Edelman: The Truth About Your Future

April 13, 2017

Ric Edelman, founder and chairman of Edelman Financial Services, has published eight books. His latest, “The Truth About Your Future: The Money Guide You Need Now, Later, and Much Later,” targets the future of personal finance and what investors need to know for the technological revolution already occurring around us.

ETF.com: Your new book is incredibly research-heavy, with 50 pages of footnotes. How much research did you do for this book?

Edelman: I spent about eight years researching the subjects and the bulk of last summer writing it.

ETF.com: What stoked your interest in this particular subject?

Edelman: I've always been focused on technology. Back in the ’80s, I was cited by a trade publication as one of the most advanced advisors in the country using technology. This was back in the days of PCs—you know, IBM 286 computers with floppy disk drives.

So I've always recognized that technology helps us do things faster and more accurately. That’s never changed, so we’ve always tried to make our firm state-of-the-art, cutting edge, with its technological innovations and solutions. That led to paying attention to the latest technology and computer innovations—artificial intelligence has become a big topic of conversation.

About eight years ago, I became really focused on exponential technologies, which back then was a new phrase. I interviewed Ray Kurzweil on my television show. Ray is widely regarded as the Albert Einstein of our generation and is Google's director of engineering. He has hundreds of patents. He co-founded Singularity University with Peter Diamandis.

Ray helped me set on a path of study. This was 2010-2011, and I eventually went through the executive program at Singularity University. They asked me to become a member of their faculty and to be an investor as well, both of which I have done. I helped them to create Expo Finance, which is a 2 ½-day course in New York for the financial industry to help its members understand where technology is taking us.

My focus has always been very different from the rest of the technologists. I focus on this as a financial advisor, which means I only had two questions: 1) How does my advice that I give my clients need to change? 2) How do I need to change how I deliver that advice?

Nobody had answers to those questions, because that wasn’t the focus of their research. It took me years to figure out answers to those questions. The answers began to emerge about three years ago, and finally crystallized sufficiently that I was able to write this book.

 

ETF.com: The book really supports the thesis of the iShares Exponential Technologies ETF (XT). How linked are the two?

Edelman: The book really is a walkabout that explains the journey that led to the inspiration for XT. As the answers emerged, I realized that, from an investment management perspective, going back to that question of “how do I need to change the advice for my clients,” what emerged was that we needed to invest a portion of our clients’ assets into companies emphasizing exponential technologies.

My research made me realize that no such investment vehicle, no mutual fund, no ETF existed with an emphasis on exponential technologies. Despite the fact there were over 400 technology funds, none of them emphasized exponential tech.

They all do the same thing: They all invest in the usual suspects, IBM, Motorola, Intel, Microsoft, Dell, Oracle. None of them was focusing—they were just tech funds. That’s not what I was looking for. I was looking for companies that are exploiting exponential technologies for the growth and development of their companies.

So I went to BlackRock, and that led to the creation of XT, which launched just over two years ago—one of the most successful ETF launches in history.

ETF.com: Your firm represents something like three-quarters of the assets in the fund at this point, and XT is almost at $1 billion in assets.

Edelman: When it launched, we were 100% of it, so the fact that we’re only three-quarters demonstrates that others are beginning to recognize the value of this investment.

ETF.com: Do you think there's a learning curve there?

Edelman: Very much so. BlackRock created the fund at my request. Edelman Financial doesn’t earn any money from the fund. There's no financial transaction between us and BlackRock or Morningstar. I simply wanted the fund to exist so that we could provide it to our clients.

BlackRock accommodated us, but I don’t know that many are even aware of its existence. That’s No. 1. No. 2, it’s a complicated, complex conversation. It’s not about tech. You mention “tech” to people, and they think Microsoft, maybe Google. Of you talk to advisors in the field or experts in technology, experts in the field, they're talking about the latest financial planning software, or the hot new rebalancing product. They're not talking about exponential technologies, which is an entirely different conversation.

So most people are unaware of the field of exponential technologies, and have no knowledge that this ETF exists, or why it’s different from all the others. I think for both of those reasons, it’s not on the radar of many in the industry.

 

ETF.com: Do you think it’s just a matter of time before other investors start really catching on to this?

Edelman: Yes. I mean, when’s the first time you heard of a self-driving car?

ETF.com: A few years ago.

Edelman: Exactly. Well, self-driving cars have been around for 50 years. But most people have never heard of them until the last few. Now, everybody is familiar. But the same thing will apply: You go from oblivion to awareness to adoption. And that takes time for people. So I believe that what’s currently considered an unusual, unique investment will become increasingly mainstream, and ultimately you’ll know when this happens when copycats emerge.

And you're starting to see that. Look at ARK Investments. And now there are cybersecurity funds. So you're beginning to see other emergents in the field. And that will become much more common.

ETF.com: What do you see as the target audience for this? I thought it was almost like targeting young millennial investors.

Edelman: Companies that were built for the 20th century will fail in the 21st. This is a fund focused on the future. And anybody who’s planning on living and succeeding in the 21st century should have a portfolio that owns investments focused on the future. So this is as applicable to a 65-year-old as it is a 25-year-old.

I'm convinced that today’s 65-year-olds are going to be alive in their 90s and 100s. So although their issues are different than a 25-year-old’s, they face many of the same issues about digital assets and estate planning. They have investment management issues, long-term care issues, that are of much more concern to them than their children.

My chapter on housing, leisure and recreation is targeted almost exclusively to the older reader, compared to the younger. So this book has broad application for everyone in society.

ETF.com: What are the technologies that have impressed or excited you the most out of all the ones you discussed in the book?

Edelman: They're all exciting. They're all fun. But the two I think are the most important, the most impactful, are nanotechnology and censor technology.

First, the reason for nanotech is that, as Richard Feynman said, and I quote him in the book, “There's a race to the bottom. There's plenty of room at the bottom.” They key is to recognize that computers are getting smaller. We’re now already dealing with DNA. We’ve mapped the human genome. Through CRISPR technology, we have the ability to alter DNA. We can do that as easily as you can cut and paste in a Word document.

 

And we’ll soon be making devices at the atomic level. So everything gets much smaller. As they get smaller, they get better, cheaper, and they get faster, to the point where we demonetize. Remarkable products become virtually free.

So nanotechnology is crucial, and it’s the development of material science. Nanotechnology allows us to invent materials that didn’t exist before. Graphene—which I have a huge section on in the book—is a great example of this.

The other one is sensor technology. Most folks are unfamiliar with this, and I didn’t really get into it in the book and calling it this, but what it’s all about, is that a computer is just a box—whether it sits in a room, on a desk or in the palm of your hand.

If that computer lacks awareness of its environment, it’s unable to accomplish much. So we create interfaces with computers. That’s what your computer is; it’s how you talk to the computer. And that’s what the monitor is. That’s how the computer talks back to you.

Now we have Alexa and Siri that do it audibly—but the key is that interface between the computer and its environment. That’s what a robot is, at the end of the day. We have to enable computers to see, hear, touch and smell.

Without sensors, the Google car would not exist. The car has to be aware of its surroundings. So, development of sensor technology—which allows computers to perceive the external world—is vital. That’s why my personal investment interests are in those two paths—nanotech and sensor technology.

ETF.com: My key takeaway is, for people to survive financially in the future world you're depicting in your book, “be nimble and save.”

Edelman: Yes. I would define nimble as both agility and willingness. We find that a major impediment is lack of willingness to adapt. The chapter “The Dark Side,” which ended with “The Darkest Side of All,” talking about Luddites, is the biggest—people are their own worst enemy. Their resistance to change, their denial of the disruption that’s coming, will be the biggest impediment to their success.

 

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