealthy, it's about earning something on your money, no matter where you have it parked.

If you have a certain asset amount, you'll usually have access to a private banking or private wealth management account with a bank. That will often come with high-interest checking. But even if you don't have the large bankroll, there are still ways you can earn high interest on your checking.

There are online banks that specialize in paying high interest rates, even on checking accounts, like Ally Bank's Interest Checking Account and Charles Schwab's High-Yield Investor Checking Account (not that Schwab's must be linked to a Schwab One Brokerage account, which also requires no minimum investment and charges no monthly fees).

2.  High-yield savings accounts

If you're not in the habit of scanning interest rates at least occasionally, you may have fallen into the trap of believing your local bank is paying you the highest interest available. Unfortunately, that isn't remotely true. Complacency with interest yields costs you money in the form of lost income. That's exactly what the wealthy don't do.

This process starts by understanding exactly what interest rate your bank is paying you on your savings. Next, you'll need to investigate the available alternative high-yield savings accounts. And trust me, the difference between the two is probably a lot bigger than you think.

Here's the problem … the typical bank is paying just 0.09% on savings. It's a solid bet you're not earning much more than that on your current savings arrangement. But there are plenty of alternatives.

Before we get into that, make sure you check the financial integrity of any institution that's paying high interest rates. First, make sure your deposits are fully FDIC-insured. Second, check the rating on the bank to make sure they're solvent. N0 matter how much interest an institution pays, it's not worth the risk if it may fail.

That said, there are plenty of high-quality options. 

If you're not earning top interest rates on your savings, it's the equivalent of giving your bank a loan. Even if they're paying you 0.09%, the rate is practically nothing. And they'll be loaning out your funds for 4% on car loans and 20% or more on credit cards. You owe it yourself to earn as much on your savings as possible.

3.  Tax savings accounts

This is one I didn't quite get it until I launched my own business. When you're self-employed, you have to make tax deposits throughout the year. Unlike an employee, you don't have withholding taxes taken out of each paycheck.

If you're self-employed, or if you expect to have significant non-employment income, you'll need to set up a tax savings account to be ready to file your income tax return. That will apply if you are operating a side business, freelancing, consulting, or working as an independent contractor.

You need to make quarterly tax payments, or at least have money set aside to pay your taxes at the end of the year. As a loose guideline, figure between 20% and 30% of the income you earn from non-wage sources should be paid estimates or set aside.

If you want to be really accurate, have an accountant or tax preparer analyze your income for the year and let you know how much you should be allocating for tax payments.

If your year-end tax liability from your extra income will be more than a few hundred dollars, you can be hit with a large tax bill when you file your return. Even worse, the IRS imposes penalties and interest on nonpayment or underpayment of income tax due.

If you're making estimated quarterly tax payments, you'll need to accumulate funds in your tax savings account as you earn them. This will be even more important if you plan to hold the funds to pay your additional tax liability when you file your return. Note that a "tax savings account" is not a different banking product — it's just a designated use for a savings account, like an emergency fund would be.

You should plan to accumulate the funds in a high-yield savings account. Even though the purpose of the money will ultimately be to pay your tax bill, you should still give yourself the benefit of earning high interest on those funds. It's a way to build additional wealth even on money earmarked for other purposes.

4.  Personal equity fund

Hopefully, my use of the word "personal" in the name of this account doesn't cause you to confuse it with an emergency fund. That's not what it is at all. Everyone should have an emergency fund, and it should be held in a high-yield savings account so you can access the funds quickly when an unexpected need arises.

But a personal equity fund is something completely different. And unlike the other account types on this list, it's not for investing in financial instruments either. Instead, it's a fund you create to invest in yourself.

Investing in yourself may be the most overlooked type of investment there is, but it's also one of the very best. This is where you allocate funds to cover the cost of programs you'll participate in to improve your career and business skills. It can include coaching programs, mastermind groups, conferences or obtaining needed certifications. And that's just the short list.

Every wealthy person I know recognizes the value of investing in themselves, even if they don't have a designated personal equity fund for that purpose. But they do allocate money toward their personal development, self-growth, making themselves more marketable — you name it.

It's an investment of time and effort, as well as money. The personal equity fund will cover the money part, and that's more important than you might realize. By having an account set up specifically for these expenses, you'll be establishing the intent of self-improvement, as well as providing yourself the funds to do it. (Like the tax savings account, this isn't a different product your bank offers — it's a specific use for an account like a high-yield savings account.)

The more money you can earn, the more you'll have available for every other investment on this list. No matter who you are, that starts with making an investment in yourself to make that happen.

5.  Roth IRA

Even if you're covered by an employer-sponsored retirement plan work, a Roth IRA has an advantage not available to any other retirement plan. It's tax-free income in retirement. If you're seriously interested in building long-term wealth, this is a component you need to add to your portfolio.

A Roth IRA is a particularly good strategy early in your wealth-building process. The plan does come with income limits. If you exceed those limits, you won't be able to make direct contributions to the plan. This is unlike contributions to a traditional IRA, where even if you are covered by an employer plan and exceed certain income limits, you can still make contributions but they won't be tax-deductible. With the Roth IRA, once you've reached those limits, you won't be able to make contributions, period.

But even if you exceed the limits for a Roth IRA contribution, there's another way you can make it work. It's the Roth IRA conversion. You'll make a non-deductible contribution to a traditional IRA, then do a conversion of those funds to a Roth IRA. This is often referred to as a backdoor Roth IRA contribution, and it can be done tax-free if it's made with non-deductible traditional IRA funds.

Even though a Roth IRA contribution isn't tax-deductible, the investment income you earn on the account is tax-deferred. But once you reach age 59 ½, and as long as you've been participating in the plan for at least five years, any withdrawals you make from the account will be tax-free. That includes both your contributions and the investment earnings they've accumulated.

You can open a Roth IRA just about anywhere. That includes a bank, credit union, brokerage firm, or a robo-adviser, like Betterment or Wealthfront.

An unexpected benefit of a Roth IRA, and one of the reasons I'm such a strong proponent, is that it's an excellent account to learn how to invest. For example, you'll need to meet with the trustee that will hold your account. That's how you'll learn about your investment options and the specifics of how the account works.

And if you choose self-directed investing through a brokerage firm, you'll get hands-on experience investing. Once you become familiar with that process, it'll help you increase your wealth throughout your life.

6.  Self-directed 401(k)

Do you notice the term self-directed? That's not an accident — it's a special type of 401(k) plan that allows you to build wealth much more quickly.

Being self-employed, I was able to set up a self-directed 401(k) plan for myself and my wife that enables us to make tax-deductible contributions of $110,000 per year. This is clearly not a typical 401(k) plan, like the one your employer offers.

The large contribution amount will give you a great big tax deduction. And it also provides an opportunity to earn tax-deferred income on a very large plan balance.

But the self-directed aspect of the account is one of the biggest advantages. You can open a self-directed 401(k) plan with a large investment broker, and have virtually unlimited investment options. Stocks, bonds, mutual funds, exchange traded funds, real estate investment trusts, options, commodities — you name it — you can hold it in a self-directed 401(k) plan.

It goes even farther than that. Self-directed 401(k)s are how wealthy people are able to invest their retirement money in unconventional investments, like private equity deals, real estate, and even small business ventures.

If you have a significant amount of self-employed income, this is an account you need to have. It may be the single best wealth-building investment plan available.

7.  Regular investing account

This can be an individual or joint investment account. We're not concerned about tax-sheltered investing here – that's covered by some of the accounts above. This is more of a catch-all account where you can invest above and beyond the other account types.

You can use this account to invest anyway you like. For example, you can use it to invest in individual stocks, bonds, options, real estate investment trusts. It's completely up to you.

Once again, there are advantages to this type of investing. But the purpose may be for a medium-term goal, providing you with capital for a future purpose, without needing to liquidate your retirement savings early.

There's also something unique about this type of account. I've seen multimillionaires who still maintain the account, mainly to use it as play money!

What do I mean by play money?

Maybe you want to get into day trading, options, dabbling in cryptocurrencies, or even shorting stocks or options. A regular investment account is where you'll do this. It's play money because your long-term financial survival doesn't rest on this account. You're free to do whatever you want with it.

The rest of your accounts are set up to provide predictable, long-term growth. But this is the account where you can "scratch an itch." That might be participating in a type of investing you find interesting, challenging, or stimulating. It might just be something you've heard about and want to try. This is the account to do it in.

This type of investing is more risky and hands-on than everything else we've discussed up to this point. And for that reason, it should be only a small percentage of your total investment portfolio. You're playing here, so if it doesn't work out your overall financial security won't be affected. That's another reason why I'm referring to it as play money.

The truth is, investing can (and should) be kind of boring. But this is the type of account where you can spice things up a bit and have some fun. And in the process, you may even learn a few things about investing you didn't before.

All these accounts are working toward your financial goal

This is the whole purpose for having seven types of accounts. Though each is different from the others, it serves an important purpose in the grand scheme of things, which is to help you achieve your financial goals.

For example, maybe you hope to retire at 45. Each of these individual account types should be set up in a way that will move you in that direction.

Even if you don't have all these accounts set up right now, don't sweat it. Investing is a work-in-progress, and you can add one account at a time. Get comfortable with one type, then move on to another. As you add new accounts, try to make it fun. Yes, investing can be boring, but watching your wealth grow is anything but.

SmartAsset's free tool can help find a financial adviser to create your own wealth-building plan »

Jeff Rose is an entrepreneur disguised as a certified financial planner, author and blogger. Jeff is an Iraqi combat veteran having served in the Army National Guard for nine years, including a 17-month deployment to Iraq in 2005. He's best known for his award-winning blog and book, "Soldier of Finance: Take Charge of Your Money and Invest in Your Future." He's also the founder of Wealth Hacker Labs, a movement to teach accelerated wealth-building strategies to future generations. 

Join the conversation about this story »

NOW WATCH: 5 things about the NFL that football fans may not know

Ally's head of strategy told us how one of the first digital banks picks fintechs to partner with, invest in, and buy

Sat, 01/11/2020 - 9:42am

  • Ally Financial's Ally Bank, one of the oldest digital-only banks in the US, may be branchless, but it's not a neobank. In addition to credit and savings accounts, Ally offers mortgages and trading accounts.
  • We spoke to Dinesh Chopra, Ally's head of strategy, about his outlook on M&A, partnering with other fintechs, and Ally's venture investing. 
  • In April, Ally announced it had teamed up with mortgage startup Ally's venture arm also invested in Better's Series C fundraising round.
  • A bank can expand its product lineup in a few ways. It can build in-house, buy a company that has already built that product, or partner with a fintech. "We as a company wrestle with that decision on a day-to-day basis," Chopra said. 
  • "We also look at what our exit strategy is. Because when you enter into a partnership, you always have to plan for the worst," Chopra said.
  • Click here for more BI Prime stories.

Ally Financial's online bank is one of the oldest digital banks in the US. But it's not a neobank.

It may be branchless, but Ally has a banking charter, so it's regulated like any other retail bank. Most neobanks don't have bank charters, instead partnering with banks like Bancorp or GreenDot, which provide the core banking processing and FDIC insurance.

Ten-year-old Ally Bank is nevertheless part of the cohort of digital-only banks that includes startups like Chime — which are attracting VC backing and gaining users and deposits.

Ally is leaning on adding new products for growth, as startup neobanks lure customers with high-yield savings accounts and banking giants build out their own digital capabilities — and how exactly it goes about doing that is a critical question.

"We believe that there is a structural tailwind behind digital banking," Dinesh Chopra, chief strategy and corporate development officer at Ally Financial, told Business Insider.

"Digital banking overall is only 8% of the market," he said. Legacy players like Chase, Bank of America, Wells Fargo, and Citi account for most of the country's consumer deposits.

Chopra heads up Ally's corporate strategy team, which includes oversight of mergers and acquisitions, strategic partnerships with fintechs, and Ally's venture capital arm.

He's responsible for Ally's strategic roadmap, deciding when to build new products and when to partner with or acquire fintechs. Prior to joining Ally in 2017, Chopra was head of strategy for Citigroup's retail bank as well as its mortgage and payments businesses.

As of the first quarter last year, Ally was the 15th largest bank in the US in terms of total assets, according to the Federal Reserve

Chopra said consumers want more than high-yield savings — they want to borrow, save, invest, and protect their money.

"We're trying to get into other verticals like wealth management," said Chopra. "I think to have a sustainable banking practice, you have to have a more holistic value proposition than just one product."

Deciding when to build, partner, or buy

A bank can expand its product lineup in a few ways. It can build in-house, buy a company that has already built that product, or partner with a fintech.

"We as a company wrestle with that decision on a day-to-day basis," Chopra said. 

Building new products in-house can be expensive and delay time to market, meaning partnerships are often a more attractive option. 

"We don't believe we have to do everything ourselves," said Chopra. "The world is moving towards growth through partnerships."

In April, Ally announced it had teamed up with mortgage startup on digital home lending. Ally's venture arm also invested in Better's Series C fundraising round.

Through its partnership with, Ally is able to offer fully digital mortgages on its website and app, meaning customers can apply, receive, and pay down a mortgage online.

"It is completely end-to-end digital. You can get your mortgage application done in less than five minutes on a mobile phone," said Chopra.

Ally had a mortgage business prior to its partnership called Ally Home, which launched in 2016. To apply for a mortgage, customers would have to fill out a form on Ally's website, then wait for a phone call from a company representative to complete the application.

Making sure you have an exit strategy

Ally considers a few things when looking externally for a partner or possible acquisition, Chopra said. For one, it looks for a partner that has created a compelling product. 

"We have a very high bar for what we share with our customers," said Chopra. "We are trying to look for something that is differentiated and disruptive."

Then, Chopra has to decide if the money makes sense by looking at a potential partner's business plan and revenue-share agreement. 

"We might find a candidate that has something we want and it makes sense to partner with them because the time to market can be quicker, but the economics may not work out," he said.

Chopra also considers the risks of depending on a partnership to support a growing product. 

"We also look at what our exit strategy is. Because when you enter into a partnership, you always have to plan for the worst," Chopra said.

While signing a partnership is one way to grow, Ally has also bought its way to new tech through strategic acquisitions.

In 2016, Ally acquired online broker TradeKing, which was rebranded as Ally Invest. And in October this year, it jumped into healthcare financing when it acquired point-of-sale lender Health Credit Services.

Ally's venture arm can feed its M&A pipeline

M&A and partnerships are closely tied to Ally's venture strategy. 

Ally has invested in Greenlight, a startup that offers debit cards for kids and teens, as well as Modal, a digital sales platform for car dealerships that billionaire tech investor Peter Thiel also backed.

"We make small investments in early stage companies with the primary purpose of getting a tap into the market," said Chopra. 

And when the venture business is looking for a new investment, it also considers how that investment could play into Ally's future.

"We look at companies which could be in the pipeline where we could either partner or acquire them in future," said Chopra. "It's not like a traditional VC firm where we are trying to make a 100x return on two or three investments. It's more strategic."

The Ally we know today traces its roots back to 1919 as General Motors Acceptance Company (GMAC), the captive finance arm of GM, handling the car manufacturer's auto lending business.

Before the Ally rebrand, GMAC offered more than auto loans. It also had a subprime mortgage arm, ResCap, and a direct banking channel called GMAC bank. The global financial crisis hit GMAC hard as delinquencies on mortgages and auto loans rose.

In 2008, the company received a $17.2 billion bailout from the US government, which it wouldn't exit until 2014.

In the aftermath of the global financial crisis, GMAC rebranded as Ally Financial in 2010. ResCap filed for bankruptcy, and Ally started to distance itself from GM.

Join the conversation about this story »

NOW WATCH: WeWork went from a $47 billion valuation to a failed IPO. Here's how the company makes money.

Palantir tapped John Hueston to replace litigation powerhouse Boies Schiller in a huge trade secrets case. Insiders explain why the one-time Enron prosecutor is perfect for the job.

Sat, 01/11/2020 - 9:36am

  • If you're an executive facing a legal crisis and have anywhere between $1,000 to $2,000 an hour to spend, you might consider turning to John Hueston. 
  • Palantir, the data analytics company Peter Thiel funded, tapped Hueston when it found itself getting nowhere in a trade secret lawsuit. So did Elon Musk, when the SEC claimed he violated a settlement over his infamous "funding secured" tweets.
  • Hueston is also defending Bill McGlashan, the former TPG exec charged in the college admissions scandal.
  • His website for the law firm Hueston Hennigan has a scrolling testimonials section featuring one-time clients including actor Alec Baldwin and execs from corporations like T-Mobile, BlackBerry, and Waste Management.
  • Business Insider took a deeper look at the man responsible for the fate of the powerful people and companies that we cover.
  • Click here for more BI Prime stories.

If you're an executive facing a legal crisis and have anywhere between $1,000 to $2,000 an hour to spend, you might consider turning to John Hueston.

He's the lawyer who Peter Thiel's data analytics company, Palantir, turned to when it found itself getting nowhere in a trade secret lawsuit. He represented Elon Musk when the SEC claimed he violated the terms of a settlement over his infamous "funding secured" tweets. And he's defending Bill McGlashan, the former TPG exec charged in the college admissions scandal. 

We reviewed court records and talked to a dozen insiders including friends, colleagues, and competitors, to learn how the one-time prosecutor who grilled former Enron Chairman Ken Lay in one of the biggest corporate fraud trials in history has turned into a fixer for the rich and powerful.

His website for the law firm Hueston Hennigan has a scrolling testimonials section featuring one-time clients including actor Alec Baldwin and execs from corporations like T-Mobile, BlackBerry, and Waste Management. And if the firm's docket and 2020 schedule is any indication, it stands to add a few more.

"He can effectively present to any audience, whether it's a board or a jury or the Supreme Court," said Wayne Gross, a lawyer who has worked closely with Hueston, as far back as the 2000s when they were both prosecutors, as well as in recent years, while working in private practice. 

Other colleagues pointed to a mix of boldness and media savvy, with an energy that's led him to climb mountains and ride his bike cross-country while carrying his laptop and cell phone to stay in touch with clients. 

"He has a rare combination of being willing to do any work it takes to know the case as well as anyone else, but also be nimble and find a path that others haven't thought of," said Robb Adkins, a white collar defense partner at Winston & Strawn, who is also a longtime friend. 

Palantir fires Boies Schiller, hires Hueston

That reputation led Hueston to Palantir, the Peter Thiel-funded data company which had grown frustrated with delays in a trade-secrets case. At some point in 2019, it fired lawyers at Boies Schiller Flexner — the firm founded by famed trial attorney David Boies — and brought Hueston in to supercharge the case. 

Palantir, founded in 2003, sells software and analytics tools to US government agencies. Immigration and Customs Enforcement was reported to have used Palantir as part of a immigration crackdown under President Donald Trump.

The secretive company was last valued at $20 billion, and there's been much speculation about when it might finally pursue an initial public offering

One of the biggest legal issues currently facing the company is a longstanding dispute with an early investor, Marc Abramowitz, who had a falling out in 2015 with CEO Alexander Karp.

Abramowitz says Palantir blocked him from selling $60 million of shares and is investigating possible fraud at the company, while Palantir says Abramowitz stole trade secrets and used them to set up a competing business.

After three years in court, including back-and-forth deliberations about the nature of trade secrets Abramowitz is alleged to have misappropriated, there has been no discovery conducted against Abramowitz, even as a June 2020 trial looms ahead. 

In late December, Hueston filed a motion in California court pursuing discovery against Abramowitz, and referenced a new claim he added under RICO — a racketeering law often cited by prosecutors when going after organized crime, and a more aggressive accusation than trade secret misappropriation.

Boies Schiller did not respond to requests for comment about Hueston's involvement. Neither did attorneys at Skadden who are representing Abramowitz. 

Hueston advises Elon Musk 

In February, Hueston represented Elon Musk when the billionaire entrepreneur got into hot water with the Securities and Exchange Commission for tweeting what the securities regulator said was fraudulent information about Tesla's business.

Musk had already entered into a settlement with the SEC for tweeting the words "funding secured" in August 2018, which suggested to many observers that he could take Tesla private at $420 a share. The SEC called those tweets misleading, and a go-private deal never happened. 

As part of the SEC settlement, Musk forfeited his role as chair of the Tesla board for three years, paid $20 million, and agreed to have his tweeting monitored by lawyers.

Then, months later, another tweet — this time, inaccurate sales projections which he later corrected — provoked the SEC to file another legal action against Musk, claiming he was in violation of the settlement.

That's when Hueston was called in to iron things out. He argued that Musk had been perfectly cooperative with the SEC, despite his view that the Twitter restrictions raised First Amendment concerns. And, he said, that the SEC's action "smacks of retaliation and censorship" after Musk was critical of the agency in a CBS interview. 

After some jockeying in court, the matter was resolved with Musk's CEO position intact at Tesla and he and Hueston appeared outside the courtroom steps in the Southern District of New York, fielding questions from reporters. 

Hueston picks up McGlashan as a client

It was around the same time that former TPG executive Bill McGlashan, who was charged by U.S. prosecutors of paying to falsify his son's record in an attempt to get him into the University of Southern California, was on the phone with Hueston about his own legal problems.

In the McGlashan case, Hueston interviewed as many as four parents for possible representation after a sweeping March indictment netted 33 accused of paying a consultant to create fake profiles and exam scores for their children to gain entry into top universities. 

People familiar with the process said that Hueston went with Hollywood private-equity mogul McGlashan, at least in part, because he was willing to fight the charges rather than cop to a plea agreement with prosecutors to make the matter go away. 

Later in the year, Hueston attacked the prosecutors charging McGlashan, peppering them with discovery requests and asking for any documents that could show he had been unaware of the fraudulent scheme orchestrated by the consultant he paid, Rick Singer. 

From Enron prosecutor to a friend to big business 

Hueston has always been known as aggressive. He made his name in 2006 when he received public recognition for his role as the attack-dog prosecutor grilling former Enron chairman and CEO Ken Lay in one of the biggest corporate fraud trials ever. 

Hueston had been called in from Southern California to Houston to work as one member of a special Justice Department task force investigating the events that led up to Enron's collapse in 2001.

He proved himself to be dogged in mounting a case against Lay, while others investigated onetime CEO and COO Jeffrey Skilling, as well as other executives. By the end of it, both Lay and Skilling were convicted on fraud and conspiracy charges, and Hueston's work was covered in lengthy profiles

Afterward, Hueston joined the law firm of Irell & Manella, where he switched sides and, instead of holding corporations to account for wrongdoing, decided to make bank — earning millions defending corporations and wealthy people in both criminal prosecutions and civil business disputes.

Split identity

At times, Hueston has wrestled with whether he has wanted to continue on as a defense lawyer, according to people who know him. 

In 2014, while working at Irell, he applied for the role of U.S. Attorney of the Central District of California, the most populous district in America. It involved an extensive, weeks-long application process, including reference checks, a list of cases and judges he appeared before, as well as names of opposing counsel. 

"Making the decision to apply, I think, really was driven by a continuing desire to be a pubic servant," said Brian Hennigan, Hueston's law partner. 

He was interviewed by Senator Dianne Feinstein, who would make the recommendation as to who would be the next U.S. Attorney for the Central District, appointed by then President Obama. They went with an internal hire instead: Eileen Decker, who served from 2015 to 2017. 

Shortly after, he launched Hueston Hennigan, where he set out to handle high-stakes cases that are also in the public interest. 

Both plaintiffs and defense

Since starting the firm, he's taken on both plaintiffs and defense-side cases, and some at discounted rates.

That includes representing Navajo Nation, an American Indian territory which has sued the EPA and other parties they say are responsible for a 2015 gold mine waste spill in Colorado. 

The cases that don't fall into that "low bono" category, however, are often not pretty. 

At one point, he represented Corinthian Colleges, the onetime for-profit college chain that was investigated by attorneys general for fraud, including fake job placement statistics, over-promising a flowery future to prospective students and then charging high prices for tuition and racking up student debt.

Both then-California attorney general Kamala Harris and the federal Consumer Financial Protection Bureau accused the school chain of financial improprieties.  

The school chain filed for bankruptcy and Harris won a $1.1 billion judgment against the defunct company in 2016, yet, thanks to Hueston's involvement, none of its executives were criminally charged. All penalties remained financial.

SEE ALSO: VIP lists and a music mogul: How one private equity exec caught in the college admissions scandal says he tried to get his son into USC, legally

Join the conversation about this story »

NOW WATCH: Here's how to escape a flooding vehicle

Wall Street bonus season is kicking off — here's when big banks will be revealing numbers and how experts think it will play out

Sat, 01/11/2020 - 9:31am

  • With the books closed on 2019, the top US banks are set to announce year-end compensation. 
  • Wall Street banks pay robust base salaries, but the annual bonus can be far more lucrative for top performers. 
  • Business Insider spoke with insiders at the biggest banks to assemble a guide to the much-awaited bonus announcement season. 
  • Visit BI Prime for more stories

With 2019 officially in the books, Wall Street's bonus season, always hotly anticipated, is upon us. 

Bankers make comfortable six-figure salaries, but the year-end bonus is usually far more lucrative for top performers. It's not only a potentially giant lump sum of cash, but also an individual measuring stick and a way for firms to signal how much they value employees. 

Some industry experts are expecting a down year across investment banking, though fortunes vary by bank and division.

Compensation consulting firm Johnson Associates projected sales and trading bonus pools would decline 10% to 15% in equities and be flat to down 5% in fixed income compared with last year. Investment banking advisory is expected to be flat to up 5%. 

Another executive recruiting and compensation expert painted a slightly rosier picture to Business Insider, saying the big five US banks would cut bonus pools only slightly in investment banking advisory and fixed-income trading, with some product areas seeing gains — like mergers and acquisitions as well as securitized products and credit trading. But they projected a drop of as much as 12% in equities, with cash trading fairing the worst. 

Business Insider spoke with insiders familiar with bonus schedules at the big banks. Bonus dates have been known to change at the last moment, but here's when Wall Street's top banks are expected to announce compensation at this point:

  • Morgan Stanley this year is planning to reveal compensation the week of the 13th but before its quarterly earnings announcement that's scheduled for January 16th, according to an insider familiar with the plan. Another source said the announcement will come on the 14th. 
  • Citigroup typically begins communicating bonuses in the ensuing days after its board of directors meets to sign off on compensation and quarterly earnings results, according to people familiar with the matter. The board is set to meet on the 13th, with earnings to follow the next day and bonus announcements through the 16th, the people said. 
  • Bank of America typically reports last of the big five. But multiple sources inside the firm said this year bonus announcements were pegged to start on the 17th.
  • Goldman Sachs starts communicating comp in the days after it reports quarterly earnings, with some senior personnel learning about their paycheck that day, sources said. Goldman will report earnings on the 15th this year. 
  • JPMorgan Chase is expected to go last this year, revealing year-end compensation on the 21st — the Tuesday after the Martin Luther King Jr. holiday. 

The bonuses usually hit employees bank accounts a week or two after they are announced.

Representatives from each of the banks declined to comment for this story. 

Europe's largest banks report earnings after the US banks and start announcing bonuses afterward as well, usually in early to mid-February.

This story has been updated from its original version. 

Have a tip? Send an email to the reporter at

Join the conversation about this story »

NOW WATCH: WeWork went from a $47 billion valuation to a failed IPO. Here's how the company makes money.

Here's how Tesla went from Elon Musk's infamous $420 tweet to being worth almost $500 per share (TSLA)

Sat, 01/11/2020 - 9:28am

I've been covering Tesla since 2007, and it's hard to believe that it was just a year ago that CEO Elon Musk dispatched his now-infamous $420 and "funding secured" tweet — and push to take the company private.

That decision wound up costing Tesla and Musk $40 million in an SEC settlement, plus Musk's chairmanship of the company. 

But Tesla actually had bigger problems to deal with. Both 2018 and 2019 were tough, as the company struggled through production of the Model 3 sedan and worked feverishly to get a new factory up and running in China.

Somehow, it all came together in late 2019, just as Tesla revealed an absolutely bonkers vehicle, the long-awaited Cybertruck pickup.

Tesla's stock rallied and rallied and then some. By the end of the year, $420 was in the rearview mirror; by January 2020, a $500 share price was in sight.

Here's how it all happened:

FOLLOW US: On Facebook for more car and transportation content!

On August 7, 2018, Musk was reportedly sitting in his car in Los Angeles when he tapped out the tweet heard 'round the world: "Am considering taking Tesla private at $420. Funding secured."

Tesla shares were actually riding relatively high at the time: $340. But they shot up to almost $390 after Musk's tweet, before settling at $380.

Musk's take-private plan collapsed over the next few months. Tesla shares fell to $250 and Musk would eventually face an SEC investigation into whether Musk misled investors. The settlement cost the CEO and the company $40 million, and Musk agreed to restrict his Twitter habit while also forfeiting his chairman title at Tesla.

With that catastrophe behind it, Tesla could get back to being a public company trying to hit sales targets from its Model 3 sedan.

The results of that effort paid off in the third quarter, a historically money-losing Tesla swung to a profit. Shares rallied at the end of 2018, peaking above $360.

Tesla finished 2018 on a strong note, delivering almost 250,000 vehicles, a record. Fourth-quarter earnings also showed a profit, but it was lower than expected.

The first half of 2019 was rough for Tesla bulls. The company sold a lot more vehicles and booked much higher revenue, but the losses were staggering. The stock plunged to $190 by mid-year.

The second half of 2019 saw Tesla return to profitability, and in October, an epic rally commenced. The carmaker's execution had improved significantly, and Musk's promise to bring a new factory in China online for 2020 had become a reality.

The modest momentum that Tesla shares established in October went ballistic for the last two months of the year. The stock blasted through $400 and then $420 by Christmas, and in the first weeks of January, $500 was in sight, with fourth-quarter earnings to come as a fresh dose of rocket fuel.

The insane Tesla Cybertruck had also arrived, proving that Tesla was still able to blow minds with its visionary vehicles.

Short-sellers had enjoyed high times in 2019, but they were crushed as the year closed out. With anywhere from a third to a fifth of Tesla's total share float shorted, frantic covering propelled the rally to new levels.

There were two big takeaways from Tesla's wild 2018 and 2019 stock-market adventure.

The first was that Tesla investing isn't for the weak of knee. An ill-considered tweet from Musk and assorted growing pains on the manufacturing side cost bulls billions of dollars.

The second is that in the auto industry, there is no magic formula. If you can build and sell vehicles on schedule and with discipline, revenue and profits should follow.

Then you can move to scaling up, as Tesla now has in China, and begin to capture unmet demand.

That's how Tesla got from a $420 tweet in August 2018 to a stock price much higher than that today, posting a 2,000% gain since 2010.

In retrospect, maybe Musk's idea of going private wasn't so great! Better luck next time, Elon.

How private equity can write paychecks to public-company CEOs and not have to disclose it

Sat, 01/11/2020 - 9:25am

  • Gannett CEO Mike Reed has been tasked with drawing up as much as $300 million in cost cuts to America's largest newspaper publisher after a merger last year brought the USA Today publisher and a large local-newspaper chain under the same roof.
  • His assignment, which will inevitably lead to people losing their jobs, may not be the most enviable role in the news industry today. 
  • But thanks to an arrangement with a private-equity firm, Reed's compensation will stay shielded from the public — and his own employees — as he takes an ax to the business. And that's despite Gannett being a public company. 
  • Business Insider took a look at the deal that granted Reed such anonymity, which traces back to 2013, when he became CEO of the media-investment firm that acquired Gannett, New Media Investment Group. 
  • The compensation is a byproduct of an uncommon management structure at public companies where a CEO is employed by an outside manager, rather than as a full-time employee of the company itself, according to corporate attorneys and Wall Street executives. 
  • In 2018, an adviser to shareholders of public companies in proxy votes, Institutional Shareholder Services, found about 90 US public companies that were externally managed. That's in comparison with more than 3,400 publicly listed US companies overall that year.
  • Click here for more BI Prime stories.

Mike Reed is the CEO of Gannett, the largest US newspaper publisher, and he's planning layoffs as part of up to $300 million in anticipated cuts on the back of a huge merger with the local-newspaper owner New Media.

He has met with local newsrooms and answered questions about upcoming changes, telling The Tennessean, for instance, that he expects to make many cuts by the first half of February, according to a recent report by Poynter.

One thing he hasn't talked much about, though, is his own compensation, which is, thanks to an arrangement with a private-equity firm, entirely shielded from the public eye — despite Gannett being a public company.

His pay contract, a carryover from his six-year tenure as CEO of New Media — a media investment firm created by the private-equity shop Fortress — offers a glance at how private equity can in rare instances be responsible for the compensation of CEOs at public companies on an ongoing basis.

Though it is not common, the contract presents a data point about private-equity firms' influence in corporate America at a time when politicians such as Democratic presidential candidate Sen. Elizabeth Warren are scrutinizing how their management strategies affect business and society. 

Business Insider delved into Reed's pay arrangement shortly after he was named CEO of Gannett in November, reviewing Securities and Exchange Commission filings and speaking with corporate attorneys, Wall Street bankers, and people close to the newspaper deal.

The findings turned up multiple instances where CEO compensation was not disclosed at a public company because of the involvement of an outside manager.

Meanwhile, the deal terms in the New Media-Gannett merger call for Fortress to stop managing the newspaper publisher in two years.

At that point, Reed — or whoever the CEO is at that time — would no longer be employed by Fortress, the merger agreement said.

Until then, though, as Reed sets out to make critical changes to the newspaper business, his employment contract with Fortress remains; however, the private-equity firm has agreed to reduce the fees it earns from managing the company overall.

Through a spokesman, Reed declined to comment for this article. So did Fortress. 

Reed's history with Fortress

Reed's employment with Fortress traces at least as far back as his role as CEO of New Media Investment Group, which the firm spun out in 2013.

During Reed's tenure, he worked on its board with Fortress' billionaire CEO, Wes Edens — who co-owns the Milwaukee Bucks — and managed New Media's expanding list of local newspapers under its operating division, GateHouse, which owned and operated papers throughout New England, Ohio, Texas, and other parts of the country.

But each year, as New Media reported its annual proxy statement with the SEC, it excluded Reed's compensation where public companies normally disclose CEO pay. 

Instead, New Media said Reed was an employee of Fortress, rather than the media investment firm itself, so his compensation would remain private — "a loophole in securities law," one person familiar with the matter called it. 

People familiar with the arrangement said it was completely legal and in-line with SEC disclosure requirements because Reed was paid by a third-party, Fortress, rather than the company he was managing, New Media. 

Indeed, similar "externally managed" structures have also been used at other public companies, like National Beverage Corp., which distributes La Croix, the sparkling-water brand. 

Externally managed companies

Such instances in which a company is externally managed by the CEO of an outside management-services firm, rather than a full-time employee of the company itself, are not common, but there is some precedent, according to corporate attorneys and Wall Street executives.

In 2018, an adviser to shareholders of public companies in proxy votes, Institutional Shareholder Services, found about 90 US public companies that were externally managed. That's in comparison with more than 3,400 publicly listed US companies overall that year, according to a finance-industry report by The Carlyle Group. 

Most of those 90 companies were real-estate investment trusts, or REITs, according to ISS.

Experts told Business Insider that the externally managed structure could fuel investor concerns about conflicts of interest — in cases of mergers and acquisitions, for instance, given private-equity firms' ownership of other companies. 

This became an issue for Fortress in at least one other investment with an external-management structure that did not disclose a CEO's compensation. 

In 2014, Fortress spun off a publicly traded investment firm called New Senior. The following year, it bought 28 senior-living-home properties for $640 million.

Afterward, shareholder John Cumming sued New Senior CEO Edens and Fortress, pointing to the fact that the properties were owned by one of Fortress' own private-equity funds and alleging New Senior had overpaid in a deal that was filled with conflicts of interest.

Fortress initially fought the lawsuit but paid $53 million to settle last year.

At New Media, however, Business Insider found no similar investor lawsuits related to its management structure in a search of federal court records. 

'Various services' performed

Of the externally managed companies ISS found in 2018, many did not disclose CEO compensation details, according to David Kokell, ISS's head of US compensation research. 

The disclosure of CEO compensation — not just the amount but also performance metrics — is important because it can show whether the CEO is working in a company's best interests, rather than in the interests of a third party, Kokell said.

"Without the disclosure, you can't really evaluate that," he said. 

In the case of New Media, the company did not lay out Reed's performance metrics in SEC filings, though in a sign that he is invested in the company's future, he bought 280,000 shares of Gannett in November shortly after the merger. 

The explanation 

Language in proxy statements filed by New Media and New Senior show how Fortress explains why it does not disclose the CEO compensation. 

In addressing Reed's 2018 compensation in an April proxy statement, New Media said Reed "devoted a substantial portion of his time to the company ... although he did not exclusively provide services to us."

It said Fortress compensated Reed "based on the overall value of the various services" he performed to the private-equity firm and that it was "not able to segregate and identify any portion of the compensation awarded to him as relating solely to service performed for us."

Reed did not respond to a request for comment about what other services he performed for Fortress, if not for his service of managing New Media as CEO.

Overall, SEC filings show Fortress charged New Media management and incentive fees at a clip of $24 million a year including expenses in the lead-up to its merger with Gannett. 

Join the conversation about this story »

NOW WATCH: How to find water when you're stuck in the desert

US population growth is the lowest it's been since 1918. Here's why that's terrible news for the economy.

Sat, 01/11/2020 - 9:10am

  • The US population barely grew in 2019, amounting to a 0.48% trickle unseen in a century. It carries major economic implications for the nation's future.
  • Major factors of the past year's slowdown included fewer US births, a reduced number of immigrants, and Americans living longer, but it reflects trends that stretched back the last decade.
  • The slowdown in population growth is playing a key role in sober assessments of 2% US economic growth throughout the 2020s.
  • It could mean fewer, prime-age workers in the economy paying taxes and supporting a bevy of government programs.
  • Visit Business Insider's homepage for more stories.

America's population grew only 0.48% in 2019, according to new Census figures released at the end of December. It's a trickle unseen since the end of World War I in 1918 — and the trend carries major economic implications for the nation's long-term future.

Three key elements in the population slowdown over the last year included fewer US births, a reduced number of new immigrants, and the overall graying of Americans. The birth rate and immigration have historically driven the nation's changing population dynamics.

The census data capped 10 years of sluggish US population growth. The 2010s may enter the record books as the slowest decade in population growth since the first Census in 1790, according to the Brookings Institution. And low fertility and an increase in deaths are projected to continue into the 2020s.

The prospect of demographic stagnation is playing a critical role in projections of slower US economic growth over the next decade, given smaller increases in the numbers of working-age Americans and as baby boomers continue retiring. Going forward, a ballooning number of retirees would rely on a shrinking number of workers to power the economy.

As a result, most analysts expect the economy to grow 2% annually instead of the 3% common in the half-century before the Great Recession. 

Having fewer workers would also mean a drop in the amount of payroll taxes the government collects, severely straining tight finances for programs used to support older Americans like Social Security and Medicare. 

A report released last year from the Economic Innovation Group — a tech-funded think-tank — showed that 41% of US counties are experiencing population declines similar to Japan's. It said the demographic losses would "reverberate" through housing markets and municipal finances, prompting a drop in home values and local tax revenue that helps pay for education and infrastructure.

The study projected that by 2037, two-thirds of counties will have fewer working-age adults compared to 1997, despite the US population bumping upward year-after-year.

That trend threatens to throw rural areas into a cycle of decline — and make it harder for young people to stick around instead of heading elsewhere for schooling or work, further undercutting the economic futures of those communities.

But the group engineered a possible solution harnessing the natural pull of immigration. It proposed a "heartland visa" program that would encourage immigrants to settle in struggling communities hollowed out by workers seeking better opportunities in larger, thriving cities.

More immigration could help stem slow population growth

President Trump's restrictive immigration policies are likely linked to a slowdown of new immigrants entering the United States. Last year, the net increase of immigrants dropped to 200,000 people, a 70% decline from the previous year.

That doesn't bode well in the short-term for the working-age population, since immigration is expected to drive most of the increase over the next 15 years to at least 2035.

Unlike the birth and death rates, though, immigration is an issue that lawmakers can do something to encourage.

"The wild card is immigration. The reason we don't have a declining labor rate is because we've had strong immigration rates over the last three decades," says William Frey, a senior fellow at the Brookings Institution who studies demographics. "That's a factor we can do something about."

Immigrants are also increasingly moving to red states, bolstering their strong labor markets. And they tend to arrive at working ages, meaning they can pay taxes that help keep programs like Social Security alive. And research has shown that they start companies at double the rate of native-born Americans.

Join the conversation about this story »

NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption

About Value News Network

Value is the only commonality in an increasingly complex, challenging and interdependent world.
Laurance Allen: Editor + Publisher

Connect with Us