OpenInvest says it will keep its ‘magic’ after sale to JPMorgan Chase

OpenInvest says it will keep its ‘magic’ after sale to JPMorgan Chase

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OpenInvest says it will keep its ‘magic’ after sale to JPMorgan Chase

JPMorgan Chase is seeking to take advantage of the environmental-social-governance investing boom with its agreement to buy OpenInvest, a San Francisco startup backed by Andreessen Horowitz, Y Combinator and QED.

OpenInvest lets users invest in alignment with causes they care about – climate change, say, or animal welfare – as well as their own financial goals. Users of its app can make changes to their stock portfolios and vote on shareholder resolutions.

The agreement, announced Tuesday, is the latest in a string of fintech deals the bank has unveiled in recent months. It agreed two weeks ago to buy the UK robo advisor Nutmeg. In December it acquired 55ip, which helps create tax-efficient investment portfolios.

Chairman and CEO Jamie Dimon has been signaling his interest in fintech for a while. “We will be much more aggressive with acquisitions across the board,” he said at JPMorgan’s annual investor meeting in February 2020. In January of this year, he told analysts that banks should be “scared **** less” about fintech competition.

Can OpenInvest maintain its independence and ability to innovate once it becomes a unit of the largest US bank? Can it get JPMorgan’s 55 million digitally active customers to use its socially-conscious investing tools? On the day of the merger announcement, Joshua Levin, a co-founder of the company and its chief strategy officer, explained what OpenInvest will look like under JPMorgan.

“We’re going to bring ESG into every part of people’s financial lives across the United States,” says Joshua Levin, co-founder and chief strategy officer of OpenInvest.

We’re seeing a lot more interest in ESG investing lately than we did five years ago. Why do you think that’s happening?

JOSHUA LEVIN: I think there are four reasons. There’s the overall voice of the next generation: millennials being more connected, living in a world of global ideas. They’re engaged. They want to express their values. Then there’s growing momentum in this space. It was already on a trajectory, and that’s continued with [presidents] Trump and Biden. It was a perfect one-two punch. When Trump came into office, a lot of people were frustrated with politics and looking for other channels to drive their views forward. And so finance became an area, just like people would take to the streets and protest various things that they may never have protested before.

A lot of people were entering the investing space who hadn’t been there before, and then the Trump administration put a number of policies in place to restrict ESG investing, especially in regulated retirement pools. And then the last factor would be Biden’s win. And this isn’t really coming to full effect yet, but they’re reversing course on a lot of those policies. I think that’s going to fully unleash the dams. So 2021 has been a real tipping point.

How many users does OpenInvest have today?

We’re shutting down most of our external distribution.

So you’re not going to have independent users anymore?

Our focus with JPMorgan is going to be pointed internally at JPMorgan’s user base.

What’s the migration path for people who are active users of OpenInvest today?

We’ve offered them a number of different options. We’ve also told them that we plan to be back with these capabilities through JPMorgan.

Would they have to become customers of JPMorgan to be able to use OpenInvest?

That’s right. This was not a small decision. We spent years building up our client base, and the scale we’re talking about here – JPMorgan Chase services every other household. And so this is actually an energizing acceleration. We’re a mission-driven company, and the mission is to mainstream ESG through technology. It doesn’t get more mainstream than that. We’re going to bring ESG into every part of people’s financial lives across the United States.

Is JPMorgan Chase going to build a component of OpenInvest into its apps across the board?

And it is. We’ll ultimately expand even beyond investing into credit card transactions and retail banking. People are potentially going to have a whole new way to interact with money.

When will this integration work be done?

We don’t have specific timelines. But we’ve put together a list of a hundred projects. Then we have to prioritize. But in many ways they’re putting us in the driver’s seat because they’re buying us as innovators to do things that they and other banks haven’t been able to do.

How many people from the OpenInvest team are going to be working at JP Morgan Chase now?

Nearly everyone. Because we’re sunsetting our external sales and distribution, we’re helping to find new homes at JPMorgan or elsewhere for some team members. But the vast majority are coming across full-time.

Are you moving over?

And it is.

I know Jamie Dimon wants everybody back in the office. Are you all going to be working in the New New York City headquarters?

No, being in San Francisco, we’ll be based in the JPMorgan office here. But we’ll be maintaining our brand and operating as our own team. It’s just a balance we have to find – to be close enough to be successful at integrating and deploying our projects, but we also want to maintain the dynamic and the magic that made OpenInvest what it is. JPMorgan recognizes that the top priority is maintaining that dynamic.

How did this merger come about with JPMorgan? Did they approach you?

We were raising money for a series B. We were well positioned. They were one of several potential strategic investors. They approached us saying their preference was to acquire us. At first, our reaction was we’re trying to stay independent. As we spent time with them, especially at very senior levels, we realized two things: the scale of the opportunity from the mission perspective to really move the needle across clients and households, and the incredible alignment of philosophies around ESG. They really believe that this is not only going mainstream, it’s a game-changer across financial services and people’s lives. They saw the technology opportunity and needs the same way we did.

How do you feel about becoming a banker?

The team’s energies in the past were in many ways split between hitting sales targets and the internal work on ESG product development. And now we get to focus a lot more on just ESG excellence and innovation. We get to become an ESG think tank and technology innovation hub.

Will the OpenInvest name remain?

And it is. We still have a brand.

To step back, I believe that the way OpenInvest generally works is that somebody can go in and establish some of the things that they care most about, whether it’s climate change or anti-guns or animal welfare. And then they are guided or are given information about certain companies as to whether they are aligned with those missions. How do you research and vet the companies?

Remember Agent Mulder in the X-Files? We go out and say, who has the best data on, say, water scarcity in the US or deforestation in Sumatra or gender pay gaps in Europe? We go through our own rigorous process of identifying the best data sources for every indicator, qualifying it or reviewing it, making sure it’s up to date, understanding it, and then normalizing it.

At this point, we have more than 35 different data sources. We’re very transparent about our data sources and methodology.

Customers inject their own emotional, personal views into their portfolio choices. For instance, lots of people have dumped Facebook over the last couple of years. Facebook is not necessarily going to get picked up in the ESG indicators that clients have in their portfolios. But they just really don’t like Facebook.