Addepar's strategy: Focus on HNW, arm advisors with digital tools

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While other fintech startups claimed they would disrupt the wealth management industry, Addepar has taken the tack that it can make it better.

Demonstrating the fruits of that approach, the Mountain View, California-based wealth management platform reports it has experienced year-over-year growth near 100%, counting over $500 billion in assets on its platform now and more than 200 clients, ranging from banks to family offices.

Addepar CEO Eric Poirier, a veteran of CIA-backed data mining firm Palantir Technologies, says focusing on the high-net-worth segment has proven its worth as a strategy for his firm, adding it has no intention of a retail advice offering.

Addressing concerns about artificial intelligence — the industry's latest buzzword — Poirier tells ReinventWealth he is skeptical that AI will be able to encroach upon the work of financial adviseos even in "the next couple of decades."

An edited transcript of the conversation follows.

Addepar's effort to promote uniformity in the industry by offering an open API is ambitious, given how territorial the wealth management industry is.

The way we've approached it is we're taking millions of islands of data, pulling it all together, integrating it, normalizing it, reconciling it and we're modeling it all in an internally consistent way. We've been working on that for the past five years. Now our clients can access that data, and it's all together now and makes logical sense. You're doing apples to apples comparisons. That's enabled us to introduce one common language to the financial system and that also is the key ingredient for us to integrate with best in breed providers.

How has Addepar managed its growth?

When we look at the wealth management landscape, the portion catering to high-net-worth and ultrahigh-net-worth is absolutely gigantic. There's more than $70 trillion in assets held by HNW individuals globally. That's a huge portion of the market from an assets standpoint. But most of those assets are within single-family offices, RIAs that are catering to that part of the community, or the private wealth management side of banks. Addepar has been laser-focused on that specific part of the market.

We think it's been the most underserved by technology. Historically, Excel has been the solution that the vast majority of services in this segment have been using, because there wasn't commercially available software that was relevant for them. We just blew through $500 billion worth of assets on our platform, and we've been seeing that growth across each of the client segments that we've been serving —family offices, independent RIAs and banks.

What's the HNW advisor's perspective on technology in wealth management right now?

It's very infrequent the number of times robo advisors come up in the conversations we're having with our clients. Robos aren't relevant for that part of the market. They aren't thinking, 'How do we shape our tech strategy?' For them, it's about, 'How do we level up to better serve our clients?' And that starts with understanding how they are communicating with their clients about what they own, what they should own and what's happening in the market.

In order to provide a comprehensive client service, you need to be able to know where each and every one of your clients are from an asset allocation standpoint. It's not just limited to knowing what assets are in their portfolio, it expands far beyond that. How are they doing from a tax, trust and estate planning standpoint? Which legal entities are they holding these assets in? Are they efficient? So it's a much broader set of problems these types of advisors are working with their clients on.

Many advisors are looking for ways to differentiate their service in an industry where advice is becoming increasingly commoditized.

It's important for advisors to ask themselves, what are the ingredients you need to better serve your clients, and how do you make sure that gets all the way to your clients? In each conversation you have with your client, there's meaningful information that's being transferred. You're learning about them, and they're learning about their financial picture. And you're taking advantage of that situation to demonstrate your value to them over time.

The doctor analogy is still very relevant. Say I'm a high-performing athlete and I break my leg. It's really important my doctor understands that I need to heal in a way so that I can go back to being a high-performing athlete. If I'm not, maybe the doctor prescribes a different approach. Similarly, advisors are effectively the doctor, and their clients are the patient. And each comes in with their own unique circumstances, and our job is to ensure the advisor is armed with the right set of data that gives them the full picture of the client.

Surprising adviser tech trends
With automated advice platforms now a standard offering, the easy assumption is that technology is being universally adopted by advisers. Key insights from our annual Tech Survey, though, challenge that notion.

A number of big custodians and asset managers have entered the market in the past year with their own digital solutions for advisors, such as BlackRock.

Of course, we're paying attention to what other players are doing in the market. But the feedback we're getting is that the technology that looks and feels like robo advisors doesn't speak to the needs of our clients.

Moving beyond robos, many of the systems out there were built more than a decade ago, and built to solve a set of problems that were quite simple compared to the complexities that have shown up more recently. The types of complexities that legacy solutions don't accommodate include alternatives — being able to understand my exposure to private equity and hedge funds — in addition to the portfolio I have in stocks and bonds.

[Another issue is] understanding the client from a household standpoint through the variety of assets and accounts that they have. The custodial platform is only going to be good for the assets I have with that custody bank, they don't tell me anything about the assets held away. That's one of the big limitations of those platforms. The same applies to wirehouses.

Some startups argue the HNW segment can and will be disrupted by automated advice.

Our strong point of view is that the wealth management landscape is built on trust between humans and other humans. We need to give those humans who are advisors the best set of tools, the best tech and the best data, so that they can continue to earn that trust. I'm highly skeptical of that paradigm shifting so dramatically that all of a sudden, these clients are entrusting the automated approach. Their situation is too complex.

If we get to the point where AI can handle these sophisticated clients and their needs, it means we are at the point where most of the jobs in the world have been replaced by AI too. I'm just highly skeptical of that happening in the next couple of decades.

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