A Conversation with SoFi's Nino Fanlo

Nino Fanlo, CFO and President of SoFi

There are few people better qualified to sit at the intersection of financial services, the capital markets and innovation than Nino Fanlo, SoFi’s CFO and President. That’s because Fanlo started a commercial mortgages desk at Goldman Sachs, served as the CEO of KKR Financial and held increasingly important roles at Wells Fargo before becoming the bank’s treasurer. Along the way, he also advised the likes of Bill Gates and Steve Ballmer and earned a reputation as a dynamic executive who could build securities businesses from scratch. So when Fanlo decided to join SoFi in 2012, it was a key sign that SoFi was not going to be just another fintech company looking to carve out a niche. But as the following conversation between Fanlo and The FR’s Gregg Schoenberg reveals, Fanlo speaks as authoritatively on nurturing SoFi’s young talent and the keys to career success as he does the yield curve. Executives with his broad portfolio and wisdom don’t come along every day, but if you happen to find one, our advice is to follow CEO Mike Cagney’s playbook: lure him to your company any way you can.

The Financial Revolutionist:    Nino, thank you for taking the time to speak.

Nino Fanlo:    It’s my pleasure, Gregg.

Joining SoFi

FR:    When you joined SoFi, it had raised a modest $8 million and wasn’t yet highly visible. Could you describe how and why you signed-up?

NF:    Mike and I knew each other from Wells Fargo. He had worked for me at one time and we stayed in touch for over a decade. Then, five or six weeks after formation — I think it was December of 2011 — he asked me to come down to visit. During that time, I was coming to a closure with Golden Gate Capital and so Mike asked me to be an advisor. I said, “Probably, sure. Let me see."

FR:    I take it Mike was persuasive?

NF:    The truth is, he was nice enough to offer my son, who was in high school at the time, a summer internship. That summer, SoFi had 30 interns and 29 of them were either college juniors from Princeton, Harvard or Yale or in business school. The intern assigned to me had gone to Harvard, worked at Morgan Stanley and KKR previously and was now at Stanford Business School.

FR:    Sounds like a formidable environment for a high schooler.

NF:    Yes, I said to myself, “Holy Christmas, my poor kid is going to get killed. I better come to the office and help him out.” So I started coming to the office regularly.

FR:    I assume not just to hang out with your son.

NF:    Well, during that period, Mike and I started to talk about the business a lot and I gave him an opinion on some things where he disagreed. A little while later, he came back to me and said, “Maybe there’s more merit to the things you were saying. Why don’t you take the board through your ideas?” A week after that, I joined the company.

FR:    After working at places like Goldman, KKR and Wells Fargo, was it a culture shock to be a part of SoFi?

NF:    The truth is that I have had a lot of fun working with super-talented young people and starting new things from scratch since the late eighties.

FR:    Even within all of those big institutions?

NF:    Yes, I went to Goldman to set-up the commercial mortgage business. At Wells Fargo, I started every activity that I ran there until I took over Treasury. At KKR and Golden Gate Capital, it was the same thing.

FR:    But clearly going to a start-up like SoFi was different.

“I believe that if you’re going to do something, you need to have a competitive edge. Otherwise, you’re in this “me too” slop.”

NF:    Here’s the difference: In all those other places, we had a franchise name and something else to start with. At SoFi, we had nothing. I believe that if you’re going to do something, you need to have a competitive edge. Otherwise, you’re in this “me too” slop. But very smartly, SoFi’s co-founders were going to ride on top of the brands of Harvard, Princeton, Yale and Stanford. They basically said that our business is about providing products to these people and I thought it was a pretty smart idea to do that.

SoFi’s Leadership Team

FR:    So fast forwarding to today, in the leadership suite, you’ve got Mike, you and Joanne Bradford as COO. How do you divide responsibilities?

NF:    First of all, there are a lot more people than those three and that’s the most important thing to know. We have incredibly talented young people like Michael Tannenbaum and Paul Fielding who are just as valuable, so it’s not just old people past their expiration date. In terms of the division of tasks, Mike spends his time on vision, brand and equity and the concepts driving the new initiatives. He and I have worked together on product developments when they were key in determining the attributes and price.

FR:    Capital markets, of course, is your specialty.

NF:    That's where I spent a lot of time, but I've always run finance too. Credit was interlocked with capital markets because we're not a portfolio lender. I also ran operations for a year and a half because it was not working previously and I told Mike I would do it. I started the business development effort. Now, I work on the things that have to do with the disposition of our assets and our reporting. Joanne focuses overwhelmingly on brand and distribution channels. Equally important is Rob Meck, who runs our operations, and June Ou, our CTO.

FR:    It strikes me that part of the reason why SoFi has achieved its success is that you focused on building out the securitization engine, whereas other online lenders were preoccupied with shaving a dollar or two off customer acquisition costs.

NF:    It’s a big component. Look, if you do something that is hard and you succeed, that puts you in a good place. Most companies that entered this business didn’t know the industry they were in, so they did what was easy. We’ve tried to get great customers, but in order to do that, you have to have great product features. This is unbelievably hard to do because in order to offer great features, you have to provide incredibly efficient financing, which is out of the box for most companies to do.

Rates and Economic Environment

FR:    Turning to incumbents, how do you think the rollback of financial regulations could impact the competitiveness of SoFi’s financing machine? My sense is that it could embolden some of your traditional competitors.

NF:    I agree with your read of the situation and believe that the rollback of the more excessive regulations will benefit the vast majority of people. The playing field that we will inherit from the change is whatever it is. Our ability to navigate that is up to us in how we design and deliver products and services. I'm genuinely happy that more people will get better products and services.

FR:    How are are you thinking about the yield curve potentially steepening?

NF:    Obviously, if rates go higher, it’ll be more difficult to refinance homes or student loans. Everything that you purchase will be more expensive. From the people who I talk to at the big banks, I’m hearing that activity levels are lower. Part of that is the uncertainty out there, but I think it also has to do with the front-end of the curve.

FR:    You don’t sound convinced that economic conditions are improving rapidly.

NF:    Nobody got raises last year. I think wages were up 2.5% and that was overwhelmingly driven by the last minimum wage increase. And the average person who is our customer hasn't had a big pay hike. So the incremental costs associated with higher rates are going to hurt. Unless there is a big stimulus that generates economic activity or a big tax cut, higher rates will diminish activity. That will move growth rates down, which will mean that interest rates will respond by going lower. I think Mike and I have a pretty similar view of that.

Wealth Management

FR:    Let’s talk about SoFi’s future beyond financing. As I told Mike, it seems to me that you've got to use a part of the $500 million you just raised to go big into wealth management as many of your customers won’t keep needing more credit products.

NF:    Well some could use more, but I generally agree with you that for a subset of our customers, assets will exceed liabilities by a considerable amount. So success is dependent on finding revenue streams from the left hand side of the balance sheet. Mike firmly believes it, but I think our challenge is that the business is in secular decline. That’s why we need to have something that’s better. Otherwise, you've got a bad business model. Now, bad business people would say we should just cross-sell our customer, but I don’t think we should do that. Each individual product should be so compelling in its standalone value that it induces people to come.

FR:    For a future wealth management product, how will you induce people?

“ I look at everyone who’s wealthy and I’ve observed that they don’t obsess about fees at all. They obsess about taxes.”

NF:    I think the stupid way to go is through fees. That’s a race to the bottom. I do think tax is incredibly important. I look at everyone who's wealthy and I’ve observed that they don't obsess about fees at all. They obsess about taxes. So we need to have better, proprietary solutions on tax. Those products also need to be perceived as having scarcity value.

FR:    How do you mean?

NF:    You want to show that not being able to access the product has a perceived cost. You want to demonstrate that over time, if you have a tax solution in place, you’re going to compound far better than if you don’t have one in place.

FR:    Would those tax solutions be applicable to a typical SoFi client today?

NF:    Yes. I think most people have no idea how to do basic things that over two or three decades have a remarkable impact. I mean some things are unbelievably basic and genuinely misunderstood. Everyone is allowed to get a mortgage. Every couple is allowed a $500,000 home sale tax exclusion. Everyone is allowed to put fixed income assets into a retirement account that isn’t taxed and everyone is allowed to buy life insurance that doesn't get taxed. There's just a whole bunch of things that are fairly cost effective that I bet 95% of people don't think about.

FR:    Even the highly educated people who are SoFi’s focus?

NF:    Even them.

FR:    Because of the time it takes to optimize for tax?

NF:    I haven't done the scientific study, but yes. Most people don’t want to do this stuff. It’s like going out to dinner. Everyone knows that it’s not cheaper than cooking at home. So why do people go to restaurants? The reason is that they don’t feel like cooking. Instead, you go out and order a dish that’s plated nicely and looks attractive. It’s got all these ingredients added too. Doing all of that takes a level of skill and attention to detail that’s hard.

FR:    So to sum-up, the wealth management products SoFi would offer will need to be highly distinctive in the marketplace.

“When you tell people that we’re engineering a Vanguard-like product, my reaction is to say that I should go to Vanguard, right?”

NF:    They will need to have an understandable and clear value proposition, not one that is arrived at from a cost solution. I think the cost solution is a really bad path. In fact, Gregg, I read an interview you did where the CEO was talking about the low price for his company’s product. When you tell people that we’re engineering a Vanguard-like product, my reaction is to say that I should go to Vanguard, right? Every one of our products, like our life product, should be perceived as a really good product. I want people to say, “I’m going to go to SoFi for that product.”

Company Culture

FR:    When I hear you speak passionately about product like this, it sounds like you spent your career in marketing and product development. What’s informed your perspective?

NF:    Just look at Apple under Steve Jobs where product introduction was a big deal. The customers would go, “I really want to be part of this.” With each roll-out, there was conviction that the product in itself was differentiated and really valuable.

FR:    Yes, but Jobs was the founder and he had the founder’s passion. Over time, though, companies go public and eventually the professional managers come in.

NF:    That sounds so depressing.

FR:    Well, look at your former bank, Wells Fargo.

NF:    I spoke to Tim (Sloan) for six years every day.

FR:    An impressive guy for sure. But as you look to go public at some point, do you ever think about how SoFi can hard code the original values into its culture? Today, you, Mike and the team are passionate about reimagining financial services, but over time, and as the company grows, doesn’t it risk becoming like the very banks it’s looking to supplant?

NF:    First-off, Mike is a pretty young guy. And yes, I think that a company benefits immensely by having the founder around for a long period of time. Eventually people's life cycles mean they move on, but hopefully Mike is going be here for two decades. Many of the other senior folks, including myself, should be here for the next five or six years as well. I also will tell you that I’m personally obsessed with the younger people we’ve got here. The most important thing for us to do is to inculcate the value of drive, success and excellence in them.

FR:    What companies have done it right?

NF:    I spent two years with (Bill) Gates and (Steve) Ballmer when they were doing their first dividend strategy. I knew Steve (Jobs) through a friend. I think Google with (Larry) Page is up there. I don’t know Zuckerberg, but I think Facebook is an incredibly well-run company. Then you see companies that went the wrong way like Yahoo.

Key to Greatness    

FR:    What’s the one thread linking all of those great leaders you mentioned?

“This is an incredibly competitive country and if you think you can excel and have a swimmingly balanced life, you’re wrong. For twenty years, I’ve told really motivated people to pick two things in life that you’re absolutely committed to being great at.”

NF:    I believe that to be really great, you need to understand the sacrifices and the pain involved. This is an incredibly competitive country and if you think you can excel and have a swimmingly balanced life, you’re wrong. For twenty years, I've told really motivated people to pick two things in life that you're absolutely committed to being great at.

FR:    Just two?

NF:    Yes. Your job is one and maybe you’re going to be a great husband, wife or parent. Or perhaps, you’re going to be in amazing shape or play the piano or excel at mountain biking. But you know the problem you have if you’re scattered? You’re competing against a person who is not interested in anything else other than in building a great business. How are you going to outwit a company that has twenty people like that when you’re focusing on a bunch of things? I mean this is a dog fight every day and if you don’t have the burning desire within, you need to get out of the way because you’re holding everyone else back.    

FR:    On that note, Nino. I’ll let you get back to work. Many thanks for your time and for offering your wisdom.

NF:    Thank you, Gregg. It’s been a pleasure as always to see you.

This interview has been edited for content, length and clarity.