Come on in and sit back and relax. You’re listening to Episode 222 of the WealthTech Today podcast. I’m your host, Craig Iskowitz, founder of Ezra Group Consulting. This podcast features interviews, news and analysis on the trends and best practices, all about wealth management technology.
My guest for this episode is Bill Capuzzi, the CEO of Apex FinTech Solutions. I enjoyed this conversation with Bill, I’ve known him for quite some time. Bill has been the CEO of Apex for over eight years now. He’s also a partner at PEAK6 Investments, which is the owners of Apex. They launched Apex back when they acquired the clearing operations of the old Penson Financial Services in 2012. Bill is also an investor at Edison partners. Before Apex Bill was a CEO of an equity trading outfit called G trade. He was also for that a director of Pershing and my favorite position of Bill’s back in 1999, Bill was Director of Alumni records at good old Rutgers University! RU RU! Sorry, I’m a Rutgers alumni as well. So although Bill is not a Rutgers alum, he did work there, so it’s almost as good.
But before we get started, let’s talk about tech stacks. At Ezra Group, we’ve seen tech stacks of hundreds of RIAs and let me tell you, most of them are loaded down with tech debt. So you shouldn’t feel too bad about yours. But let’s face it tech debt is like a giant anchor, holding back your business growth. If you want to free your firm for exponential growth, you should run, not walk to our website EzraGroup.com and fill out the Contact Us form. Our experienced team can evaluate your current tech ecosystem, deliver targeted recommendations, optimize your existing systems and operations or run an RFP and help you implement new software to take your firm to the next level. You can take advantage of our free consultation offer by going to EzraGroup.com.
- Partnership with Orion
- The Apex Onboarding Edge
- Real-Time API Significance
- Embracing the Hybrid Model
Bill: It’s good to see you, Craig. I’m glad to be on. Happy New Year!
Craig: Happy New Year! I’m glad you’re here. You are the first podcast recording of 2024. This is going to go live in a week or two after this. But you are the first. Congratulations!
Bill: Amazing. Thank you.
Craig: Where are you calling in from?
Bill: New Jersey. Lovely Princeton, New Jersey.
Craig: And we are so close. I’m in Sayreville, New Jersey.
Bill: We should have done this in person.
Craig: A hop, skip, and a jump. We should have. We’ll do it next time.
Bill: Next time.
Craig: Next time we’re going to do the in-person meeting. Great. Let us proceed with this first podcast of the new year. Give us the 30-second elevator pitch for Apex.
Bill: Sure. Apex was formed a little over a decade ago with one main purpose, which is to help every person on the planet invest in the future. How do we do that? It’s by building this platform that we’re going to talk about today on a purely B2B basis in this notion of taking this old custody world and evolving it into modern technology, modern architecture. Today, we support roughly 250 different firms. There are more than 21 million investors that we help that are on our books today. The focus for us on a go-forward basis is to continue to do what we have been doing as it relates to fintech and helping firms like SoFi, Stash, and eToro, but now kind of leaning hard into the advisory world, taking what we did for fintech and applying it to the broader traditional advisory world.
Craig: So one question I know a lot of people would ask is: Why do cutting-edge retail-oriented firms always seem to choose Apex as their custodian of choice? What is it about you guys that is different than all the other custodians out there?
Bill: There’s a lot of conversation around “this custody function is commoditized,” Craig. And the reality is [that] it is if you pave the cow path. It’s not if you want to drive change—if you want to open accounts in seconds, if you want to fund immediately, if you want to send confirmations and statements electronically, if you want the entire experience to be in real-time to the extent possible, while at the same time dotting I’s and crossing T’s on rules and regulations, and thirdly, having enough capital to support that business. This combination of amazing technology, following the rules to the T, and having the capital base to be able to support a growing client base creates that defensible moat around Apex and how we support that fintech world today.
Craig: That’s a great phrase: “We don’t pave the cow paths.”
Bill: I’m going to use that.
Craig: You already did!
Bill: Or use that inside of Apex.
Partnership with Orion
Craig: Exactly. You should. One of the reasons I wanted to have you on was some of the news you guys recently came out with and one of them is your alliance with Orion. Can we talk about what you’re doing with them and why you’re working with them—it’ll be either the first ones—and how Orion clients are going to see a difference when they’re opening accounts on Apex?
Bill: Yes. Let’s start with: It’s about the people you work with. We started with Eric Clarke, now Natalie Wolfson. The DNA of Orion people and the DNA of the Apex team just gelled early on in our relationship with each other. The ethos of Orion and the ethos of Apex in terms of what we’re trying to accomplish seemed to line up pretty well.
Bill: The problem we were trying to solve is: How do you make the experience for an advisor more efficient? How do you make it such that you lower the barriers? How do you take the inefficiencies out of what’s happening today? And for the audience and for you—you know this, Craig—today, different than my experience in the fintech world in this traditional advisory world, there’s this notion of swivel chairing. The advisor comes on, he wants to open the account, and he wants to work with a new client. They’ll use the Orion platform to create the portfolio, set them up in the CRM, and make sure that they understand the portfolio that they’re going to get into. Then there’s a swivel chair over into whatever custodian they’ve chosen to do the work to get that account open behind the scenes.
Bill: The notion of having that swivel chair made no sense to us. And frankly, it made no sense to the Orion folks. The problem is that they didn’t have a partner or a custodian who provided real-time APIs. When we’ve looked at the traditional custodians that were out there, they were mandating that notion of swivel chair because they wanted people into their platform. It’s not the way that the Apex team has grown up. We push on this: “Okay, leave the front office business to somebody else; focus on the guts, the plumbing.”
Bill: The notion was to take those custodial functions, the API, and plug them directly into the advisor workstation. Instead of that notion of swivel chairing from the Orion platform over to pick on Pershing to NetX360, stay inside of Orion and make sure that you understand setting up the portfolio, doing all the things that you’d normally do within Orion, but also being able to do the things to open the account in seconds, to fund the account, to support the account on an ongoing basis.
Craig: Mandating the swivel chair by custodians is something that’s a bit of a pet peeve of mine. Now, it has gotten better. You mentioned Pershing. We don’t want to leave out Schwab and Fidelity. They also had that issue for a while, but they were mandating: You could start the account opening process on any vendor platform you wanted—whether it’s Orion, Tamarac, Black Diamond, or Morningstar—but then you had to finish it on their website with their e-signature. That’s just the way it worked. I’ve spoken to all three of those vendors, and they are slowly changing. I know Fidelity and Schwab are working on changing that. They have to get approved to be able to use their own e-signatures and other technologies to finish the account opening, but it’s still not ubiquitous across all accounts. They’re not open that way.
The Apex Onboarding Edge
Craig: Maybe this leads us into the next topic, which is the onboarding Edge. How does the onboarding Edge technology that you announced facilitate this?
Bill: Yes, look, let’s rewind the tape. It’s 10 years ago. We have folks like Robinhood, Betterment, and Wealthfront, and they’re trying to break into this world of investing. On a phone, they needed the solution to open an account to be as real-time as possible. To the extent that we follow the rules, we dot the I’s across the T’s, and we make sure KYC and AML are done properly. But why do you have to have paperwork? Why do you have to send an email to somebody’s email address with a DocuSign for somebody to go in to accept it?
Bill: We spent a lot of time on making sure that we follow the rules but we did it in an incredibly efficient way. We measure account opening from start to finish to the extent that Craig fills out the account opening, you do it properly, and you’re not breaking any rules in terms of KYC or AML. That should happen in five seconds or less. No paperwork. You should get accepted and you should get an account number back. Now you fast forward. Apex is leaning into the advisory world, and we looked at: Why is that not happening in this traditional advisory? It’s a little bit more complicated because you have an advisor who’s supporting an end customer. You’ve got to make sure that that advisor is doing the right things. But the tenets are exactly the same, which is: How do you make the process as efficient as possible? And if there’s something that breaks…
Bill: I’m getting a little nerdy here, but if you—as the advisor on behalf of an end customer, Craig—type in the wrong social security number, you should get an immediate response that says: “This social security number for this person does not match”—something’s wrong here. And in our industry, we call that NIGO—not in good order. But that happens days later. Why doesn’t it happen in real-time? Why doesn’t that response come back to the screen and say, “This is wrong,” there’s something off here? This notion of Apex Edge is to take those amazing things we’ve built for the fintech world and apply them to the advisory world in three different ways. One, we talked about with Orion, which is—whether it’s the Orion platform, you talked about Morningstar, whether it’s Advyzon we’re working with or Envestnet—take the APIs and plug them directly into the platform. That’s number one.
Bill: The second is: You don’t have technology resources; you do a number of things yourself. “Hey, Apex, give us a front end.” We’ve taken those APIs and packaged them into a front-office tool, which we’ll be talking about at T3 in the next couple of weeks. Then the third option of this Apex onboarding Edge is via bulk to take advantage of the ACATS. I don’t want to get too nerdy on you, but within the bowels of our industry through DTCC, there’s something called ACATS, which allows you to do bulk transfers and take that process on ACATS plus this real-time account opening function that we built and allows for advisors to transition an entire book of clients from one custodian to the other, to Apex in this case. Instead of it being weeks or months for that to happen, it’ll happen in hours and days, which cuts down a lot of the back and forth within clients. That notion of the Edge platform manifests itself in three different ways.
Craig: Bill, you can’t get too nerdy for this podcast. This is the WealthTech Today podcast. Tech is in our name.
Real-Time API Significance
Craig: We love to get nerdy. Can you go another level deeper on that? How are you leveraging these ACATS rails differently than other firms are doing it? There are other advisor tech transition tools out there. What makes Apex’s more robust, more scalable, and faster to use?
Bill: ACATS have been around for a long time. It’s effectively the industry’s tool to take an account from Fidelity and move it to Apex. But the process—the wrapper on both the receiving and the sending firm—is where the magic happens or not. ACATS are initiated from the receiving firm. In this case, the advisor comes on to this platform, they’re using Orion, and they say: “Hey, I want to transition this advisor’s accounts from Schwab to Apex.” What they’ll do is come on and put in the account numbers. And via these real-time APIs that we have, we’ll immediately route through the ACATS system, which is owned and operated by DTCC, which I’m a board member of, by the way. It will route those real-time messages through ACATS. They’ll end up at Schwab and it’ll say: “We’re transitioning these 50 accounts under Craig Iskowitz, the advisor; we want to initiate those and move them.” The real-time APIs are effectively now going to send you, as the advisor, an update. It’s going to say it’s initiated. And the transition process through that ACATS rails is going to continue to evolve and give updates, which we’ll then pass those updates to you via either the APIs that you plug into your own front end or this platform that Apex is providing—this front office tool. But that initiation today for all the other custodians happens in a batch fashion.
Bill: With Apex, because we built real-time APIs, we can take advantage of a bunch of things in the ACATS system that’s owned by DTCC to speed up that process, [number] one. And then number two is to do it in bulk—take all of your accounts and shoot them across these APIs in one shot and move the entire transition book over electronically without a lot of you hand-holding each one of the accounts across to pull them across into Apex.
Craig: It’s something everyone has to deal with.
Bill: I’ll tell you, I talk about this notion of an inchworm in our industry. I’m sure you’ve seen Michael Kitces’ placemat. You work with him on this, right?
Craig: Hello! Hello, Bill! Let me knock on the window here. Yes, Mike and I work on that together. You called it a placemat? It’s not a placemat. This is a high-tech map of applications in our industry! It’s a high-tech map. It’s not a placemat. Come on!
Bill: Okay, what do you want me to call it, map? Okay, I’ll call it the map.
Craig: The map.
Bill: Think about how that map has evolved over the last 10 years. How many more names are on there?—which is amazing, by the way, for our community. There’s a lot more choice in all the different buckets that are on the map. The problem is that a lot of them are only as good as the weakest link, the back of the inchworm, as I’ll call it, which is the custodial layer. Without real-time data, without real-time APIs, the information on a lot of those platforms that’s on the placemat or on the map is only as good as the back of the inchworm. And I think the push for Apex to take what we did for fintech and apply it to advisory means there’s no reason for walled gardens. Our job is to allow for real-time transfer of information and to allow us to support end clients the way that they want to be supported.
Craig: Yes. That’s what it’s all about, supporting clients how they want to be supported.
Craig: And that’s changing over time: The expectations of clients in how they are supported by their advisor. They’re often using some of your other clients’ technologies and they’re seeing how the world could be if everyone had—I hate using this term, but frictionless—frictionless account opening, frictionless trading, and other aspects of wealth management.
Bill: I don’t know if you caught Chip Roame’s presentation. I always love going to his conferences.
Craig: Yes, I was there. Do you mean the most recent one in San Francisco?
Bill: Yes, in San Francisco. The keynote was interesting. One of the slides I found particularly interesting was that 2% of the fee-based financial advisors account for 32% of the net flows. And that 2% is this notion of the hybrid advice/robo. I think robo is now a dirty word. But this notion of those advisors—and we’re talking the Vanguards, the Personal Capitals, and the Edelman Financials—who are creating this hybrid advice solution are pulling across 32% of the net flows. They account for 2% of the total number of advisors that are out there in terms of the actual number of advisors. What it tells you is that there’s an opportunity for us to continue to lean in.
Bill: I sit in the custody seat, so of course I’m going to say this, but back to the inchworm comment: I think this hybrid model is the right one, the winner, fast forward five years from now. And the way that that hybrid advice is administered in large part has to do with how efficiently the custody side works, which is where we’re focused. How do you take the friction out and make it such that you’re following the rules—you’ve got to follow the rules, dot I’s, cross T’s—but do it in as efficient a way as possible?
Embracing the Hybrid Model
Craig: Why is that the winner, specifically for the hybrid model? We’ve seen the hybrid model succeed. What you’re referring to is a digital advice delivery that has a human component, when you mean hybrid.
Bill: Yes. Think about yourself, Craig. You have times in your life when you need someone to lean in and help. I have four kids. I got one that’s finishing college soon. I got a couple more that are coming up. Hey, I need somebody to lean in and help me figure out how to get these four kids through college. There’s an episodic time when I need someone to lean in and help me put a plan together. For the other 11 months of, let’s just say, this past year, it’s not a set and forget it, but there’s a lot less interaction that’s required.
Bill: And what advisors need to do is stop working and spending a bunch of time on the non-value-add, lean into those times when people need them, and get rid of the friction. The focus, at least where Apex fits in, is: How do we lean into this industry and get rid of all the nonsense? Think about all the people in this industry who are doing things that are non-value-add. I connect the dots to this hybrid model, which is like: Hey, how do you get rid of the stupidness and provide a solution to a client that’s probably more on brand for them than what they’re getting today, and be able to spend more time either acquiring new clients and/or supporting those end clients that you have in a much more meaningful way?
Craig: And that’s what it’s all about. If I could throw a couple more cliches in here, at the end of the day, that’s what it’s all about. Before we go, I want to touch on a couple of other things. But before we go, you mentioned that 2% of RIAs account for 32% of net flows. We’re seeing that. These are the huge national tens of billion-dollar RIAs. They’re very different. They operate very differently. They’re structured very differently than an independent RIA with a single office. Even one advisor, maybe three or four advisors, or even 10 advisors in one office—they work very differently than these national RIAs that are probably hoovering up most of that 32%. Do you think there should be a different name for those firms, that they’re not RIAs? They technically are, but it’s a different category of wealth management firms.
Bill: It probably is. I put most of them into that hybrid model. I’ll say this though, Craig, even for those smaller RIAs, they look at it and say: “Well, I only open 10 accounts a year, so who cares?” They’re like: “Your NIGO rate—eh.” But let’s go back to the comment I made. Forget about getting rid of the NIGO rate. But how about spending more time with those clients on things that are value-add? And so I look at this and say, this isn’t about, like, “Hey, let’s create more versions of Vanguard and the ‘robo solution.'” Sitting in my seat, it’s about: How do you get rid of the nonsense so that we’re leaning harder into clients that need help?
Bill: Think about how many advisors are listening to this right now who have a minimum account size of $500,000 or above. Why can’t you support somebody who has $100,000 in their account? You can do that. You just have to be much more efficient and make it profitable as well. It doesn’t mean you’ve got to leave all those small accounts to the Vanguards, to the Edelmans, to the Personal Capitals. There’s an opportunity for the entire industry to lean in and help people.
Bill: I started by saying our purpose is to help every person on the planet invest. For the advisory world, that’s us leaning in and saying: “Hey, there’s a way for you to be able to support a client that has $50,000 or $100,000 in it and make it work for you financially and be able to take the things you’re great at and apply them to those types of clients.”
Craig: My last question is around custodian platforms. Pershing has NetX360, Fidelity has Wealthscape, and Schwab had PortfolioCenter before they sold it to Envestnet. You didn’t build an X360. I want to transition this into your digital APIs. Why did you decide not to do that? And how does that give you an advantage?
Bill: And I’m glad we didn’t historically lean into a platform. I say that because for the clients that we supported historically, Craig, what they wanted was a real-time API. They demanded real-time. Had we had a platform, we would have looked like the kid brother of Schwab and said, “Okay, we’re going to win our fair share.” The fact that we leaned into APIs back in early 2010, almost 15 years ago, forced us to wring out all the stupidness behind the scenes within the traditional custodian. Fast forward to today—we’re going to have a big announcement at T3 so I’ll leave that to the audience to—
Craig: Oh, no, you can tease it. Tell everyone now. Give a little taste.
Bill: I can’t. It is about an Apex platform. The reason for it is that many of the advisors that are on this don’t have the technology resources like some of these bigger fintech firms but still want to take advantage of supporting smaller clients, lower NIGO rates, bulk transfers and need a platform to be able to do so from Apex. Historically, I’ve heard over and over again: “Hey, we love all that Apex is doing. What’s the platform? Give me a demo of the platform.” I think, Craig, you and I talked about this years ago: We spent the last two years leaning in on that and representing and manifesting our APIs into a platform that advisors can use.
Craig: I can’t wait to hear all the details at T3. Everyone, I’ll be at T3. I’ll be speaking there again this year. It’s January 22nd to 25th in Las Vegas at the Cosmopolitan Resort and Casino. You can just Google T3 conferences if you want to find out more. That’s a free ad for Joel Bruckenstein and T3. We love T3, and Apex will be at T3, it’ll be a booth there. You can find out more information by Apex.
Craig: We’re out of time, man. Where can people find more information about Apex online?
Craig: Bill, it’s always a pleasure to have you on! Thanks, man.
Bill: Great to see you, pal!