The Value Gap: Want to ‘annihilate the racial wealth gap’? Make it easier for Black Americans to invest in stocks, says the founder of a new ETF

Buchanan’s mission is two-fold: to make investing more inclusive and accessible for Black Americans and other marginalized communities, and to get greater Black representation into the financial industry. The goal is to “annihilate the racial wealth gap in America,” he says.

A software developer by education, Buchanan teamed up with Black financial advisers and other wealthy Black investors, including Houston Texans player A.J. Cann, to create a financial-technology firm with an initial goal to get more Black Americans involved in stock-market investing.

Buchanan’s actively managed, artificial-intelligence-powered exchange traded fund, the AdvisorShares Let Bob AI Powered Momentum ETF LETB, -1.20%, was launched in conjunction with AdvisorShares this year with $20 million in seed money. A robo-advisory platform is set to debut later this year.

The wealth gap between white and Black American families is massive. The typical white family has about eight times the wealth of the typical Black family — $188,200 versus $24,100, according to Federal Reserve data from 2019. That disparity has its roots in 400 years of institutional and systemic racism, academics say, and spans all facets of life.

Buchanan also is the founder and CEO of AppSolutions LLC, a software- and application-development consulting practice, in Birmingham, Ala. He lives in McCalla, Ala., with his wife and two children.

MarketWatch spoke with Buchanan via Zoom and email about his exchange traded fund, his experiences in the financial industry and his aim to increase Black ownership of businesses. This conversation has been condensed and edited for clarity:

MarketWatch: Let Bob — what’s behind the name?

Buchanan: Let Bob has a double meaning. First, B-O-B stands for “Black-owned business.” And the second meaning is a wink to the finance and technology industries, where Bob is a common name. I felt that it would be familiar, trustworthy and identifiable. Bob works on your behalf. I developed it to remove the worry often associated with investing — “Let Bob do it!”

MarketWatch: The Let Bob ETF is an actively managed, AI-powered fund. What makes the ETF different from the passively managed, large-cap ETFs such as SPDR S&P 500 ETF SPY, -2.74%, which is the U.S. benchmark, or the Invesco QQQ ETF QQQ, -2.62%, which tracks the most well-known technology companies? And would it have been possible to create an ETF around Black-owned companies?

Buchanan: Our ETF is actively managed, and this means we can actively alter our holdings and position sizes on demand, with a focus on small-, mid- and large-cap companies. Why not use this approach to create an ETF of Black-owned companies only? The short answer is there are not enough Black-owned publicly traded companies. Of the more than 5,000 companies in the market, we are only aware of 12 that are Black-owned, which limits the AI capability and introduces greater risks.

MarketWatch: You created the algorithm that powers the Let Bob ETF. And you mentioned that the experience of trying to license the technology gave you insight into the business of investing. Can you expand on that?

Buchanan: I was working very closely with financial advisers and that’s how I saw the real disparities. We were a vendor of TD Ameritrade and a vendor of Charles Schwab. I could see the relationships, the processes necessary to perform all the trading; they were all non-Black companies benefiting from these activities.

The owners of the processes that allow the markets to function make money regardless if the market is going up or going down. There are multiple streams of income taking place. That’s what got me interested in the ETF space. I wanted to know how I could use what I created to be a Black-owned vehicle that could be part of the process of moving money.

MarketWatch: You plan to launch a robo-adviser-type investing platform later this year. What will make it different from Betterment or other platforms?

Buchanan: While learning to navigate the stock market, I experienced many obstacles and knowledge barriers when buying and selling individual stocks. This technology provides a way to remove these barriers, and through a robo-platform that aims to preserve capital first and also create a safer experience in the journey to individual stock ownership for the [Black] culture.

Bob is different from all the other robo-platforms because we don’t have predefined models of only ETFs. Our main goal for each of our users is individual stock ownership. We build our users a portfolio of majority individual stocks organically. Each user’s portfolio is custom-built from scratch. Knowledge or mechanical barriers for our users are removed. The only requirement is for users to have money to invest.

MarketWatch: What are the debates in the Black community around wealth building?

Buchanan: The debates most consistently surround financial literacy, and what do you do with money when it comes in. I believe wealth is created by ownership and is generational.

For us to build as a community, money has to start circulating so that our wealth can grow alongside non-Black communities. The car that I drive is not manufactured by a Black company. The water in my home is not from a Black-owned company. I should be able to see ownership of my culture in my household. I should have that option to spend my money and have that circulated to my community. But our options are limited.

For our culture to get more resources, we have to start looking at it from a macro layer. One place to start is the stock market; this is the place where wealth is preserved. Wealth is generated on a daily basis. Our presence there has to increase not as much from the consumer side, but from the ownership side.

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