Podcast Episode #14-Alex Harmsen Interview
Welcome everyone to the 14th episode of the tax free millionaires podcast. I'm your host Reed Scott and i'm very excited to have a special guest with us today Alexander Harmson, and i'm going to call him alex but he has a tremendous background and really fits in well with tax free millionaires the podcast and what we do, Alex has a degree from, University of British Columbia in engineering, physics and commerce.
And he has a number of patents and published papers. To his credit, he even spent some time working on the NASA Mars helicopter before founding, scaling and later selling Iris Automation, a successful AI driven avionics collision avoidance company. In fact, Alex has founded multiple successful AI driven companies and organizations, and he's been active in creating and managing multiple AI driven products and has scaled those products successfully globally.
And now he has started a new venture called Portfolio Pilot.com. And we're going to talk about that. He's raised over 30 million in venture capital, and it was recognized by Forbes 30 under 30 successful entrepreneurs. I can't think of anyone more qualified to discuss startups, entrepreneurship, and the evolving role of AI in decision making and investing.
As I said Alex's latest company is Portfolio Pilot.com. Which is AI financial advisor with over 30 billion in assets. Alex, you and I came to this decision to try and eliminate the traditional, or not use the traditional financial advisory services that we see out there. And my background, I mentioned, I found so many financial advisors who weren't really Portfolio managers, they're just glorified salespeople and yet they're charging one to two percent and a lot of the Clients I was working with my tax practice were getting kind of mediocre returns And I thought that was really ridiculous compared to some of the things I was doing as a former portfolio manager Now I saw that frustration How did you come you know based on your ai background?
What drove you to develop portfolio pilot? What were some of the frustrations you experienced? What made you want to leave the technology field? I mean you combine technology and investing. What made you want to do that? Reed, thanks for having me on. Very happy to be here. You're right. Even before the show feels like we're so aligned in the approach here.
And we'd love to share some of the insides, frustrations, horror stories that we've come across with self directed investors, with DIY investors I don't know if I'd go as far as to say that, we're ready to eliminate human financial advisors, You know if we give them a real run for their money Force them to lower fees force them to be a little bit more than just sales people personalized portfolios just give general Better financial advice be very happy with that If we end up eliminating this
I think that's a great thing as well I've been working on AI since before AI was cool, before it was called AI, before it was called deep learning. We had a lot of, neural networks and expert systems. And in some ways, you're doing autonomous vehicles to now running, portfolio pilot, which is basically an AI financial advisor for DIY self directed investors to give you advice without the portfolio management piece, help people actually just find optimization opportunities in the portfolio and their retirement planning, estate planning, taxes, anything like that.
I think, in some ways it's very similar, autonomous vehicles, autonomous agents, the idea that we're dealing with a tremendous amount of data, we're playing in a regulatory space whether we're dealing with the FAA or Transport Canada or other civil aviation authorities, or, dealing with the SEC, we've actually had to go and get registered as a registered investment advisor, write a series 65 exam so that we can make changes to our core investing algorithm.
Now there's no actual human financial advisors involved in the advice that we give. It's all completely automated, and it allows us to just systematically remove conflicts of interest, lower fees, remove human bias, everything. DI originally wanted. I think the original story here was basically I sold my previous company in 2021.
The market was good and there was a big partner of ours backed by a private equity firm that had leveraged buyout. And, pandemic was raging and my wife and I decided to buy a house in the Bay Area. And we had two kids, two boys that are toddlers now.
And my wife runs a really cool like biotech company that leverages AI as well. Also in a regulated space. And I started talking to financial advisors and wealth managers and private bankers. And like you said, it felt like a lot of salespeople I was talking to, I could not understand the fees and then it was blown away that they weren't even tied to performance that, no matter what happens, they were charging those fees.
And it felt like there was conflicts of interest all over the place and products that they, were pushing that. I couldn't quite understand. And a number of them that felt like they were just insurance salespeople, in different clothing. And I built something for myself, in late 2021 that basically just connected all my different accounts, understood my tax situation, understood short term and long term goals.
It, incorporated everything from crypto to 401ks, IRAs, brokerage accounts, real estate, even things like cash and credit cards and jewelry and cars, everything that I, can possibly add to my net worth, so how do you say, how would you say your portfolio pilot differs from the traditional financial advisor?
The biggest thing is that like I was able to connect all these different things, put it in one place. And I think that traditional human financial advisors are mostly focused on the part of your portfolio that they control, that they have discretionary control over.
We're looking at everything, truly everything is part of your net worth. I think the second part of what we built with PortfolioPilot was being able to give you this very personalized assessment. And for most human financial advisors that I spoke to, it felt like they were giving me a fairly generic assessment.
Maybe a bunch of questions about age and, age and risk profile and the, the net worth bracket that I'm in, but beyond that, they were putting me into a fairly standard fund. And so the idea that we can benchmark you against peers, that we can You know, call out different opportunities, within your portfolio, actually assess it, on a number of different scales to figure out, what your risk match looks like, what your risk adjusted returns looks like, actually do some forecasting about expected returns and what's to come over the next year.
And then actually giving real fiduciary financial advice. Of course, human financial advisors are going to be able to give that advice, but they're mostly doing that for, one investment portfolio that's there across all their clients. And they update that on a quarterly basis or monthly basis or maybe sometimes even annually.
We can do that in real time. If you really have some questions to answer, if you want to get advice at, 2 a. m. on a Tuesday. No problem, right? Just log in. It's always there. It's available. The data is updated in real time. And so I think we expect this from almost every other service we have in our life, whether it's You know, streaming movies or social media or news, it's 24 seven available.
We expect our, these recommender engines to, propose to us, what things we should buy or what's there in our preferences or in our history. Why not financial advice? I think it's absolutely brilliant and a matter of fact, I use your site myself and you actually have a free version that people can try without a credit card and get a feel for the service before they even buy into it.
And it's, if you do buy into it, I found it very reasonable as you and I were talking before the podcast started, I think the investors at Tax Free Millionaires would love to use a portfolio pilot. To supplement and another really good checks and balances against our model portfolio. So I can see that as an excellent way to, to use AI.
I think it's great. The other thing I found, and I don't know if you're familiar with Robert Kiyosaki's book, Rich Dad, Poor Dad, but he has a great quote in there that I think really sums up the financial advisory industry. And he says, most people are not rich because they listen to salespeople, not rich people.
And my experience from the financial advisor is most of them are salespeople. They're not portfolio managers. I actually was a portfolio manager, so I know what one looks like. They're not managing the portfolio. They're just managing the client relationship. And right now they're going about telling everybody, Hey, look, our.
S and p your portfolio's up 17%. The s and p's been up 20% each year for the last two years, but when it crashes 30% like it did in 2008, sometimes 40%, they're gonna keep you their, they, their passive investment approach doesn't try to do any real risk management to get you out of that crash. So over time, you're gonna average market returns, which for the s and p 500, for 25 years has been about 7.96%.
So if you're in your and that's not inflation adjusted and that's not dividend reinvestment adjusted if you take out the fact that you're there, if you take out dividends, it's really about 6. 8%. So to me, those are pretty mediocre returns when you're paying one to 2 percent fee. So can AI, can your model do better than that?
I would certainly hope so. That's what we teach at Tax Free Millionaires. You ought to be able to get double digit returns on a consistent basis, and you don't need to participate in market corrections like we just had in the last week, right? So I think it's a brilliant idea. Let me ask you, what is the biggest mistake individual investors make and how can AI help them?
I think that's so I think one of the things that we've found over and over again, and you at this point, we have about 30 billion of assets on the platform. Tens of thousands of users. It's, I talk to probably three or four clients, users every single day. I love it. I talk to people across America with, from a variety of different backgrounds with, a wide range of different financial insights.
And we ask people, the product, the software asks people when they sign up, what are you hoping to get from this? And naturally a lot of people say, higher returns. But the second most common question that people get is that they just want to feel more confident about their finances.
And I honestly think most of this is about psychology. It's about controlling fear, controlling greed. I think people panic sell, I think a lot of people focus on this, like very small positions, I was talking to someone yesterday and all of our 30 minute conversation, 24 minutes was spent on their Palantir position in their portfolio, which was.
3 percent of their total portfolio. And like at the end of the day, if they had focused all their time, all their effort on portfolio management, instead thinking about correlations between these different parts, thinking about exposure to different asset classes, rather than individual stock] picking, or if you're going to do stock picking, like at least think about stock picking in the context of.
Taxes and diversification within your portfolio. One of I got a lot of influence from Bridgewater and Ray Dalio. And one video I watched a long time ago that completely changed my perspective on portfolio management and investing. It was very simple. It was like three or four minutes.
I should find it and share it again. But he basically just had this whiteboard and he said, Look, normally people think about, you get returns from equities. from stocks and you get downside protection from bonds. And you don't really get any returns from the bonds, but they're there to smooth things out.
And in reality, he said, you can just. Get a whole bunch of different securities in your portfolio that are all high expected return, but just completely uncorrelated to each other, to the point where no matter what is happening, you're on macro market ups, downs, dividend, downsides, crisis, whatever, inflation, no matter what, 80 percent of your portfolio is up and 20 percent is down.
Okay. And. Like this is hard to do and you need to build some mathematical models to calculate correlation, but if you can think about like I have an entire portfolio of high expected return securities that are uncorrelated, like that offers a level of downside protection that allows you to push your returns.
At whatever risk profile you're comfortable with. And I was such a reframing that completely changed the game for me. It was wild to me that there wasn't, portfolio management software that, did this sort of thing that calculated correlations and thought about, your sharp ratio and expect the returns across your entire portfolio altogether.
That looked, that ran crisis simulations automatically. And then, all below the surface. And then, on top of that had some nice front end, yeah, that made it easy to use and interact with and actually connect to your different portfolios. And, in hindsight, like, all we really do with PortfolioPilot is You know, what I saw in this Ray Dalio video, 10 years ago I'm a big fan of Ray Dalio.
Ray Dalio's prediction of stagflation seems to be coming true here for the, if the economy keeps going in the present direction, but I think using AI to eliminate bias. So it's a great point because one of the things we teach a tax free millionaires is that individual investors have bias. Financial advisors can have a bias.
I'm not saying they do. But. It's possible, but by having that, that one of the ways we eliminate bias is having groups of investors to, to match what's with and test your model. But AI modeling can be another great way. And probably I would recommend an additional way, even for [00:15:00] our. Investors attacks for millionaires to use the AI model to test and eliminate to bias to make sure you're not over Investing in one particular sector if you for a more balanced portfolio, I think that's a great idea the one of the things I saw when I was I'm not saying this is true of all financial advisors but sometimes they work for a firm that can have a vested interest in particular investments and We need to eliminate that bias and your model certainly does that I was some I think Reid, I think that, uh, the medical space, for example, I think if you get a diagnosis, something that's really meaningful to you, I think it's very reasonable and expected to get a second opinion from another doctor.
It's so important. It's my leg, or if we're gonna, we're gonna go in and do some surgery or we're going to change this thing, why would you not get a second opinion on your finances? And this is honestly more and more of our advertising, our marketing is simply just that.
We're not managing people's money. And to us, it feels like fairly low risk to spend 10 minutes. Get a second opinion from PortfolioPilot to see if you're on the right track, to see if you're properly diversified or not. Are there any, opportunities here to be able to optimize your current situation?
How close are you really to the efficient frontier? Are you leaving cash on the table? How does this, how does your portfolio fare in a high inflation environment? Yeah, that question is like, how could you possibly answer that question with the spreadsheets? We've built a lot of these macro models And my co founder actually worked at bridgewater for six years and you know So there's like it's a heavy sort of macro system systematic macro influence, you know through everything I think that's a really great analogy why?
Your wealth is You know, certainly not like losing a leg or an arm, but a heart attack, it can cause a heart attack if you're not doing it properly. And it can certainly cause you to work a lot longer than you need to. So why wouldn't you get a second opinion? ? I think it's a really great idea.
One of the things I found when I was, Researching this whole investment education space was that there really wasn't a differentiation between a tax free portfolio and a taxable portfolio , there are a lot of courses out there to talk about how to use, how to acquire stock, how long to hold onto it, but they miss the fact that in a self directed retirement account, if you have control over 401k or You're a business owner, you can manage your own funds.
Why would you buy and hold a stock in your portfolio when there's absolutely no capital gains taxes? And if it's losing money, why would you hold on to it? , we only teach people how to invest in tax free portfolios since the name tax free millionaires.
But I really see how I can combine. Portfolio pilot into what we're doing at Tax Free Millionaires for our investment groups because we all serve as a second set of eyes, but AI is very intelligent. It's probably a lot more intelligent than any one of us individually. So to have that extra level of protection, I think is incredible.
And it gets smarter every day, right? Every time there's some new model out. I think the Overton window has changed a lot, right? I think we're in a cultural moment now where, you know, I don't know if we're quite ready for AI to just manage our portfolios for us, but the idea that you could use it as a second opinion or to find some optimization opportunities,
I think that a lot of people talk about AI in terms of the chat GPT, these large language models, we use some of the large language models for some of the summarization and assessments and things like this, but under the hood, there's, those get the news, right?
That's what's getting the big money. But, recommender engines, a special kind of machine learning model, they're better than they've ever been before. What Amazon uses to figure out like product to recommend to you or what ads, from Google, which ad to show you or what to show up on your, Instagram feed.
The other part is there are multivariate machine learning forecasting models that we're using, right? Those are better than ever before. There's a dynamic factor model that we've integrated into the system, similar to what the Fed and other central banks use to be able to do, inflation and interest rate, GDP modeling.
And so you can think about, this entire field just gotten a boost and lots of money and new research and we're benefiting from that in a big way. And then these underlying hedge fund inspired portfolio management models that I think our, feel like the standard, even for my co founder, coming from Bridgewater and, having been a PM at a small hedge fund, I think he was shocked at how few tools retail investors have access to Oh, let's just let's just run the portfolio and just create a, let's just create a correlation matrix.
Like what tool are you going to use to create a correlation matrix? That's not an obvious thing. It's Oh how am I supposed to know if my portfolio is diversified or not? If I can't just, pull up a screen with a correlation matrix, like that's something we got to build.
Y'all were like, maybe we should just expose that in the product and make that available or okay, let's, building regressions against some inflation dynamic factor. What happens if there's. A bubble or liquidity dries up in markets, right? Like how can we possibly recommend Anything to clients if we don't know how these stocks are going to behave, you know in certain different macro liquidity conditions It's wow that like immediately that feels like hedge fund stuff that you know Just doesn't exist for retail investors, right?
But on the hedge fund side is it's standard, it's table stakes. That's not where the differentiation comes in, for the hedge funds. This feels half of what hedge funds do is look for alpha and ARB opportunities and half of it is just standard portfolio management, thinking about the hedging and macro and, not falling into these like common psychological traps and backtesting.
And like retail investors adjust, they're under armed. What's interesting is that how much money the financial industry spends convincing the average investor that they absolutely can't beat the market averages. When you have hedge funds like. Pershing Square Capital, James Simon's fund did 60 percent annual returns a year for 10 years until he closed it.
So there are, even though there are some hedge funds that have not been as successful, there are quite a few that have consistently provided double digit returns, even after fees. I think the biggest thing that I try to educate people on is, yes, you can, There's average returns and because of adding risk management as opposed to just a passive approach You can get out of those downturns in the market that cause the you know Everybody's touting my next door neighbor just sold her company and she's touting how her financial advisor got her 17 this year I said that's three percent out of the s& p index And what's going to happen?
Next year or the year after, or even in this current market where it goes down 20%, so the averages tend to be pretty pathetic. And that's because they don't use risk management. So I really see the input that you're providing. You're bringing some of those hedge fund tools to the average retail investor.
And I think what we add is also really good risk management. training so they can eliminate those cycles from their portfolio, which basically causes them to have to work 10 to 15 years longer because of mediocre returns. I wrote in my book, Tax Free Millionaires, I gave it a specific example of what just 3 percent does over 30 years to your portfolio, an extra 3%.
So if you can beat A 7 percent average return and get 10 percent You're going to retire 10 years earlier and be four times as much money So for people to accept that mediocrity is really it's really sad because so many people are accepting that thinking they don't have a choice It is I think I think part of it is that we don't get very much education on this, right?
I'd love to see something about investing in high school, right? Like just doing a sort of basic course about some of those things. I think it would make a huge difference. I think you're right that there's like this, just, there's a vested interest from human financial advisors and even hedge funds and a lot of the financial advisory.
Sell side to make it very complicated,, to tell people that they need an expert involved. I think the mark of a great salesperson is the very quickly find one thing that you don't know and point that out. And, one little tip or a trick, or, this could have saved you money thank God you found me so that I can help you with this thing.
The fees definitely compound, right? I think this is a very obvious thing that exponential growth, drives a lot of The, like end outcomes, especially in retirement accounts, especially over the course of, 30, 40 years. I think the other interesting thing is that, big self-directed brokerages over the last 10 years.
. Robin Hood, Weibel, even Fidelity and Schwab E-Trade, Ameritrade, they've now spent. It's billions of dollars in marketing on, with no fee trading, telling people that they actually can do it themselves, right? I actually think we're in this very interesting tipping point in the industry where it's not the common wisdom anymore for millennials and I think probably younger Gen Xers.
to just default go to a human financial advisor. Exactly. And definitely not Gen Z, right? I read a report recently that Gen Z basically just It doesn't use human financial visors anymore. And what does this generational shift mean? What, probably there's more services like yours that you've been talking about.
There's probably more services like mine, that are not telling people what to do, but giving them options and advice. And giving them the right sort of guidance. I like to think the portfolio pilot does 97 percent of the work for people. And then at the end of the day, you get to pull the trigger, right?
You get to make the decision. And so it feels like there's guidance there, but you are still in charge. A pilot flies a plane from New York to San Francisco and over that route. The computer is going to make over a million adjustments to keep it on track. But you still have a pilot there, right?
Theoretically, the plane could land itself. And as a guy in AI avionics, I'm sure you're aware that's happening with drones and so forth. And yet it's still nice to have the comfort of being in the final control. But why would we not want to use this incredible automation that's happening in a very.
And in driving our planes, right? So I think it's great. Let me ask. I know you have to go pretty soon So I just want to wrap up with a couple questions. I think it's important I think you've answered them in terms of you've got 30 billion dollars in assets on portfolio pilot how do you see ai show shaping the future of finance investing and decision making you talked about that a little bit but Anything you want to add there in terms of long term trends?
I think a lot of people talk about raw intelligence and it's easy to interact and there's lots of chatbots that people see and there's something amazing about AI being able to search the entire web and surface new ideas for you and that can help with research. But I actually think that the main difference will be The level of personalization that shows up for people, the sort of democratization of experts and expert advice.
You and I are talking on this podcast and I like to think we're sharing some very interesting points, if you and I sat down individually with every single person that was listening to this, I bet that would be an even more enriching conversation for them. And. AI lets us do that, right?
You can take the sort of like generalized advice that exists today and then apply it to people's very specific situations. Whether you should buy Nvidia, yes or no, in your account, isn't just dependent on whether it's currently undervalued or overvalued many news programs will have you believe.
It depends on what else you hold in your portfolio. It depends on your short term liquidity needs. It depends on what kind of account you're investing it in. It depends on so many different personal factors and I think that's, that's what the next five years in AI are really going to look like.
That's a very good point because you, the level of personalization that you're going to be able to provide with AI is, I use AI a lot and I'm just amazed at how quickly it's able to Pick things up about me. My wife is from Israel. She has a little bit of an Israeli accent And she loves talking to ai because after talking into it for a while It's adjusted to her accent and the way she structures her sentences It understands her better than I do and she says no I really like talking to chat gbt because it gets me and you don't so I can see exactly what you're talking about last question alex, I know you and I are both big believers in this A.
I. Investment revolution people. You have a background in A. I. Companies. You see how the technology impacts. We had a discussion a week ago about how long it takes for technology to be commercially available. And we talked about the shrinking of the implementation curve because, it People would say, okay, wow, it's going to take, it took airplanes 50 years to be commercially available and computers.
But when you have companies like NVIDIA that are just killing their earnings and revenue, yes, I know the fact that they just barely beat their incredible earnings numbers is disappointing people. But the reality is these companies are making real money, more real money than they've ever made before.
Because of what's going on with investments in AI and the deep seek phenomenon is really, it's really incredible. It's just an inference model. I saw the CEO of Microsoft said, Hey, this is actually going to spur investment and so did the CEO of NVIDIA. And I believe that as well. So what do you believe is going to happen in this AI investing space, investing in AI companies?
Do you believe it's a bubble? Do you think we're going to have something like. com or do you think it's real? I think that in the dot com bubble, we had a lot of people, a lot of companies not making any money, right? Bare revenue. There were, it's a lot of money just being poured into marketing.
I think it's, there's very little money being poured into marketing this time around. A lot of it is going into like actual infrastructure and build outs and, paying salaries and, all stuff that actually leads to innovation. I think that, there's obviously a lot of innovation in the dot com era, but I think a lot of it felt like a social acceptance of the internet.
Rather than the kinds of leaps that we're making now, like every new AI model has the potential to wipe out, tens of millions of jobs in America that, that feels like a very different kind of technology development, but then like to give a very specific example with, PortfolioPilot now compared to Iris Automation, my previous company, like we're able to offer this It's online, right?
PortfolioPilot. com, it costs 20 per seat, and we're probably not charging enough for the kind of value that we're providing.
And it feels like there's going to be a lot of fee compression for wealth managers and financial advisors to compete, but then you have real human costs, and being able to do this.
And then even for like our own software development, if I think about our team right now of 10 people in 2025, I think we are probably equivalent to a team that we had of about 25 people at Iris Automation and, 2018, we were eventually about 50, 55 people when we sold, but like our 10 person team is probably.
Working and outputting the same amount of marketing and code, just like pure output. It's about the same, 10 to 25. And a lot of that is because of the AI tools that we're using. Software development tools, marketing tools, writing, reviewing, screening, video generation, booking, assistance.
There's truly a, two and a half X increase in productivity for our team. And I like to think that I'm a better manager than I was before, and maybe we're making fewer mistakes. And, I like to think that people on our team right now are pretty smart, but, I've been fortunate to hire some pretty smart people throughout.
And the biggest difference comes down to the kinds of tools we're using now. And a lot of that makes me think that there's real value being generated. If anything, I think AI is being undervalued at the moment and underappreciated, and over the coming years, I think people will be surprised at, just how drastically it changes.
It's our society and our culture and the way we work. That's fantastic, Alex. I really think you've got a great product at PortfolioPilot. com. I invite our listeners to go check it out. I think it's a great tool. We just, apologize. We didn't get into all the very, the many facets of what your platforms offer.
So as I said, people can Use the free version check it out and then obviously decide if they want to upgrade or not, but I think It's a fantastic Tool to supplement for the self directed investor. Is there anything else alex you want to make a point on before we wrap it up? I love the conversation, Reed.
Nothing else from my end. Okay. Feel free to reach out or follow us on on Twitter or X at PortfolioPilot. Or just reach out directly to me and happy to get on a call. Honestly the difference between where we're at right now and, ringing the bell on the New York Stock Exchange will be, a thousand little improvements and edge cases and, we're constantly trying to listen to user feedback to try to make this product better.
That's fantastic. Alex, thanks so much for joining us on this podcast and sharing your insights not only on AI, but for the future of personalized investing as well. I wanna thank all our listeners for tuning in, and I hope you enjoyed this episode as much as I did being a part of it. And remember, you can check out portfolio pilot.com for yourself and see a lot of the great features we've been talking about on today's show.
And if you wanna learn how to implement specific techniques and learn how to hedge your positions and your entire portfolio like the big Boys, you can take our Signature Stock and Options investing [email protected]. I hope you'll join us next week where we'll continue to discuss how to leverage and increase your returns on your tax-free accounts.
Thanks for listening, and have a great week.
