Offering an alternative to traditional custodians, Apex Clearing has become the choice for digital-first wealth management firms, with a client roster including Betterment, Robinhood and even the newest robo offering from Overstock.

Intertwined with the movement to modernize and democratize wealth management, Apex CEO Bill Capuzzi acknowledges he has had a first-hand view of the industry's disruption.

Despite predictions of digital wealth management's impending demise, Capuzzi says the figures Apex sees point to a healthy robo advice market. "From a robo perspective, there's more money coming in than leaving," he says. "And on the self-directed side, there's more buying than selling."

But that's not to say that digital-first challengers aren't being challenged. Speaking with Financial Planning, Capuzzi shares his thoughts on how wealth management continues to change, and what digital innovations will ultimately drive some firms to succeed over others.

An edited transcript of the conversation follows.

Overstock tapped Apex for the clearing and custody of its robo advice offering. How do you see competition evolving from outside wealth management?

What we’re seeing are folks from different sides of the consumer’s ecosystem trying to get more wallet share of that client. In the last 10 years, you have the investing platforms that are now getting into the lending business and banks getting into the investing business. For example, Goldman Sachs launched a bank, a retail bank and a digital investment product. You have companies like SoFi, which is a lending business, which then launched an investing product.

The latest entrant is Overstock, which is coming at it from a B2C perspective. They are looking through the lens of a client and trying to figure out how to connect the dots for that individual’s life cycle. From a commercial perspective, it’s about how do you keep the eyeballs of your clients on your platform. Overstock has 40 million different users that visit their site on a monthly basis. The demographics are more prone toward females. What they are doing, then, is creating a connection between a person’s e-commerce life and their investing life. If you’re buying a product, and there’s an incentive program to save some of that purchase in an investment account, it makes a lot of sense to make that connection.

Amazon is notable for obvious reasons. Among millennials, trust is a big deal, and they trust the Amazon brand much more than they trust the traditional Wall Street brand. There is clearly some opportunity for brands like Overstock or Amazon, who have better brand trust with their clients, to step in and help those same individuals save for their futures.

Do wealth management firms develop responses to counter outside challengers, or seek partnerships with them instead?

I’d say both. One of our clients, [microinvesting app] Stash started as a place to democratize investing. Their average client household is earning $50,000 a year. Their original premise, again, was to provide those customers their first foray into investing toward their future. What’s happened now is they are adding on, through partnerships or building components, on the credit side. [They are] providing loans to those same clients. They’re providing custodial accounts, so the parents of those kids can teach them how to invest for the future; and they’re providing debit cards and credit cards alongside their investment accounts. So there is this expansion off the nucleus. In the case of Stash it’s the investment into a more holistic ecosystem. With Overstock, it’s e-commerce as the nucleus. These firms are trying to create more of a holistic picture of a person’s financial life, versus just focusing on one piece.

Apex Clearing CEO Bill Capuzzi
"Folks from different sides of the consumer’s ecosystem are trying to get more wallet share of that client," says Apex Clearing CEO Bill Capuzzi.


Then there most certainly will be more consolidation. It is very expensive to acquire clients. We clear custody for most of the digital wealth players, and what we’re seeing is the second wave of digital wealth playing out in our industry. The first wave was the innovators: the Betterments, the Wealthfronts, the Motifs, the firms that started this almost 10 years ago. If you were going to launch one of those robo businesses B2C today, it would be hard because the cost of acquiring a client is so high. The second wave is that same concept of digital wealth now playing out at the bigger advisors and firms. Goldman Sachs and JPMorgan, what they are doing is taking their captured audience and being rational about what type of product will resonate with what type of client they have. So we’ll see consolidation because there are a bunch of smaller direct to consumer platforms that frankly need such scale to be a) relevant and b) financially viable, that we’ll see them bought up over the course of the next 12 to 18 months.

But a partnership today could likely dissolve into future competition. There have certainly been some marriages of convenience in the industry.

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"We’ll see consolidation because there are a bunch of smaller direct to consumer platforms that frankly need such scale to be a) relevant and b) financially viable, that we’ll see them bought up over the course of the next 12 to 18 months."

A great example of that is traditional banking and the investment side. There are partnerships being formed between the investment community and banks, and what will happen next over the course of a couple of years is those partnerships will dissolve, because there will be continued pressure from a value perspective. When you have too many hands in the pot, it becomes more difficult to drive value for an end consumer. Partnerships will form to create that ecosystem; but it will be a bit choppy, as the technology is not perfect. The general consensus is to create one experience, but the problem is you have all these different companies coming together, and oftentimes, whether its policy or culture or different technology, those partnerships don’t work out as intended from a client perspective. What’s more likely is the bigger piece of these partnerships will reach down and grab through consolidation , through acquisition, or by building out some of the components on the other side of the partnerships.

Your firm is working with many of these digital-first wealth firms. Who are you betting on?

(Laughs). We’re squarely B2B. We work to help all our clients win by providing fast, efficient and transparent processes. Clearly, firms such as Robinhood and Stash are doing a great job acquiring clients. As I mentioned earlier, we’re into the second phase of adopters that are taking that robo function, that product, and embedding it within their broader investment strategy. I see that as a much bigger trend in our industry, versus the smaller independent continuing to flourish.

Where does innovation in digital wealth management go from here? Where’s the differentiation among providers to be gained?

We’re in Version 2 of digital wealth and there’s probably a series of versions to come. Hybrid advisors are robos plus this very odd, very clunky, very misunderstood intersection of advisors. The winners will be those that get hybrid right and create this concept of e-advisor. What that means is a continuum: all the way to the left, it’s 100% digital robo, online brokerage; all the way to the right is completely outsourced to an advisor. That’s a massive continuum. Each client falls somewhere along that continuum. The successful folks will create the platform that allows for any point of service, let’s say 35% digital and 65% advisor-assisted; or it’s 90% advisor-assisted and 10% digital. It’s very personal to the client. Those that can create that product stack that allows for a client to easily move from left to right, or right to left; and also allows for that client to move easily in any direction over the course of their lifetime, that to me is the nirvana. Secondly, the winners will create a holistic platform to serve a person’s entire finances, versus the classic siloed system where I go to my bank for my savings account; my advisor for my investment account; a third bank for my mortgage and a fourth bank for my car loan.

Will these digital upstarts be able to keep their young clientele?

It ties into what I’ve said. In order for Stash, for instance, to keep those young clients, they will have to figure out how to create that larger ecosystem. For better or worse, JPMorgan has a very wide array of products and services they provide. At some point, that individual client is going to want a car loan, a mortgage, they’ll want to pay down some of their student loans. Some of these digital disruptors have built good loyalty with their customers. But in order for them to continue to be relevant, as their client today continues on their lifelong journey, they’ve got to continue to add more components and products.

Suleman Din

Suleman Din

Suleman Din is technology editor of American Banker and Financial Planning. Follow him on Twitter at @sulemandn.