Abby Johnson – Future of Finance - [Invest Like the Best, EP.116]

I know firsthand how complex the tech stack is for asset managers, and seemingly every new tool and data source makes the problem even worse, adding more complexity, more headcount, and more risk. Ridgeline offers a better way forward, one unified platform that automates away all that complexity across portfolio accounting, reconciliation, reporting, trading, compliance, and more, all at scale. Ridgeline is revolutionizing investment management, helping ambitious firms scale faster, operate smarter, and stay ahead of the curve. See what Ridgeline can unlock for your firm. Schedule a demo at ridgelineapps.com. Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com. Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast. Over the summer, I spent time with Abby Johnson, who is the chairman and CEO of Fidelity Investments and several other business leads at Fidelity to understand how a very large firm like theirs is navigating change in our industry. What follows is a condensed version of my various conversations with Abby and her team. We discussed the big buzzwords like blockchain and machine learning, but also thoughts on leadership, client centricity, and measures of success. I hope you enjoyed this exploration. early on in your career, specifically with your first experiences in the investing world, maybe even industries that you covered and describe those early experiences? Because I always like that as a framing for sort of the bigger picture things that we'll talk about. So when I first joined Fidelity, after I got out of business school,

I joined in 1988 as an equity analyst and I was assigned industrial equipment as the industry to follow. And as you can imagine, the brand new analysts didn't get all the plum assignments. So my assignment was no exception. And I spent a lot of time traveling to the Midwest where most of the companies were located. And so my early experience in investing was really learning how to... analyze and try to figure out how to make money in mature to declining industries. So as you can imagine, that industry today is quite a bit smaller than it was back in the late 80s. It was actually a really great way to learn how to invest because you had to really look a lot at valuations and whether the company had a long-term future because so much consolidation. was going on because it wasn't a growing industry. that you had to think about that as well. I imagine that capital allocation skill of the managers was a key part of analyzing those businesses. Was that something you cared a lot about? Well, you had to certainly watch where they were investing and were these companies investing for an industry that used to exist, which some of the management teams were, when you knew that the world of manufacturing was going to change dramatically. And some of the companies really were quite forward-looking and thought about how industrial production was really going to change. adjusted their business strategies and were really rewarded for doing so. That is kind of a perfect segue to the asset management world of today, which I think in certain aspects is mature. But I know a great deal of your attention is thinking about kind of where we've been and where we're going and trying to position a big company accordingly. So I'd love to just get your at least starting take on the most significant trends, could be in recent years, could be over a longer period of time, that you see in the asset management space as being the thing.

that you most need to focus on as a business to evolve with the changing landscape? Because I think it's fair to say we are fairly mature and costs have come down, fees have come down. So there are some headwinds. So some general framing thoughts on the big trends in asset management would be a great place to start. And then we'll go kind of into each vertical, if you will. Well, when I started in the industry, individuals had two choices. They could either go to a traditional stockbroker and try to buy individual securities and work with that broker to develop an equity portfolio that suited them, or they could buy a mutual fund. So it was pretty straightforward world back then. And now if you look at the range of options that any retail investor has in front of them. It's such a wide range of options that are out there. ETFs didn't exist. Managed accounts didn't exist. It was just a lot of the derivative products that are now packaged and sold, not so much to retail investors, maybe more to sophisticated investors, but potentially to individuals. The complexity of our industry is probably the overriding trend that I think has just really changed the business since I joined. More recently, There's been an acceleration around fees. When I say more recently, I'm really thinking the last 10 years of fee pressure. Also, the last 10 years, an acceleration in the regulatory change and the potential regulation impact from the industry are really... Those are the two big things that I talk to people about internally most frequently when I'm trying to recalibrate everybody in the company's expectations about what's going to be different in the future than it has been in the past. So in response to that, we...

need to get better at innovating because we were a company that really built our franchise on the success of the mutual fund. And we were good at that. We developed a strong stable of investment talent that excelled in that vehicle. And that gave us a tremendous run through the 1990s and the early part of the new millennium. And then things changed. The financial crisis really changed our business. So what do we need to do? We need to innovate with more offerings. And those offerings for our core marketplace, which is really the mass affluent of U.S. investors, is helping people. what has become an incredibly complicated landscape for people who are not in the industry themselves and are trying to take responsibility for their own personal savings and wealth building. And there's just so many choices and things to learn about that it's really very difficult. So we need to help with innovations that make that more navigable. often means more digital solutions. And that's really where we have to accelerate. So you've started to answer this next question, but it's such a key one. It's something I think about all the time, which is whether or not there are one or a set of guiding principles that help you make decisions. When you're such a big company, you have products and services sort of in all parts of this ecosystem. And you've already touched on what the mission is, which is helping this mass affluent group specifically. I know there's constituencies beyond that, but that group specifically to make good choices in the sea of choice to not be overwhelmed by the complexity, which seems like a good thing. Like we're offering choices, but maybe it's actually, you can tell me, maybe it's a bad thing for investors. Is there one set of decision-making principles that you've developed over the years, whether it be for capital allocation or internal decisions that sort of guide your attention?

So this is a big question that I could probably talk for way too long about. That's good. That's the whole point of this for us. So I would start by saying I first put decisions into one of two buckets. In my role that I'm in today, decisions are either they're revocable decisions and irrevocable decisions. And I put those in really different categories. So most of the decisions that I make are. on a day-to-day basis are revocable decisions. And I think that's probably mostly what you're asking about decisions about how we run the business on a day-to-day basis, how we make investments for the future. So I guess because of my background as an analyst, I think about the decisions in a few different categories and they're broadly laid out. in the same way that a P&L is laid out. So I think about, are we doing enough to meet the needs of the marketplace that we have established already? So our core commitment as a business has to be on, are we delivering for our current base of customers on the expectations that we have set for them? That's got to be the first job of I think any financial services business, because that's the foundation of your relationship. Are we retaining and building our relationship with those customers? So looking at the various indicators that tell me how we're performing with different categories of customers, whether they're individuals, institutions, or intermediaries. And then aligned with that, are we really delivering on the service expectations that we've set out and hopefully exceeding the service expectations? I mentioned the fee pressure in our industry. So the next thing is, are we doing those repeatable processes, those repetitive service functions? on a lower and lower cost basis as time goes on. Because if you're not, you have to. I mean, there's certain things in your business that the cost goes up every year. So you've got to manage a lot of things down to at least stay even. And if you want to be lowering your costs and have some excess capital to invest, then you've got to have.

visibility on a trajectory of lower unit costs. The next thing is thinking about how you allocate the excess capital. How am I investing for the future? And then we have a planning cycle that we work through. We're in some stage of virtually all year round. try to mix that short and medium term thinking with the very much longer term thinking. So would the longer term be the more irrevocable type decisions, the things that you're trying to guard against that are threats or opportunities? How do you think about that very long term? Some long term decisions are revocable, but they aren't all necessarily. And in fact, when it comes to seeding new business ideas, It's, I think, best to try to think of them in the irrevocable category because one of the cultural challenges that we have is with some of these new businesses, we have to get people comfortable making mistakes. And traditionally in financial services, There are a lot more things where you have to have zero tolerance around making mistakes than spaces where you're allowed to make mistakes. So putting little contained spaces together where people can be challenged to build an MVP and actually test that MVP on a pilot basis with real customers is... culturally a hard thing for us to do because nobody wants to put something out there that maybe we're not going to get less than perfect feedback on. But you can't move quickly if you aren't willing to do that. And there's ways to manage that risk. You try to make sure that you're testing your MVP with an appropriate group of people. But you only learn these things by... Experimentation. By experimenting and learning with them. So in terms of... So summarizing a framework for decision making. Yeah, I love that. I would love to go into some of those verticals. So I guess the means to the end, right? If the end is to continue to serve and grow what you can do for this audience, there's a lot of interesting new tools to be able to do that. And probably the biggest arc of that is digitization. We'll talk about data, like AI, maybe some blockchain, all these things that everyone's talking about. But you sit in a seat where you can deploy these things on behalf of an actual people that need them.

So maybe talk about your thinking first at a high level with the digitization of everything and maybe the light side and the dark side of that idea, because I think sometimes maybe it could lead people astray, kind of like the complexity of choice that you talked about. So talk about the firm strategy when it comes to digital specifically, and then we'll go into the category. So I think the basic starting point is that you have to look at your customer base and recognize, as I think, Everybody did some number of not too many years ago and realized that the new way of interacting was being paved by the e-commerce companies and that people had become way more comfortable with that way of interacting, I think, much more quickly than probably would have been anticipated. So quickly, quickly, quickly catch up with that. So have lots of... basic service capability that's super quick, navigable, and very generally mobile friendly. So we've gotten to that point. And then you start to realize that there's actually a lot of things that you can do through a digital interaction that are really helpful to building a different kind of a customer relationship, giving them information that is personalized and targeted to them. And giving them time to be able to digest that information, perhaps talk about it with a spouse or a friend or a family member, whoever is their personal choice to discuss what their personal preferences are outside of the official relationship. That's kind of how we got started. But then really being able to learn about a person and be able to offer things that are appropriate, suitable, and what that person wants is really where the industry is going. Now, there's one sort of caveat to all of this, which is that we're pretty confident that at least for

Everyone who's alive today, people want to be able to talk to somebody about their money. And just because digital capabilities are, I would argue, critical to be competitive in today's world, they're not sufficient to really meet the holistic needs of. of almost everybody. Can you say more about that? There's two ideas there that you've mentioned that are fascinating to me. So the heart of the question is, what is the balance between, we'll call it like the robo world and the human touch world, which I'm really interested in. But this word relationship is key. Building a relationship with the client sounds like a central mission of the firm. Maybe define what is a good relationship in financial services? Is it trust? Is it excitement? Is it reliance? I'm curious even just to know the actual words that are markers of a good relationship. And then that, I guess, will allow us to answer this question of how do you balance the purely automatic investing solution with the need of human beings to interact with other human beings. Yeah, at the highest level, I believe it's about a person feeling more confident about us as an institution after every interaction they have with us. And that interaction could be digital, it could be over the phone, it could be in person. doesn't really matter. So what I talk to people at Fidelity about is having customers feel increasingly more confident in us as their provider. And beyond that, it gets pretty complicated because people's attitudes towards money are extremely personal. There's a lot of space where there aren't right and wrong answers, and it's really important to recognize that. Technology can help us discern and track a lot of those attitudes and help provide more personalized service and all that complexity that has built up over the years.

Also, it's difficult for our people who are interacting with people to manage just all in their head. I mean, they need technology tools to be able to help them support the conversations that they're having with individuals because they know a lot. But it's impossible for anybody to know everything. You need to have decision support tools to... be able to make it as best it possibly can. How much of the role of the human, the professional human in this equation, do you worry about going away through more data, through more automation in let's say the next 10 to 15 years? And are there any aspects of... the human relationship that just literally cannot go away, meaning there's no amount of smart AI with the best questions in the world and all the data in the world can improve upon the actual human-to-human interaction portion? And what, if anything, are you doing to sort of cultivate that, what is purely unique about humans dealing with humans? That's kind of an existential question. I'm not sure I can answer there at the end. It's not so much about us wanting it to go away or not go away because we're responding to what we see out there. And what we see out there is a consistent expectation on the part of customers that they have some kind of regular cadence with us in terms of discussing their investment portfolio. Is it still the portfolio that makes sense for them? How is their life changing? How is the market changing? And is this really the right makeup for them? And that makes a lot of sense. What we want is to make sure that any issues around people... putting money into their Fidelity account, taking money out of their Fidelity account, changing their address. I mean, any kind of routine service things that if you're on the fly, that should be super easy to do on your phone and just be able to just get it done and move on with your life and not be weighed down by.

buy anything. Sure. Maybe we could talk about some of the really emerging edgy stuff that I know you're interested in, specifically artificial intelligence technologies and blockchain technologies. Maybe we'll start with the second one, since you were really at the forefront of this in terms of big incumbent players showing interest and acting. behind that interest in this space. So how did you get interested in blockchain? And what is the status of your interest today? Has it changed? Has it waxed? Has it waned? The origin story would be great there. So I got interested in a 2010 timeframe, I guess. And it was just one of those things you've heard about. And I always try to figure out just generally what something is. And so I thought, well, you know, what the heck is this? And I don't know. Lots of things are like that. And so I just read a little bit about it. And I got interested in it more because there were two things that I thought were really intriguing about it that were really important to us as an organization. The first was the security. And, of course, cybersecurity is a... very major topic for us on a regular basis. Secondly, payments and the idea that there might be a payments network that would be different than today's payments network. So those were the two things that really captured my attention. It seems controversial and it was a pretty challenging thing to understand, but I really tried to, I'm not a technologist, but I tried to- You're an analyst. I was an analyst, so I tried to understand it. And I had a few other colleagues here at Fidelity who I discovered were asking some of the same questions that I was asking. We began getting together on a weekly basis just to talk about it. And out of that came a series of use cases where we thought potentially Bitcoin or a future cryptocurrency or the blockchain might be applicable. And we had, I don't know, maybe a couple dozen use cases that we just started developing and started.

pitching out to the organization to try to look at. We got more people interested because of that. Early on, it didn't ever occur to us, the concept of a digital store of value. And that was something that I've... come to appreciate later on the idea of a digital asset and a unique digital asset is really interesting because if those assets develop, and I think they will, they're going to be assets that people are going to want to invest in. And that's something that we're going to have to be prepared for. So our use cases, I'm not sure many of them, in fact, most of them, Didn't quite get the legs that we would have liked at this time. But nevertheless, the one we did get launched was the ability to make donations to our charitable gift fund. And we actually did quite well. We were able to help a number of early Bitcoin investors be able to make charitable contributions. their assets. So that was actually very helpful because it also introduced us to some of the key players in the industry. One thing we did early on that I pushed hard for that not so many other people were really excited about was to set up a mining operation. Now, it's a very small mining operation, but I... Thought it was important for us to do that because I wanted us to really learn the business at the foundational basis, at the foundation level. And I thought that it would help us attract talent that we were going to need for the future. And that it would also get us a seat at the table in the industry. did help us do all of those things and miraculously we did end up making money but we never expected to that was really just because the price went even today way above what we expected it to and now we're looking at interesting things that

We'll see what happens. Do you think in the future, however far that might be, five years, [redacted address], that this will be a true asset class, that there will be more than just one? So the ability to build a portfolio of sort of digital assets that will be as normal for people to invest in as a stock portfolio. Do you think that that future will come to be? I do. And even today, now with the less exalted prices, it's still a... $300 billion market. I mean, it's nothing to sneeze at. It's significant. It's just that it's nascent and it grew so quickly that most of the companies who are playing in this space today are equally new companies. They're all companies that came into being post. So a fun place to begin would be with... your overall take on the most significant kind of winds of change in this business, specifically from sort of an M&A consolidation and from you having been at some pretty diverse and interesting places, including Fidelity. I always like to start as broad as possible and we'll kind of narrow in on the most interesting stuff, but just your take on kind of the state of the business as it stands today, and what you think are the most interesting points of change now. I come from a long history on the sell side, trying to discern what types of changes would affect, call it, that side of the financial services equation. So it's been fun for me to be here. try to interpret or infer what those same trends in some respects are going to do to asset management or our benefits business. And I think generally speaking, and this is fairly obvious, putting aside M&A activity around sort of building scale, I think it really all has to do with capabilities. So the same things that we looked at on the sell side, whether it's robotic process automation, artificial intelligence, ways to scale distribution using technology, I think all of those things apply to.

the asset management business. My one observation about the asset management business in some respects is that it's a great business because you make money in your sleep, as you know. As long as you're performing well, assets are reasonably stable. Whereas on the sell side, you wake up every morning, particularly in a trading seat, and the clock resets to zero and the market conditions you're operating in are different. So it's interesting to see how, particularly at Fidelity and across the asset management space, there's an increasing amount of urgency to say, look, some of these trends are It might be short-term trends on the sell side, given the dynamics of that market in asset management might be five to 10-year trends. How do we start adapting some of these technologies and thinking about inorganic growth in a way that positions us well for what would appear to be longer cycle trends vis-a-vis what happens on a trading desk every day? Trends like demographics, fidelity as a longstanding asset manager serving institutions and generally older consumers versus early stage competitors who seem to have tied up the millennial space. So a lot of the internal dialogue now is like, what's the appropriate way to start thinking about those things and integrating it with our business? And that's been one of the more interesting challenges or perspectives that I've gotten since I've been here. There's a great angle there, which is this generational switchover, which is a fascinating idea in certainly in financial advisory businesses where they're moving from one generation to the next now with millennials being sort of the next massive generation after the baby boomers. Maybe talk about your take on who is winning that space and the reasons why. I'm a little skeptical about that millennials really want anything that different from what everyone else does. Yeah, you and me both. It really depends on how you define success. If success is the ability to attract millions of potential consumers at fairly low cost, then by all means, some of these platforms have been very successful. I mean, you look at the news about Robinhood. Even before they launched or announced their crypto initiative, I think they probably increased their client base from, what, $4 million to $5 million in the span of a week or two once they announced that. But it's unclear what the long-term monetization opportunities are. I think you're making a bet that these folks obviously become much wealthier. They want to consume a broader range of financial services, products, planning from those providers. So in terms of attracting attention, I think they're good. The question is, do they scale into being?

large profitable businesses. How much of this do you think is just where we are in a cycle? And this has been sort of the ethos of fintech and a lot of the big technology companies is getting the attention and audience seems to be priority number one. And sort of business model slash monetization is number two, like we'll figure that out later. And some have, right? Like Facebook figured it out. But as you thinking about attractive businesses and transitioning to a younger generation, do you think that that kind of falls apart when the cycle turns and there's, you know, capitalism is flowing as freely and as cheaply. I think it's part of it, but I also think it's sort of the law of large numbers, which is even if a large number of those clients don't persist through the next cycle, you know, my guess is that if you're looking at investing in those companies or you're looking at them as an analyst, you're probably saying at some percentage capture rate and monetization of a much smaller percentage of their overall client base, it's still an interesting business. I think you have to assume that there's much more volatility in those clients. basis than not. What do you think are the most common attributes across businesses that are doing a good job of bridging that generation gap? I'm not the generation to be using these tools, but what I have seen and heard is that they do a very good job on the UX side, appealing to millennials, not just the marketing pitch, but how they, it's basically these technologies we take for granted in our personal life. the apps we have on our phone. And that ethos and that usability and applying it to finance, it's kind of funny how some of the best applications we use are things that we use in our private life. And then we get to work and we're still using stuff that is a generation or two behind. And I think that flexibility to say, let's kind of build this thing in a way that's going to capture attention and create a bit of stickiness, I don't think you can underestimate the power of that. Do you think that in the future that the asset management industry will consolidate and barbell, meaning there will be the big names at one end of the spectrum that have enormous scale distribution, you know, economies of scale, et cetera. And at the other end, obviously there, I think there'll always be kind of upstart niche players. Do you think that that middle?

piece, call it the $50 billion asset manager, that's sort of in between those worlds is in jeopardy? Or do you think that the future will look more similar to today? I think that's right. I mean, with the caveat that I'm not a student of the asset management industry, it would seem to me that there's increasing returns to scale. So someone with our distribution footprint, our product capabilities, being able to be more of a one-stop shop across a range of assets. And then my guess is you're going to have managers, particularly in the alt space, which will have demonstrated long-term ability to generate alpha. And they can persist. Obviously, the cost structure of managing at that scale is much different than operating at a fidelity scale. And I do wonder a little bit about the folks that are caught in the middle. They have neither the scale and the distribution capabilities to be that one-stop shop and perhaps don't have a kind of a pure play track record in a specific asset class to say, we're going to get assets under management just by virtue of. the investing DNA we have as an organization. Apart from blockchain, what do you think are the most exciting current technologies? And by exciting, I mean, not necessarily just interesting, but ones that could significantly affect the trajectory of a business like this. I have a little bit of experience in, broadly speaking, the artificial intelligence space and had made some investments in this space over the past couple of years. And, you know, people talk a lot about machine learning. If you have lots of data, structured data, applying tools and techniques to infer patterns and correlations. I think what's more interesting, particularly in financial services, is this idea of ontology or higher level type artificial intelligence where you can train machines to what used to be called expert systems. You can train machines to think like humans. And I think in the context of financial planning, I can give you an example. You don't need gigabytes of data. to run regression analyses against to tell you that in most cases, if someone is taking out a loan, they should probably take the loan with the lowest APR. That's just something we all know. So there are ways to codify that type of intelligence into a system and augment the machine learning with what I would call more human reasoning. And where that gets interesting in financial services is...

It's not the case, I think, in any aspect of finance, consumer or institutional, where you can rely on what a machine says in terms of what a client or what you should do. There always needs to be some trail of reasoning. Okay, the machine said buy this today. Well, why? In most cases, the machine can't tell you. If you overlay some of this human intelligence, you can actually... effectively have the entire reasoning chain as to maybe why a machine said to do something, and you can express that in plain English. Can you specify in a little more detail the difference between the sort of ontological type? learning or knowledge at the AI level and machine learning. So machine learning is something that we've explored a lot in this format and people are obviously super keen on. And I think the general summary would be like, get lots of good data and have some sort of outcome variable or set of outcome variables. And you just get a better widget, better predictive algorithm. It sounds like what you're talking about is quite a bit different and more supervised, I guess, by humans. Maybe you can just say some, even in the technical side, the more detail about that. Yeah, I mean, it's basically these vertical triples, these assertions about people and things and effectively building a knowledge base. So there are companies that, for example, in finance, one assertion could be that bond prices and interest rates are inversely correlated, fairly straightforward. There are other companies that are basically having their analysts. So I've heard of banks on the street that are trying to automate the research process by taking, let's say, their oil and gas analyst and understanding how they think about valuing the sector, expressing that in a series of assertions, and then reasoning across those assertions in order to cover companies that might be too small for that highly paid senior analyst to cover. So it's really codifying human knowledge. And I think the way to think about it and maybe draw a key distinction with machine learning is that it's really more about causation as opposed to correlation. And when you combine the two, it's very powerful. And so I think there's been limited expression of those technologies in finance. But my guess is that as we move forward and we sort of, okay, everyone's built their big data infrastructure, everyone has their machine learning teams, everyone is seeing good results from that sort of thing.

kind of the last mile might be overlaying some of this human knowledge-based approach to augment the machine learning. What are some maybe very specific examples of areas that you think are most likely to be positively impacted by that type of artificial intelligence? And to what extent do you think that all of these technologies will significantly reduce the number of people? humans involved in say like the entire investment process? Yeah, it's a good question. I mean, I think maybe where you would see the media impact is more from a client support standpoint. So example being based on things like call logs and other things we know about how clients interact with a customer support rep, trying to put that in some sort of framework so that when a client calls and expresses, and maybe there's a voice capture that's converting their voice into some problem statement that appears on someone's screen, that we can leverage what we know about what we've done the prior 100 times with a client in order to take that same approach with the new customer that calls. And again, that's not in isolation of what we might do with the actual underlying data about the customer and their behavior. So I think, again, a unification of the two. I think on the investment side, my guess is it'll be a bit slower going. And so I sort of feel like in finance, the last mile might be... really around the gray matter and the IP of an investing organization. You sound like you've obviously spent a ton of time thinking not just about the prevailing technologies, but also sort of the businesses and business models behind them and how they'll affect the broader ecosystem. What has you most excited right now, kind of looking across the landscape, whether it's a type of business or just one topic in particular? What has your most current attention and interest? Yeah, look, I think it's maybe coming back to what we talked about earlier and then intersecting that with some of these new technologies. I mean, I think Probably one aspect would be this idea of digital advice. So you think about robos, you think about acorns, you think about Robinhood. And if you believe that there's an opportunity to scale these businesses in a cost-effective way, because my personal thesis is at some level of wealth, everyone wants to talk to a human being.

they graduate to some higher service. And it's rather become some sort of man-machine hybrid approach. And I know some folks on the market are doing that. But I think the other approach is thinking about some of these techniques and seeing how much intelligence you can put into a digital advice platform, particularly if you know a fair bit about... the customer. You can see what they're spending money on in their bank account. You know what their investments look like. You may know other things about them. So that to me is going to be very interesting to see if people can pull it off at scale and in a way that has some stickiness. You seem like you'd be in an interesting seat to answer a question really for younger listeners out there, which is sort of like career type advice coming into the asset management world. So because you've seen so much of the technology and because that's such a key part of what is staying the same and what's changing. What, if any, advice would you give to younger people that are interested in, let's say, financial services to keep it as broad as possible? I guess both positive and negative. I would say it is the case, given a lot of these businesses, that there's almost an apprenticeship culture. You come in, you know a little bit about finance, but you're really learning from folks that have been in the business for a long time, and that's very powerful. Having said that, I think you always have to keep an eye out for what could change or how can I... personally change things for the better. I think it used to be the case when I started on Wall Street, finance and technology were very far apart. The folks that came in every day on the trading desk, as far as they were concerned, it was like, you know, does the plumbing and the electricity in the house work or not? And increasingly, technology is taking over those businesses. And so if you're someone that's been in the same position for 15, 20 years and never really had a nuanced view of how technology could change your business, that's probably a risk factor. Coming into these businesses, I think you have to think about it every step of the process. How could technology make my job better, make our company more efficient, and not be afraid to raise some of those ideas? Particularly because there's often a generational gap in understanding when it comes to technology. That's changing, but it still exists. How about markers of a business that would be desirable to work for?

given that first part of the answer? So would there be things in a company that you would encourage, say your kids and a 16-year-old is out of Robin Hood and graduating to the working world, that you would say like, here are the markers of a business that would be attractive to go work for? Whether it's a big company or a small company, I think it's a company that acts nimbly. I think in this day and age, it's very easy to get locked in a track of success, history being a predictor of future results. And that's often not the case. And I think an organization... that would also allow younger people to have the flexibility to move within the organization, which is something that Fidelity does actually quite well. Because, you know, you need all of that perspective. Like if I look at what I do now and I love what I do, and someone said to me, well, how did you get to where you are? It was a completely non-deterministic path. I was just pursuing things that were of interest to me. You know, I started my life as a fixed income analyst. It was fascinating, but I felt it was very narrow. My next job was head of strategy for a financial information company. I went from being massively micro to massively macro. And then I jumped around in between. And I think it makes perfect sense to me now looking back in time. But at the time, I can't say that I was trying to climb a corporate ladder. I was really trying to acquire skills and really to figure out what I was interested in. One of the things I've been thinking quite a bit about is the notion of brand in our business. And the difficulty, frankly, that it is to, if you list the top, I'm very biased towards the asset management world just because that's where I'm more familiar. But if you list the top 100 asset managers, let's say, and ask someone like me who knows this business pretty well what each brand stands for, there really aren't that many where you can say exactly what it stands for. You mentioned Robinhood, which I think has a very clearly defined brand, and that's certainly an asset for that business. How do you think about... brand from a corporate development standpoint, whether that's something you try to very intentionally steer for Fidelity's brand or look for, I know it's sporadic acquisitions, but look for in others that you're considering working with? Yeah, it's a great question. Look, I think in financial services, I mean, I still think trust is an extremely important attribute. And I think lots of startup companies who may have downplayed that as an attribute in favor of more technical or growthy.

type brand attributes have probably come to realize that when you're dealing with other people's money or assets, trust at every level is extremely important. So the question is then, what other attributes do you overlay on top of that brand? I think for a traditional asset manager, it's expertise. I think for certain fintech companies, it could be innovation or growth or anticipation of clients' needs or being a better steward of a client's needs. I think it can be any range of things, but the bedrock has got to be trust. That's such an important key point. I wonder if there are ways, just to step on that a little bit more, of engendering that trust more. I loved Abby's answer when I asked her earlier, what is the litmus test for success? And one of those is every single interaction with a client should leave that client more confident, not as, but more confident in fidelity as a brand. Are there ways of, it's a great litmus test, but are there ways of, as a... within a company culture, like engendering that kind of behavior that you think are effective? Because I think that's a super powerful idea for any financial services business. Yeah, it's got to be customer first. And one might argue that for more mature financial services companies, in terms of our spending, we might over-index on customer support and experience. Because to your point, you want the client leaving each experience better off. than they were previously. Think about some of the fast growth companies in our space and the crypto space, particularly through the fourth quarter of last year, where they had trouble onboarding customers. They didn't really have customer support to speak of. Their trading platforms are going down on a regular basis. Didn't leave a great taste in people's mouth. But what was the practical outcome of all of that? Some of these organizations now saying we're doubling down on customer support. We'll have a phone number you can call. And so I think that the more institutional of the startups are realizing that they need these capabilities if they want to have lifetime customers. In closing, I always ask everyone the same question. It'll be fun to collect these from everyone at Fidelity. The question is broad, which is for the kindest thing that anyone's ever done for you. Give me my first job. Who did that? Oh, gosh, I forget her name. But look.

I wasn't sure what I wanted to do coming out of school. I knew I wanted to work on Wall Street. It was a couple months after a pretty big market cataclysm. So the hiring window was not really open, particularly for someone who was not a great student in college. And I think someone just, I don't know, liked me, figured that I was a good learner. And that got me on my way. And I'm very still thankful. I think her name was Vicki. I'm still very thankful for that. Because, you know, back then, you're just like a babe in the woods. You don't even know how to look for a job. Take a chance on somebody. Exactly. Take a chance. And I think the corollary to that is hire for aptitude. I think in many cases, in more traditional businesses, we're focused on hiring people who have certain capabilities or attributes. And I think in this day and age, hiring very curious people who have a strong work ethic is a recipe for success because they are experts at learning and solving problems. Fantastic. Well, thanks so much for your time. Thank you, Patrick. I would love to hear, given that you're doing this at a very big firm, if you had to recommend for, let's say, smaller firms that find those appealing in ways that they might be able to improve their business, how to begin this process from a technical standpoint. What are the systems that you're using to do this? What do the teams look like? How big is the team that applies some of these ideas? Sort of the nuts and bolts of how to actually build a team around this technology would be fascinating. So AI, let me start with what I think is probably the most important thing. AI is only as good as the data it's built on. So you have to first have a really good view on what data do you need access to. And for us, it really begins with a data strategy that brings the data together. So for any small company that is getting into this, I would say really think about the data because that's going to be a limiting factor once you've got the algorithms built. Are there markers of a good data strategy or a high-quality data set, like things that you're thinking about or looking for whenever you're starting maybe from scratch collecting data? Yes, there's probably three or four things I'm looking for. So the first thing I'm looking for is, is anything that's unique in this data set that's going to give you a unique advantage? The second thing I'm looking for is instrumentation, i.e., is the data continuously available? Because if it is, it gives you the opportunity for the algorithms to...

get better in near real time as opposed to waiting for an event when the next feed comes in. The third thing I'm looking for is does it augment and supplement something and the two of them then form a complete view that increases your effectiveness. The other things about volumes of data these days, that's not an issue, so I'm not too concerned about volumes. Those are the three top things I would be most interested in. Good data is step one. Start with the data. The second thing you need to have a really good view. is the problem space. And in the problem space, your value proposition, i.e., what is it that the AI is going to do that's going to be much better than what is the status quo. And what I often find in this, people don't go beyond the obvious value proposition documentation to a feedback loop. and validation that it is actually living up to its expectation, which requires smart experimental design. Because people will often build a feedback loop, but your feedback loop is often misconstrued to be just a mechanism to bring the results back. But often they don't touch upon the edge cases, nor do they really look at the lift over the baseline, which requires experimental design of setting up a control group or a random group. And I just find the product managers are very often the business person that is working with a small company, not giving enough direction so that the incrementality or the value proposition is really measured out. So I would say that's an area of really important focus. So the final question that I'm asking everyone is for the kindest thing that anyone's ever done for you. Wow. You know, as I reflect back on my life and I think about the kindest thing anybody's done for me, I distinctly remember as a student with no financial, beyond the financial aid I was getting through a scholarship, I developed some conditions around my wisdom teeth and needed some surgery done across all of them. And as I went to the doctor, I looked at a pretty significant monumental bill.

And I had no choice but to go through the surgery. So I went through the surgery, which, you know, was fairly complex. And I came out thinking, now I've racked up a pretty significant amount in medical bills. And the doctor looked at me. Somehow through our conversations, he liked what I was doing. And he came out and said that he wasn't going to charge me anything for the whole process. And this was over two different surgeries to this day. I don't know how much it would have cost, but it's pretty significant. And at that stage in my life, it was just completely, it was way beyond being an unexpected surprise. I literally, to this day, am in touch with a doctor. And for many years, I would send him a thank you card. And now through digital media, I keep up with him through LinkedIn. But that's, you know, that's one that comes to mind. Fantastic. Love that one. I wrapped up my conversation with Abby by asking her opinion on the proliferation of data and asking some closing questions on leadership and career lessons learned. In the lobby on my way up here, I noticed some very cool installation. showing data points that seem to be kind of live feeds and very clear emphasis on the importance of and the granularity of the information now available to us. I always talk about data as sort of a double-edged sword, that on the one hand, of course, more information can be great. On the other hand, especially in the investing context, it can actually destroy you. So how do you think about data maybe in the investing process? We could talk about AI and data for the business itself as well, which is also interesting. But how do you think about Fidelity's focus on data? as a key investing initiative? So our investment groups have, and I think this is pretty common in the industry today, have efforts around gathering data from publicly available sources to be able to analyze trends and much in the same way we do in our... customer-facing functions really support and be an added input to the human decision-making that goes on. So that's interesting space. I think that's a very natural evolution of the investing process. Ever since investing began, it was always a combination of

quantitative and qualitative skills that the most successful investors demonstrated. What would you say are the most important attributes of, it could be portfolio managers here at Fidelity, or just that you've encountered even analysts across the industry, the most differentiating attributes of good analysts or good PMs, maybe from the start of your career to today? How have those key attributes changed through time? Or have they changed? I would argue they haven't really changed that much. The people I've known over my career who are the greatest investors are people who know how to look at the numbers, are superior at being dispassionate about the facts, and also have a sense of how to understand people. They're assessing the future of a company. They're taking into account the people characteristics. Is this person... credible? Can they really execute on the plan that they're talking to me about? And does the plan make sense versus what I know is going on in that marketplace? I won't ask you for the greatest investor you've ever talked to, but maybe ask it slightly a different way, which is to name an investor that you've just always enjoyed learning from or with, someone with whom the conversations are always kind of interesting because of these attributes that you just described. Well, I'm lucky enough now to be Sitting on a floor at Fidelity where I get to do that every day that I'm in the office because there's a lot of those people. Certainly, if you name one name, it has to be Peter Lynch because, I mean, he was the greatest investor Fidelity had. He made so much money for so many people. developed the bench of investors who is so successful for so many of our investors today. I think if Will Danoff, Joel Tillinghast, or Steve Weimer were sitting here, I am completely confident they would tell you stories about how Peter influenced them and helped them personally in their development. Do you have a favorite personal Peter Lynch story? I guess my early...

Days of going in to try to talk to Peter about how I thought possibly he might be able to make money in some small little machinery stock was probably about as intimidated as I've ever been in my life. So he's an amazing guy and he has a unique ability to be able to tell stories that. have created important lessons for other people. And that in a lot of ways sets them apart. So a couple of closing questions on one looking back, one looking forward. So first in retrospect, if there are any, what you feel are portable. let's say business lessons, ways of conducting yourself, things that I always focus on change. You've heard me ask about change a lot just because I feel like change kind of communicates learning. Any major business lessons that you feel people could take away just from all your variety of experiences? It's not often that I've had someone on the podcast that has touched so many different parts of the financial services business. So any retrospective lessons that you'd be willing to offer to listeners? Well, when I first moved from being a investor to being a manager and a leader of an organization. One of the things that I noticed that leaders of the companies that I had invested in and followed did pretty consistently was really think about how they communicated with their broad constituents and the best ones always under-promised and over-delivered. So I've always tried to keep that little buzz going in the back of my brain as I go through my responsibilities and be mindful of your limits because everybody in every institution does have limits. Make sure you keep those in mind. But of course, now that I'm leading, I know I'm very cognizant also of having to push the organization and push for change that.

needs to happen to ensure our future. One of the changes that I saw you highlight in a public speech last year was the role of women in financial services, which has been a very challenging thing for a number of years. I'm curious your thoughts there and maybe most specifically on what institutions or people can do to make things better, to improve things. Well, one thing that has changed over the course of my career significantly is the profile of our customers. And as a starting point, we need more women in our organization to be able to serve the women who are our customers. And that's not to say that only women can serve women, because that's not what I'm saying at all. But we do know that oftentimes women will come into one of our branches and specifically ask to work for. And they may do that before they've met any fidelity rep. And I'd certainly like to think that any fidelity rep could serve any person who walked in the door. And that's certainly our expectation. But nevertheless, you can understand that we know women's attitudes towards investing are different than men's because we've studied it. So we know we need more women who are customer-facing people to be able to meet that need. So that's a baseline business need that is very important to us. Growing up in the investment business, one of the things that makes for a vibrant investment organization is diversity of thought and opinion. Even within Fidelity, one of the things that I always... loved about the organization was that you were encouraged to have your own point of view on a stock. There was no expectation that people would agree on stocks, whether they were buy, sells, or holds. And the point was to be able to have a clear opinion and be able to defend your opinion.

I think that carries through and is a valuable concept in the rest of the organization. I mean, everything is better if people are willing to debate it. So fostering an environment where there's diversity of thought and opinion, which comes naturally from people with different backgrounds, is... going to be critical to our success is a future business. I absolutely love that. Love that idea. Apart from working on that, what are the other issues or trends that have you most excited for the future? So here's the prospective question. What has your great interest today that you're most excited about exploring? Oh, all kinds of stuff. I mean, the biggest thing is really trying to diversify our business of serving individuals. trying to have more opportunities in terms of how we serve people, for example, in the workplace. So we... began by being a 401k provider. So today in our workplace services business, yes, we're the biggest 401k provider, but we also provide a whole suite of other services as well. And yes, those businesses aren't as big and as robust as... being a 401k record keeper and a provider of investments that sit on that platform, but they're good fee-based services that give our operations some diversification. And they help us develop stickier customer relationships in terms of working with the companies. And it's just a more... fulsome business model. So continuing to build that out, ditto with intermediaries. We've long distributed our funds. We've had a specific line of funds that we distribute through investment intermediaries. And we have a much broader suite of services now to offer to those intermediaries. So we offer clearing and custody services. We acquired a company called eMoney, which is a software services business that provides tools to intermediaries to enable them to be able to run their business better. So those are two of the biggest areas where there's just a lot of opportunity.

Within our core asset management business, we've stepped up our willingness to be more aggressive about trying new asset classes, developing new fee structures that we think the marketplace will be increasingly interested in. And it's challenging space because we've got a big legacy business that we've got to make the new things fit within. But as always, investment. styles and preferences will change. And we have to be in front of those changing preferences or we'll find ourselves being left behind. So two closing questions. The first is purely selfish. And it relates to a lot of the ideas that you've touched on, which are really important to me, which is the degree to which having been in a business where your family was heavily involved, which is the same situation I'm in, several orders of magnitude for now, smaller than what you're dealing with. But something that I think a tremendous amount about when it comes to these ideas of mature industries that you touched on, innovation. versus focusing on the existing business. Any advice, just honestly, just for me, that you would give as to whether or not this is something I should even be thinking about, that it's a family business or not? And if so, what are the positives and negatives there? So I think the positive is that any company, assuming it has more or less good direction, will tend to benefit from consistent leadership. So when you're working with 50% the same genetic material, then that probably contributes something to the consistency. So that's the positive. The negatives is it gets complicated. And you have to be prepared to deal with those complications. And certainly the pressure to think about leaving the wood pile bigger than it was when it was handed to you is significant. So just be prepared for that. I will. My closing question for everybody is to ask what the kindest thing that anyone's ever done for you is. Well, today is actually my 30th wedding anniversary.

Wow. So thank you. So I have a very kind husband who's put up with a lot over the years, especially since it's today, I would say the kindness of my husband over the years. Fantastic. Well, this has been wonderful perspective on so many things in our business, something that I know a lot of people out there will love to hear. So thank you so much for your time. Oh, thank you. Hey, everyone. Patrick here again. To find more episodes of Invest Like the Best, go to InvestorFieldGuide.com forward slash podcast. If you're a book lover, you can also sign up for my book club at InvestorFieldGuide.com forward slash book club. After you sign up, you'll receive a full investor curriculum right away and then three to four suggestions of new books every month. You can also follow me on Twitter at Patrick underscore Oshag, O-S-H-A-G. If you enjoy the show, please leave a quick review for us on iTunes, which will help more people discover Invest Like the Best. Thanks so much for listening.