In this episode, we chat with David Lessing, the Chief Revenue Officer of Addepar, which is the leading enterprise software company for wealth management professionals.

Nearly $2 trillion in assets are currently managed on Addepar with $10 billion of assets added to the platform each week.

David shares with us his background and career experience as well as his insights into Addepar’s solutions and future expansion plans.

I am your host RJ Lumba, Managing Partner of GrowthCap.  We hope you enjoy the show.

(Hear the full conversation with David on iTunes or Listen Notes.)

David, thanks so much for taking the time to chat with us today, for quite some time now Addepar has been seen as a leader in the wealth management software market, perhaps to start off, if you could just share with us a little bit about yourself, as well as Addepar?

Sure, I’ll start with Addepar and then we can talk about myself a bit.  Addepar is a wealth management platform and we specialize in data aggregation, analytics performance reporting for a range of portfolios.  But we work our way all the way up to the most complex portfolios for family offices and ultra high net worth clients.  So, in short, Addepar enables family offices and financial advisors to better answers to the questions that the family or client asks, understand their investments, whoever those investments are, make better decisions as a result of that better understanding and have more transparent clear responses on a question that so many of us ask, which is, “How am I doing?  What should I do differently?”  Addepar was founded about 10 years ago in the wake of the global financial crisis, to solve for a pretty fundamental problem, which there wasn’t an effective way to view in one place all of your assets across multiple asset classes, multiple custodians like Fidelity, Schwab and others, multiple currencies.  And to then have a sufficient depth of data to run effective analysis, and then finally, enough flexibility to report on that information in a way that made sense.

So ultimately, Addepar is about increasing transparency of one’s investments and the improved decision making that comes from that transparency, and I’ll talk more about us as a company, but that’s the basic mission.  And it’s a mission that, for me, I was happy to sign up for, so I’m Chief Revenue Officer of Addepar, which means I have responsibility for helping grow the place, with specific responsibility for the sales team that serves our potential clients, the account management team that serves our existing clients, and also our partnerships team that manages our alliances that we have with other wealth management technology providers that are complementary to Addepar.  I’ve spent most of my career in the wealth management industry.  I served as Chief Operating Officer for Morgan Stanley’s US Wealth Management Group.  I was Head of Merrill Lynch’s Global Private Client Direct Division.  I left Morgan Stanley six years ago and I’ve served as CEO or board member, or member of the management team at several early to late stage wealth management and fintech firms, until I decided to sign on full time at Addepar in 2018.  That’s a little bit about Addepar, a little bit about me.

Fantastic.  And the company has scaled tremendously since inception; it looks like you’re nearing the two trillion dollar mark.  The financial advisor universe is a vast one, can you give us a sense for how you were able to scale that quickly to date and how much further you expect to go in the near term?

Even at two trillion dollars we see a very large market ahead of us.  The story is we were founded in 2009, this vision I described of making investments simpler and more transparent has been pretty consistent throughout the last 10 years.  So as we’ve approached two trillion in assets, we’ve got now over 400 clients, the clients consist of family offices, RAs and also larger banks and brokerages.  So we’re now serving thousands of advisors and millions of daily transactions.  In terms of evolution, family offices were, for us, the most natural place to start, because that’s where the most complexity is found.  We’ve always taken the philosophy as a company of solving for the toughest challenges first, and that was family offices to us.  After we built a platform that worked for family offices, over the years we’ve evolved it, so we cover now clients of all types, including, we released a version of Addepar called AddeparGo, that’s tailored for advisors that serve a range of clients from affluent all the way up to ultra high net worth.  So that’s enabled us to serve advisors at the full spectrum of wealth management firms.

The family office space is always one of our core markets, and we retain a pretty significant lead, in our view, over other offerings for family offices.  We’re careful not to discuss our client names but we have included a few success stories on our website with family office clients like Freemont Group, Gleneagles Group.  We have RAs as clients and then larger brokerage firms like Morgan Stanley, Jefferies, AllianceBernstein.  So we’ve had, as you pointed out, some pretty fast growth, we’ve been able to scale the company to accommodate that.  We’ve now built, we think, an infrastructure that allows us to cover the next phase of growth, which for us will be initiatives like Marketplace, which I’m happy to talk about in more detail, as well as international expansion over the next couple of years.

The Alternatives Marketplace is an area that family offices spend a lot of time in, and it’s a fascinating area, because it’s continually evolving, and it covers different sub segments.  So we’d love to head in that direction and talk a bit more about the different marketplaces that you’ve affiliated with and are offering on the platform.

We as I said, started off in family offices and interestingly enough, family offices are where you have this concentrated issue of having multi asset classes in your holdings, multi custodians, multi currencies, all the challenges that I mentioned that we had to solve in building our platform.  And specifically the challenge around alternative investments was pretty significant in that space.  So overall, almost two trillion of assets, about 30-40% of those assets are alternatives.  And that is the asset class where it’s the most difficult to get transparency and it’s often difficult to actually transact.  So as a result of demand from our clients, the hundreds of family offices and RAs that are currently clients, we launched this Marketplace over the couple of weeks.  So, Marketplace allows clients to view and evaluate investment opportunities and digitally initiate transactions in financial products through trusted partners that we vetted and we have available through our site, through our affiliate service securities.

So in our view, this is the first time that advisors can both see and act in one place.  Marketplace includes multiple alternative products, there are a number of alternative platforms out there today, but they all focus on a singular private asset class, like funds or private companies.  Addepar and Marketplace spans a range of asset of asset classes, so over time we see Addepar acting as an integrated platform, that ties together many of our clients’ workflows, asset allocation, security selection, proposal generation, portfolio construction and, of course, the seamless reporting that we’ve built the business on.  It is a natural evolution for us, but it’s also a pretty significant point in Addepar’s trajectory.  We are effectively moving from having a clear financial picture, you know, in the rearview mirror to helping our clients clear their dashboard through their windshield so they can see ahead and select and execute on investment opportunities they see going forward.

There’s been a lot of players in this Alternatives Marketplace, you mention how they’ve focused on one particular asset class.  A couple of them have been around like iCapital Network, who, I think, initially really tried to enable family offices to access private equity funds directly.  But they have somewhat morphed through the years, and I think they recently merged.  What are your thoughts around the private equity asset class and how Addepar’s playing into it?

Without commenting on any specific players in the space, I’ll say this, the key differentiator for us is being able to allow our clients to both understand how they’re doing across various asset classes, see their concentration in particular asset classes, see their history, see the risk they’re taking.  And then make adjustments to their portfolio in the same spot, as part of their workflow.  So it’s a natural place for clients to do those transactions, and that’s why they’ve asked us to build out these capabilities.  So, absolutely, there are some strong players in the market right now.  And as I said, they do tend to focus on one asset class, but it was a natural move for us.  And obviously our partners who have created these product offerings, agree to have those available through what is effectively a curated mall, where we’ve allowed some pretty high end effective stores to set up shop in a place that makes sense for our clients to transact.  So the same sort of thing has happened in other industries, but we see Addepar really at the center of improving access and improving access in a place that matters to our clients to alternative investments like private equity.

And do you compete with other platforms such as Aladdin?

We see Aladdin as mostly a complementary offering to Addepar, and in fact, in several of our clients we sit side-by-side.  Aladdin tends to focus more on risk analysis, Addepar, as I said, focuses on aggregation, analytics and reporting.  And in particular, the aggregation piece is an important differentiator between us and lots of other solutions on the marketplace that focuses in a little different areas.  So in the market now there are two ways of doing aggregation, one is through screen scraping technology.  Most of the firms that are in this space use that and it’s got some issues with respect to accuracy and getting a level of data, the depth of data that is necessary to run sophisticated analytics and reporting on.  And then that is differentiated from what Addepar does, Addepar has built over the last 10 years, 250 customized proprietary data feeds into custodians of assets in the US and around the world.  And what those proprietary data feeds allow us to do is get the data at a level of depth and security into our platform, such that you can run the analytics needed to provide financial advice on a sophisticated set of holdings, as well as the flexibility to create reporting on it.  That’s a pretty key differentiator for Addepar versus some of the other technologies you hear about, whether they compete with us or not.

And switching gears a little bit, how has the pandemic impacted your business?

It’s a good question and one that’s top of mind for lots of folks today, you know, setting aside the obvious impact on society and the lives lost.  You know, I’ll talk a little bit about impact on Addepar as a business, but more importantly, impact on our clients and prospect.  As a business, look, we were purpose built for moments like this, moments of volatility.  We were founded in the wake of a global financial crisis, the last one.  And so for us as a technology company, we’re fortunate to already be used to working remotely.  It’s been a pretty relatively smooth transition, just the main difference is seeing people’s backgrounds in their bedroom and their basements and having their kids run by.  So we haven’t focused much on Addepar.  We have focused on the impact on our clients and prospects, which has had a range of impacts.  With respect to our clients, usage of our software is at an all time high, so clients appreciate the transparency we give them.  We are a cloud based platform, so easy to use remote, and we’ve seen, as I said, a pretty significant impact in clients using us and comments like, you know, “Addepar has been our Zoom during this crazy time.”  And I guess any time you’re compared to Zoom right now in terms of usage, that’s a good thing.  So we’ve helped out our clients in that way.

With respect to prospects, this is an interesting area, so it’s a question for us of being able to navigate what is a gap between prospects realizing that they need new technology, because they’re not operating as efficiently as they were when they were in the office.  But also being nervous, understandably nervous about spending money when they can’t predict what the impact on their finances, their holdings or their revenues in the case of a registered investment advisor, so they need us the most, yet they’re most nervous about making a technology change.  We’ve done a couple of things to try to bridge that gap.  One of the things we’ve done is introduce what we called Addepar Assurance, which offers a pricing credit to new RIA clients where we say, “We are willing to provide you a pricing credit for now because we understand the stresses on your business as a result of the Covid crisis.”

But as good partners, while we’re extending that credit now, the credit will go away when the pressure on your business eases, as measured by the selection of a metric like the S&P or the VIX Volatility Index, or that their assets have returned to a level that they had in 2019.  So it’s been an interesting way of bridging that gap, and helping new clients get comfortable with making an important decision for their business that will help them, we think, both in the short and long term, while navigating this short term impact on their revenues.  The other thing we did was we launched Office Hours, so we just realized that a lot of people, they were using the platform more.  They needed more help, so we put out a number of webinars, a number of live office hours where people can call in and get answers and also watch our experts talk about best practices and communicating with your clients during this time.

And is there a particular way you approach the family office universe?  It sounds like initially you probably segmented and targeted based on AUM, do you do screens according to geography as well as certain client needs?

The family office space is an interesting space because of the need for confidentiality, and because of the well known tendency that family offices appropriately don’t want to be marketed to.  So we try really hard to not market to them.  We’ve had the fortune of signing up as clients, some of the largest family offices in the country early on, almost 10 years ago.  And through word of mouth and through our presence at, you know, various networks that family offices rely on, we tend to get referrals into new family offices.  We certainly fit best with family offices that are larger and have a more complicated set of investment holdings, and also have some individuals around to support and get great value out of the flexibility of reporting we provide.  But we are present and we’ve found, good clients across a wide range of the family office space, geographically and in terms of asset size.

As Chief Revenue Officer, what are the leading indicators that you pay most attention to?

It’s a good question and I’ve seen this question asked of other people, CEOs to CROs and they usually have some interesting metric they focus on that is counterintuitive.  I’m going to give you the usual metric but also tell you something that I value to a greater extent than most other metrics.  So, specifically we’re a private company so we don’t disclose actual numbers.  But I monitor the things you’d suspect, so annual recurring revenue, customer renewal rate, customer retention rate, return rate, all of those.  I also focus on just making sure that our clients are happy, and we measure that through a range of statistics.  The metric though, that I prioritize above all others is something that isn’t publicly reported, or publicly measured, which is when advisors leave large firms and they set up independent firms, it’s often the first time in their career where they have full freedom of choice.  So if you’re an advisor at a firm right now, you’d take what they have in terms of performance reporting.  When you leave you have the freedom to select from hundreds of technology providers and assembling a platform, but you can go back to your client and say, “The reason I left my prior firm, it is partially because I can now offer you a range of exceptional capabilities that I wasn’t able to offer you before.”

So when you look at over the last two years, the top 20 largest firms to get set up on an independent basis, based on our measures, 50% of them chose Addepar, so 50% of the advisors said, “I now have freedom of choice, I’m going to choose Addepar.”  That is the metric in our view that’s the best real time gauge of perceptions in the marketplace.  In our other spaces like family offices we really wouldn’t disclose and there aren’t published reports on market share between Addepar and our competitors.  But in that one space, which, in my view is the biggest and best measure of how we’re doing and what our appeal is to advisors and clients, we’re doing really well.

Are there one or two key factors you can attribute to your success in helping grow companies and helping grow Addepar?

I’d say two things, one is R&D, the other is partnerships and integrations.  I’ll dig in on both.  On research and development we have spent the last 10 years, and we’ve been pretty focused on wealth management as our space where we’re developing.  That in our view is the most under-resourced from a technology standpoint, and it’s a huge complex chunk of the American economy.  So we’ve had success in merging a Silicon Valley in a Wall Street culture.  And our team is in a position to bring unique value to investors, and our investments in R&D, our symbol of that.

Another factor I’d say is our focus on partnerships and integrations.  We are, in our view, exceptionally good at the factors I mentioned at the beginning of our conversation, aggregation, analytics reporting.  We recognize there are other pieces of an advisor’s practice and a family office’s infrastructure that need to be integrated with Addepar.  And so we’ve invested time into building a pretty vast partner network, the partner driven approach has helped us think big and grow over the years.  And we envision Addepar as acting as an integrated platform that ties together our clients’ workflows.  And we’ll be announcing more on that in the coming months as well.

And lastly, as you think forward to future growth, does Addepar intend to continue growing organically or combine with pursuing acquisitions?

We have over our 10 year history been pretty sparing in terms of acquisitions and in organic growth, we did one small transaction.  I would say going forward we are doubling down on our organic growth.  We have a strong culture; we continue to hire engineers that will be helping us maintain the pace of innovation.  And while we look at potential acquisitions over time, I think we’re unlikely to do anything that is significant.  Our focus areas are, as I described a bit earlier, you know, we look forward to continuing to improve our offering for family offices.  We think we’ve got a pretty significant gap on the innovation in that space, but we want to maintain that.  For registered investment advisors, which was our second market that we entered six/seven years ago, we continue to innovate there and we have a lot of continuing work to make sure our platform works effectively with the rest of the technology stack for our clients.  And then on the larger enterprise side, we’ve had good penetration in two firms, like Morgan Stanley and AllianceBernstein over the last several years and we see a range of opportunities out there.  So couple that work with international, with expansion in the marketplace that we talked about a bit earlier, and we see a pretty good road ahead of us as far as growth.

David, thank you so much for taking the time.  I think a lot of the insights you provided here on Addepar as well as on the broader family office and wealth management space will be very interesting to our audience.

Thank you, I enjoyed the conversation.