#ItzOnWealthTech Ep. 46: The Mad Rush into Digital Advice with Bill Capuzzi

“The popular belief was that when the next downturn hit, everyone was going to run away from robo advisors, run away from fintechs because there was no one to call. And very quietly over the course of the last two years, these firms have been able to digitally connect with their constituents.”

–Bill Capuzzi, CEO, Apex Clearing

Bill Capuzzi joined Apex Clearing in 2015 after working in senior management at Pershing and Convergex. Outside of his 20 years of industry experience and particular focus on fintech, Bill is an accomplished triathlete and Ironman race finisher.

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This episode of Wealth Management Today is brought to you by Ezra Group Consulting. If your firm is evaluating new technology or looking to improve your current wealth platform, you need to contact Ezra Group. Don’t spend another day using technology that doesn’t offer an elegant user experience. Your advisors and clients deserve better and you can deliver it to them with the help of Ezra Group.

Companies & People Mentioned

Topics Covered in this Episode

  • Maniacal Focus on Clients
  • Mad Rush to Robo Advisors
  • The Next Frontier of Financial Wellbeing
  • Creating Efficiency for Advisors
  • The Perfect Storm

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Complete Episode Transcript

Craig: My guest for this episode is Bill Capuzzi, CEO of Apex Clearing. For those of you who aren’t aware, Apex is a custodian which was launched in 2012 by private equity firm called PEAK6, which acquired the assets from a Clearing broker called Tencent Financial. Bill joined Apex in late 2015, before that he worked in senior management at Pershing and Convergex, and he’s been in financial services for over 20 years. What Bill did was really interesting when he got to Apex, he really expanded it beyond what people would consider traditional Clearing and built out two separate divisions. One is your traditional Clearing institutional marketplace. Broker dealers, RIAs. The other one was focused on retail FinTechs and they only became the go-to custodian for a lot of up and coming players. They have literally millions of end investors, and help scale the growth of disruptive firms like Betterment, Wealthfront, Robinhood, and Stash. So they’ve got a great reputation in the industry as being the place that you go where you want cutting edge technology to drive your custody.

Craig: I’d now like to welcome my guest for this episode. It’s Bill Capuzzi, CEO of Apex Clearing.

Bill: Hey, great. How are you?

Craig: Fantastic, man. Well, as fantastic as I can possibly be hunkered down in my basement.

Bill: Ditto. You’re in your basement. I am hunkered in the back of my bedroom. So, the new normal.

Craig: Everyone’s finding new ways to use different parts of the house.

Bill: That’s it.

Craig: Do you ever get outside?

Bill: So I will tell you, we have four kids, and my wife and runs her company. And so the six of us, I think we’ve done more exercise over the past month than collectively we’ve probably done in the last year. So yes.

Craig: Yeah, it’s amazing. I see memes of people talking about how fat they’re getting and some people are talking about what great shape they’re getting in. So we’re gonna have like a barbell of people at the end of this.

Bill: Well I will tell you whatever exercise is being offset by the amount of eating we’re doing.

Craig: I hear ya.

Bill: And we’ll probably be right where we were before this.

Maniacal Focus on Clients

Craig: We’re going to maintain. Cool. So thanks for being on the podcast. I have a ton of questions to ask you and we’ve talked a lot before. I really liked being a part of the round table last year, that was really interesting. I like how Apex is pushing the envelope and coming up with new ideas and trying to encourage discussion. I kind of feel you’ve always been on the leading edge of custodians. Do you see yourself that way as well?

Bill: Yeah, it’s funny you started by asking me about custodians. We consider ourselves a technology firm that provides custody. And it sounds cliche, but when we look at the way we operate, the culture within Apex, it follows that vein, right? Which is we look at ourselves as a technology firm. How do we eliminate friction? What does a custodian do? A custodian is supposed to be there to hold and protect the assets of the customer and then facilitate transaction, facilitate things happening. Whether it’s opening accounts, funding, trading, settling trades, it’s about processing. And our focus, maniacal focus on the firm is how do we do that totally frictionless.

Craig: Maniacal focus.

Bill: Yep. That’s it.

Craig: I used that on a podcast already. I can’t use that again, but we’ll think of something else.

Bill: Okay.

Craig: So with everything that’s going on, the first question in my mind is in a month or six weeks, what’s been the most dramatic change you’ve seen in terms of your client base?

Bill: So let’s take a step back and think about Apex clients, right? They fall into two categories. We have traditional advisors on one side, that are looking to, I’ll say “digitize a business” or work with a modern custodian. And then on the other side, as you mentioned before, on the other side of the barbell, it’s been FinTech companies and robo advisors. Folks are trying to disrupt the traditional advisors. This is robo advisors like Stash and SoFi and Betterment and Wealthfront and Robinhood. And I think, if you rewind the tape to the beginning of the Coronavirus epidemic and the impact of the markets, we were bracing for the unknown. We really didn’t know what the impact was going to be on our clients, understand what the impact was going to be on how things were gonna work. We certainly knew that the assets were going to go down, and a lot of our clients were going to be impacted in terms of P & L.

Bill: The biggest shock to me, two fold, one is how quickly we mobilized every single person in Apex. That first week, March 2nd, we moved everyone to 100% work from home. So we had 100% of our people including the trading desk, including risk, all the technologists, everyone working from their house. And we were able to operate without a hitch and with a knock on wood, without any hitches, without any issues, through this crazy time in the market. That was one.

Bill: And then the next one is that we had the second largest account opening in the history of the firm. We opened a little over 650,000 accounts in the month of March and alongside all of those accounts was a massive amount of cash.

Mad Rush to Robo Advisors

Craig: Why do you think that is? Is this because of all the different disruptive FinTechs and robo advisors you have? And this is something I’ve seen, which is I think is very contrarian to how everyone predicted. Everyone predicted, Oh, when the market goes down all these robo-advisors, everyone was going to flee. Instead they did the opposite. Everyone embraced them and rushed to them. Why do you think that is?

Bill: Well, I think first of all, think about what you’ve been doing over the last month, right? You’ve been tethered to your computer and tethered to your phone. I think people have very quickly adapted to this new world as normal. That’s where we started the conversation. That’s number one, number two is, I think you used the word before, frictionless. You have a phone in your hands. It’s now close to free, right, the ability to open an account. Let’s just talk about Apex, open an account with no paperwork, be able to fund in seconds, get that whole process done. And oh, by the way, work with somebody that is doing it for “free” or close to free. It just creates opportunities for folks. So it’s a total shock to me that we added that many accounts in the last month.

Craig: That was the second largest number of accounts. When was the first?

Bill: When Robinhood announced that they were going to be adding crypto, almost two years ago, we opened 905,000 accounts in 2018. We average somewhere between 200,000 and 300,000 accounts a month, so you can get a sense of how much increased velocity there has been a little over the course of a month.

Craig: That’s incredible. I mean, everyone is seeing huge increases.

Bill: Look, the other thing I would say is, and I think this goes to the broader advisor world is, it’s not just frictionless in terms of open accounts and gimmicky around it’s free. I think, to your point, the popular belief was that everyone was going to run away from robos, run away from FinTechs because there was no one to call. And very quietly over the course of the last two years, these platforms have been able to connect with their constituents on an electronic basis on the ways. I’ll give you my personal experience. I have an advisor at LPL. He’s tried to get ahold of me and my wife to talk about the impact of the market on our portfolio. I know the impact, right? I don’t need to talk to him, whereas some of our clients who I have accounts with have been able to connect with me in the ways that worked for me, whether that’s over Twitter, whether that’s within their app, over email. And I think it’s starting to play out and I think the tailwind there is going to continue to work to their advantage. And I frankly think it’s something that the broader advisor world has to sit up and take notice. This isn’t about accounts that just don’t have any money. It’s really around how our world is going to continue to evolve. I think this is a great accelerator for how things have already been evolving over the course of the last couple of years.

The Next Frontier of Financial Wellbeing

Craig: Yeah, I think a lot of advisory firms are going to be shocked by this and this is going to really change the way they’re thinking about digital and the way they interact with clients. I wrote about this three years ago, about Acorns will be the first billion dollar robo advisor. And I was right, because not that Wealthfront and Betterment are bad companies, they’re good companies, but they’re just RIAs, they’re digital RIAs.

Bill: Yep.

Craig: That’s what they are because they approach it from a traditional RIA mindset, in a traditional RIA client interaction model. Which is, I only want to talk to you every now and then. I don’t really want to interact with a lot because if I’m interacting with you a lot, that means something’s wrong. I’m only going to give you your portfolio and your list of stocks and transactions. That’s all the information I’m going to give you. Maybe some educational content, but not really that much. Whereas Acorns has turned on its head and said, we want you to talk to us, come to our website, we’re going to give you stuff to do, we’re going to give you brands to interact with, we’re going to give you bonuses and benefits and updates and an education. They’ve really turned it on its head. So you work with all these different FinTechs and robo advisors, do you see that as being one of their major advantages?

Bill: I want to say it’s the next frontier because it’s playing out in front of our eyes. I call that financial wellbeing. How do you connect the dots between banking and lending, lending and investing, investing in insurance. Or if you just took those four pillars, people today think of them and the way that we by and large have provided solutions to them isn’t four disparate silos. And what’s happening now, the racing, you mentioned Acorns, robo advisors like Stash, people like SoFi are connecting the dots across those four channels and being able to provide insight.

Bill: Over the course of the last month, someone’s washing machine breaks. It’s somebody that’s in the mass affluent category or down. Their washing machine breaks. Oh my goodness, what do I do? How do I raise $600 to be able to pay for this new washing machine that I need during this crisis? The old way, or if you had a lot of money, you called your advisor and said, Hey, what do I do? In this new world it’s, how do you look across what you have in your bank, what you have your investing, whether it’s a non-retirement account or retirement accounts, 401ks. What do you have in terms of student loans or debt on the books, what credit lines do you have available and what insurance products do you have? Being able to ask those types of questions and get back some answers. It doesn’t mean it all has to be totally electronic. Like you said, Acorns interacts and brings advisors into the picture, but it does mean creating a chassis that allows for you to unlock a bunch of again, frictionless, or different ways of interacting with clients.

Craig: It’s kind of like being able to see across multiple silos because people have insurance accounts that are a separate silo. Lending is a separate, their wealth is separate. The bank is separate. Sometimes they’re combined. But oftentimes it could be four completely different advisors or agents that you need to speak to, or websites you need to go to to figure out all these different things.

Bill: Yup. And so what’s happening is the FinTechs and robo advisors are going to perfect this. They’re going to create this financial wellbeing, chassis. And then the big advisors, the bigger players will steal the idea, which we’ve seen play out over and over again in our industry and I think it’s going to continue in this respect and frankly for the better. Because I mentioned before, the distinction is around do you have money or not? If you have a lot of money, just go to your advisor and they answer those questions for you. Oh, by the way, you pay a bunch for that. Two things. One is people are demanding better transparency and value at the same time. Like think about yourself, Craig, I want an answer now. I don’t want to schedule a time with my advisor to sit down and talk about those things. I want to be able to pick up my phone. These are simple questions to be answered and what I want to do is be able to leverage my advisor for when I absolutely need something that those types of tools can’t provide. That’s sort of utopia. That’s where an advisor is adding value, the human computing can add value where a machine can’t.

Craig: Indeed. You know that’s something we’re seeing a lot more of. Between transparency, value, and speed, it’s more than just cost. Things are free, but there is a way to compete against free and free doesn’t always win.

Bill: That’s right.

Craig: Because people do value other other aspects, and I know there’s been a lot of studies on cost and cost is rarely the most important for the majority of people or at least for the high value customers. The ones that are really focused on cost, no one really wants them because they’re going to jump ship at the first sign of a cheaper business model. It’s something we work on with our clients a lot where they say, well, should we lower the price? And our answer is always no. You need to add value in other places. You want to be the premium provider if you can. You definitely don’t want to be the value provider or the cheapest provider. That’s your main benefit because someone can always be cheaper than you.

Bill: To that point, I think the misnomer for advisors and traditional advisors is that, my goodness, there’s no way we can add robo advisor to our business because it’ll cheapen the model, and the sad reality is there’s a giant swath of your clients that want better electronic access, want to be able to open an account or change their address, or look things up, and not have to do it through a piece of paper or DocuSign or interacting with a person. They just want transparency. And this concept of, well, that’s going to cheapen the offering, it’s going to lower our costs, to me is a misnomer. I do think in some cases that’s appropriate, where someone wants a robo advisor solution. But in many cases, it’s about adding value and frankly to the extent that it can unlock time that you’re not making silly calls to chase down paperwork from FedEx that you sent two weeks ago, that should provide you the ability to add more value.

Craig: That’s a great phrase, the ability to unlock time.

Bill: That’s right.

Craig: Because we only have so much, time is limited. The problem in our society, the way our society is structured now, it’s not a money problem. It’s rarely a money problem, look at where we are now. No one said, where are we going to get the money to dig us out? They just said, we’ll make it. So it’s rare. It’s rarely a money problem. It’s an ideas problem, we need more good ideas.

Creating Efficiency for Advisors

Bill: And it’s my problem. To your point, it’s how do you create efficiency? But not just that, that word is overplayed. It’s efficiency for the advisor so that their cost structure can go down. I think it’s also efficiency so that they can, like you said, evolve their practice to be more meaningful and impactful to the end customer. And like I said, I had barbell business. It’s so interesting to watch FinTech, right? The bleeding edge of change, and Oh by the way, that’s focused on people that largely are in the mass affluent and down. Now they want the people that have the greatest amount of money, but typically their product is really focused on mass affluent down. But the concept there, I think over the course of the next five years, somewhere in that range, oftentimes the ideas that are generated on the left side of the ledger move to the right. I think we’ll see that over the course of the next three to five years.robo advisors

Craig: Interesting. I want to go back to something you said earlier about the number of accounts. So you had 650,000 accounts in March, which was a 200% increase over the average.

Bill: Yup.

Craig: Now that’s going to be a wave, right? That wave, if you look at that, it’s a bump, but that kind of wave is going to push forward, right? Because now you’ve got 200% more people who have accounts. So assuming they’re all new and I’m sure they’re not all new, but a large percentage is probably new.

Bill: Yup.

Craig: They are now being exposed to digital advice, and the probability that they bring more assets into that, in 6 months or 18 months ago or a year, there could be another wave of assets coming into these digital players that the legacy firms never expected. And that’s gonna be an outflow from them and inflow to these digital players.

Bill: Yeah. So the accounts are getting opened and, they’re getting funded. Alongside of that, 200%+ increase in number of accounts, that cash, the inbound cash wave. To use your analogy, the surge came in right behind them, which is, billions of dollars of cash, net new cash into the firm, came in right behind those accounts that were being opened, number one. Number two is the ACAT activity. To your point, the amount of incoming ACATS, it’s typically the way ACATS work is between custodians. So you don’t necessarily know who the advisor was, but we can see net ACATS, right? When you think of what’s coming in and what’s going out, it’s at about a 3-1 ratio of what’s coming into Apex versus leaving.

Craig: Wow. And is that unprecedented?

Bill: It’s unprecedented. We’ve always been net positive, in terms of ACATS which again, I think is the trend, especially when you think of the vast majority of our customers are millennials. The average age is 31 years old, and so they’re looking for a more digital experience, which again, plays to our strengths as a company. But to go from 2-1 or 1.75 to 1-3 is a pretty massive increase in terms of influx of assets and they’re coming from the traditional custodians.

Craig: Can you tell how many of those are new accounts to the FinTech firms?

Bill: So most of them are, you mentioned that before.

Craig: I’m just guessing.

Bill: Yeah, 95+ percent are new people to one of our customers. There’s a little bit of a swag, but we’ve looked at this in the past and it’s anywhere between 5-10% of the clients where they already have an account with a different client of Apex that opens another account with a different correspondent of Apex. The vast majority of them are net new to Apex as a custodian.

Craig: Indeed. So that’s also, if they’re net new to you, they’re net new to your clients as well.

Bill: That’s right.

The Perfect Storm

Craig: So that’s an incredible number. That’s something I think people will be interested to know. I’m sure some legacy players will say, Oh, it’s probably just existing clients adding more assets or opening up additional accounts, but it’s not. 95%, it’s hard to get much higher than that.

Bill: New. Yeah these are new customers. Now they could be coming from old traditional brokerage firms, but these are new clients that are using and not just opening the account. The important thing is they’re not just opening an account, they’re actually moving cash or ACATS, moving positions from left to right, which is is a great sign for us as a firm. And the question is going to be, I think for us, I’ll counterbalance that. Our average aged client is 31 years old, roughly 60-40 male to female, almost exclusively in the United States. And that accounts for almost 9 million customers on our books. What I worry about is, how are the next six months with unemployment, and how are things going to play out for these folks, when or where are they going to look for cash to the extent that they need the cash. And I guess that comes back to the financial wellbeing. oftentimes people need money. They run to their 401ks, they take penalties, and sometimes it’s the only polite place they can go. But without proper advice, without a package to be able to see this holistically, oftentimes those aren’t the right decisions.

Craig: Yeah. I think going back to something we were talking about earlier was that people are getting more used to doing everything online and they’re getting used to not having an advisor or not having people recommend things for them and getting advice from social media and getting from other online sources. So I think it becomes a perfect storm that people are just ready to move. Had this happened three or four years ago, you may not have seen such a surge, but now people are doing everything on their phones, almost every part of their lives is on their phones. And there’s a lot more payment processing on the phones. The amount of cash has plummeted that’s in people’s wallets over the past three or four years. So I think that helps their mindset.

Bill: I think this is a big opportunity for the advisor community. There are ways to evolve some of the practice very simply towards that. We can take what you just described. It’s not impossible to do that. It’s not impossible to move to that. We overuse the word hybrid in the market, but there is the ability to create this solution that allows clients to interact more electronically with you and provide that sort of human overlay that’s gonna add more value. Again, I’ll use my personal experience. I would appreciate that doesn’t mean that I’m going to pay less, it just means that that the advisor that’s working with me is meeting me on my terms, in the way that I work. And I think what’s happened over the course of last month is now I’m sort of an exception, I think you are too, Craig. I’m sort of a FinTechy guy, so I may have been a sort of the exception to the rule, but I think what’s happened over the last month is that surge, that wave of people that think like me are going to want to interact on their terms. It’s going to continue to evolve. And again, I keep harping on this, but the advisor world, the broader market, in terms of you have a practice, you manage $1 billion, there’s still an opportunity to get out in front of this with your customers. I do think it’s common though, right? I do think that these questions are going to be asked, and I think what happened over the course of the last month is a lot of advisors got caught behind the eight ball with not having the ability to interact with customers on a scale play. But again, there are opportunities to make those changes pretty rapidly.

Craig: And that’s really what this is all about is how we grasp the opportunity. It’s not that there won’t be these kind of crisises because we know they’re going to come up, the question is how do we react to them and how do we turn that into opportunity? And I think you’ve done a pretty good job explaining and giving some advice for advisors and other firms who are listening to this on what kind of opportunities they should be looking for.

Bill: Great.

Craig: Well thanks so much, I really appreciate your time here and stay safe, I hope everything’s great with your family and your business.

Bill: Thanks Craig, thanks for having me.

Craig: You’re welcome Bill.

Craig: Hey, it’s Craig again. I hope you enjoyed that episode. A couple of takeaways that I got, I still can’t believe 650,000 new accounts just in March alone. I’m really interested to see what happens in April, if that continues and what kind of wave we’re going to see of assets flooding into robo-advisors once all these new clients get a feel for what it’s like to be in a digital advice business, in a digital advice world and whether they like it or don’t like it. Some of the things of connecting the dots, how banking, lending, insurance and wealth are going to be coming together. Lots of good stuff from Bill and he has some great insights into the industry coming at it from this point of view. One thing I didn’t get to ask Bill about was, their average customer age is only 31, which is lower than a lot of his clients, at least the ones I know of. Wealthfront and Betterment, at least the bigger clients. I guess a lot of the smaller, FinTech firms have even younger ages if they’re skewing it down to 31 and the 60/40 male to female ratio really interested me as well, because I don’t think most advisory firms have 40% of female customers. So I think that’s a great, great news for Apex.



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at craig@ezragroupllc.com