A higher bidder ripped WealthTouch from Craig Pearson's grasp but his startup could rip the clients, free of charge, right back -- and leave Addepar gasping

 

In 2013, Craig Pearson saw an opening to own that which had never existed -- the software market of managers of ultrahigh-net-worth assets.  

 

But by the end of that November, circumstances ripped that opportunity from his grasp when SEI Archway outbid him for WealthTouch, the Denver-based firm where he reigned as CEO. In a cruel twist, Pearson even had to recommend to his board that they reject his bid for Archway.

 

WealthTouch oversaw about $200 billion in assets for about 300 wealthy families, many of whom used the services of the toniest Wall Street brands like J.P. Morgan, Credit Suisse and Goldman Sachs. See: How an under-the-radar UHNW performance reporting firm is taking on Addepar and Advent in a bid for RIA bucks.

 

But after serving as CEO of WealthTouch for 45 days under Archway, Pearson departed to found Private Wealth Systems to compete -- albeit weighted down by a non-compete obligation that expired last year.

 

“We came to market last year, so to grow from zero to 73 [clients] is a great year. We have signed four new clients in the past five weeks and seven in 2018, with another contract coming in soon,” he says.

 

Current PWS clients include the Bryn Mawr, Pa.-based Cornerstone Family Office and Shade Tree Advisors LLC in Saratoga Springs, N.Y. an Ayco (owned by Goldman Sachs) breakaway with $67 million of AUM.  See: Why a $2 billion advisor bolted Goldman Sachs' $26 billion, Albany,-based RIA and subtracted 12,000 commuting miles.

 

The average AUM of a PWS client is $217 million, and 80% of the assets are based in the United States. Private Wealth Systems has one private banking client and is under formal review by six more, according to Pearson. PWS has $20 billion of assets under administration.

Just as satisfying as winning advisors are the firms that are losing to PWS in head-to-head bids -- or by default -- to his Charlotte, N.C.-based firm.

Pearson says he sees little of WealthTouch, which was subsequently sold to Oaks, Pa.-based SEI Advisor Network, but that he certainly sees Addepar Inc. (He also sees a post-WealthTouch Archway, which is competitive, he allows). RIABiz reached out to both Dynamo and PCR for comment on this topic but received no response.

 

But Mountain View, Calif.-based Addepar, he adds, is looking vulnerable. 

 

“We've beaten Addepar six out of the last seven times [when competing for clients]," Pearson says. In most cases, Private Wealth Systems is not the cheapest, he says. See: With Addepar muscling in, original UHNW software force PCR hires new CEO, triples engineering staff, kills off asset-based pricing and seeks more RIAs,

Addepar CEO Eric Poirier declined to respond to an email seeking comment but the firm has reported wild growth from -- $300 billion to $1 trillion administered in the past few years.

 

The $20 billion of assets under administration at PWS represents just 2% of what Addepar claims to administer. See: Power Player: Addepar's Eric Poirier drags RIAs to seek alpha in a beta world even as the advisors demand -- and get -- eMoney and FolioDynamix connections.

Pearson says it's all in the way you look at it.

“[Addepar's] assets under reporting [just under $1 trillion] is completely meaningless in this industry. It's a beautiful marketing term and its very impressive but what does it actually mean? What if you have a single holding from Facebook worth $50 billion? Is that impressive?” Mark Zuckerberg's family office, Iconiq, uses Addepar software. See: How the Facebook IPO is creating the mother of all RIAs, Iconiq, and what an in-your-face it is for Wall Street. 

Real McCoy

As improbable as a small startup beating a better-funded Silicon Valley software maker may sounds, it jibes what users are telling Peter Giza, technology consultant with Spitbrook Associates. Giza formerly worked for another ultrahigh-net-worth software company, WealthSite. See: How two ex-myCFO guys (as WealthSite) are winning big RIA clients by using a pilot fish strategy to win Advent clients without harming the host.

 

"[Addepar] doesn't really know what problems need to be solved," he says. "They're almost like a high-power, one-size-fits-all firm. [Pearson] knows how to sell and he's got a product that will hold up to scrutiny. It's real."

 

Giza explains: "If you don't have  CFA on staff who knows what quality looks like you're at a huge disadvantage. He's a CFA. He gets it. Private Wealth Systems can't do 100,000 reports over the weekend [like an Addepar] but it doesn't have to."

 

Yet getting to this point with Private Wealth Systems has been hell, says Pearson, 48, who has three children and has experienced the strain that comes with building up a staff of 14 and a software firm from scratch. See: As Aaron Schumm's 401(k) startup gets $8 million the FolioDynamix founder loves Vestwell's odd juxtaposition to Fidelity.

For Pearson, there's a personal motivation behind his UHNW business: As a teenager he got fiirsthand knowledge of falling from the grace of super-affluence.

“I was working two jobs and I needed to give my father all the money I saved so he could pay rent,” says Pearson, recalling the painful period in his life after his father lost the family fortune.

“He grew up in Greenwich, Connecticut in a very nice house, went to the right schools, and now he lives in a one-room trailer in Lincoln, Fla.” See: Why the 56-year-old scion of Wall Street barons is 'broke' but unforgiving toward the financial advisors who might have kept him rich.

Pearson continues: “What happens in your teenage years scars you, so for me, PWS is my own personal therapy and my own cure. I've seen what happens when you don't have this [oversight] system ... Wealth is fragile.” See: Why love has everything to do with the next frontier in financial planning and our relationship to money.

Willing to wait

With 20/20 hindsight, Pearson says the lost bid to buy WealthTouch and the two-year noncompete period were a blessing in disguise.

 

"I had a quiet period, which is perfect when you're building a platform from scratch."

 

Had Pearson succeeded in his WealthTouch bid, he had two other firms in the wings but the legacy software code would have made major overhauls necessary.

 

The best asset to survive his bid attempt, he says, was his lead investor, a principal with the fintech private equity firm that backed his bid. That individual had done three months of heavy due diligence on the UHNW software business and was sold on the opportunity and Pearson's ability to grab it. See: Why a disconnect between reporting software and advisors to UHNW assets persists -- and what makes the problem so thorny.

 

Now Pearson is able to simply sign on customers that he was formerly prepared to pay a premium for. "Why pay for a clients base that you can win?" he asks rhetorically. "[Clients] said: If you come back, we're here. That's an enormous opportunity. We had a number of them tracking us."

 

The willingness of these clients to wait for Pearson does not surprise Giza.

 

"They were probably more than willing to wait."