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Where wealth management is 'woefully underserved': Q&A with Addepar CEO Eric Poirier

Q: The industry has seen some enormous change in a short amount of time, just on a competitive level. Envestnet is seemingly buying as much oxygen that it can in the market. What’s your take on this trend?

ERIC POIRIER: No, I have a different read. The portion of wealth management Addepar has been overindexed is the portion that we see is the most underserved, which I’ll loosely break it into private wealth management, where the end clients have much more complex needs. From an incumbent standpoint that market has just been like woefully underserved. It’s a wide open opportunity there, a lot of the players that are incumbent players are not really serving that part of the market and that’s why the need is so ripe.

And so it’s true that there’s a lot of activity going on in the other part of the market, like there’s natural consolidation. I think people are, you know, they’re having to level up. Advisors are having to level up the way they run their practices. Tech providers that have been serving that community for a while are reaching for opportunities to grow because that part of the industry is under more pressure. The part we really worry about serving we see as one of the biggest greenfield opportunities in the world, and so the growth opportunities, they’re just almost limitless from our perspective, and we really built a new category of software to address that. So the way you described it is far from the way I describe it.

What then do you make of that consolidation?

When you see a lot of consolidation within an industry, you can read that in different ways. You can read that as whoever is consolidating is reaching for inorganic growth because the organic growth opportunities have kind of evaporated. I’m sure there are other interpretations of that. Regardless, I guess it’s pretty far from the world that we’re operating in but I haven’t really spent a lot of time studying it carefully because it’s not really impacting our business at all from a growth trajectory.

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I think robo advisors have had an impact on that part of the market. There is some substance to that, for sure. There is clearly a lot of headlines around that. There’s pretty active debate over how hyped it is versus how substantive it is and that’s fine. There is a real need in a part of the market to at least minimize fees people are paying and maximize dollar return. If robos help you get a balanced portfolio within your risk tolerance and you do it for a handful of basis points, that’s a lot cheaper than paying an advisor 100 basis points.

So that’s put a lot of pressure on that portion of the market and so for more traditional advisory practices they are absolutely going to come under cost pressure. And for the tech provider serving them, they are going to have to adapt in all sorts of different ways.

Still, a variety of companies are trying to move into new markets and that’s creating crossover and competition.

I’d even be more specific about that. I think everyone is trying to move up market, and that’s really where we started. And a competitive landscape in that up market area is, it’s a pretty empty space. That’s what I mean by the greenfield opportunity part.

So I think that we don’t really, if there were players that we were seeing all the time and we were looking at their capabilities and we were saying like, wow, those look a lot like our capabilities, they’re able to talk to the same audience and really hold their own the way we are, I would be very surprised. But that’s certainly not the case.

But that said, look, I love that you have other players out there who have big ambition. I think moving the whole industry forward, like we’re moving the industry forward together, there’s a lot of work to do. From a philosophical standpoint, I guess in the world of advice when you have clients who have fairly involved needs, I don’t see that human advisor ever getting replaced by tech. I just don’t see it. I think that that is always going to be human-to-human relationship and our job is to make an advisor more resourceful, more data-driven and bring more to their fingertips, so they can spend more time with their clients actually addressing their clients’ needs.

I think that at least some of the rhetoric I’ve heard out of maybe newer companies that don’t spend as much time with advisors, there is like a kind of naiveté to it I guess, and granted they are focusing on a different part of the market and maybe focusing on a clientele whose needs are absolutely suitable to solve with a robot. I just don’t see it. Once you have needs beyond a certain level of complexity, you need a well-trained professional who is equipped with all the right stuff to really deliver on that.

With tech companies bringing innovation and new products to the financial industry — take the Apple credit card — at what point do incumbents in financial services get eclipsed?

I think the answer is pretty nuanced. I mean you could say the same with health care in a lot of different ways. In certain ways you could say the same about government and education. Technology is at a different point in each one of these industries, and it is remaking the user experience and renovating that user experience.

The root of it from my perspective today in financial services has a lot to do with regulation and compliance and all the corresponding guardrails that have been put in place, where you have banks who are still running versions of Windows that were retired by Microsoft because it’s so costly for them to upgrade because their environment is so unbelievably restrictive and constrained.

That’s just like the overall environment; then making progress in that environment is really rough. It’s one of the reasons Addepar has positioned itself as being strong partners with the banks who find themselves in that position. They’re saying we understand we can’t innovate our way out of this because we can’t retain the talent long enough, because their environment is really cumbersome to work in. So if you can add the talent, you can rent us the software and the solutions and we can rip out a bunch of the old stuff, we can start remaking that user experience kind of piece by piece and we can start ripping out big chunks of it and replacing it with something that’s a lot better.

And so in terms of like a wholesale replacement of like a bank by a tech player, I think a lot of tech players have been scared off more than anything by the regulatory aspects of it. And so I think if that were ever to come to pass — it might, it might not — I don’t really have a strong point of view on that, but I think in the meantime financial services, they are providing a variety of services to clients and have been for a very long time and they’re doing it in ways that they know are cumbersome and we know are cumbersome and we know we can help. So we think we’re going to be able to build a business that’s lasting for a very long time taking pieces of that and renovating them.

Okay. There is the criticism of Addepar's software that it is too complicated to use.

We’ve heard that criticism. We made a series of investments over the course of the last year that’s never really going to stop, actually.

One area we invested a lot in is what we call ‘built-in resources.’ So how do we make it really easy when someone logs in to see the right defaults, to see the right templates, to give them a place to get started with basically no effort for that user’s first time? Just to make their initial work flows, their initial use cases just straightforward, and then they can go modify it. That’s a very significant improvement over what we had had prior, where we prided ourselves in a lot of the flexibility, but in certain context, clients would say, ‘Great, so I have an infinite palette of paints and a blank canvas and I can do anything with it. I’m scared, give me like a coloring book and like some crayons, and like color half of it for me, and then like allow me to fill in the rest.’ So that’s more what we have now. And it doesn’t trade up. It actually can become the blank canvas and a palette of paints if you want, but you can make that a progressive thing from the user’s standpoint.

A different investment is from a future functionality standpoint. Addepar does a lot, so we’ve built a lot of configuration points and controls now where both for the purposes of user experience, but also for the purposes of security, you can lock down what specific users have access to from a future functionality standpoint. So I can say, this user has permissions to do these actions, access these particular tools, and even if they have access to this tool, maybe they can only use predefined views or the built-in resources I was talking about, not modified, and then we’d hide the control set. So it would really simplify the product experience by hiding some capabilities that that person either doesn’t want access to because it makes the user experience too variated, or because the firm who they work for doesn’t want them to have that set of capabilities.

So you can winnow down the surface area of the product per user. We’re now augmenting that with role-based permission so it’s really easy to say this user has this role, this role has these permissions, and these other fifty users have the same role. From an administration standpoint it’s dead simple. And then if you are working at a larger firm, you are not even configuring that within the product, we’re just integrating with your access control list and your permission systems and your security master and your benchmark, just like systems using our application program interfaces in a way that’s automated.

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