Jack Sharry: Hello everyone and welcome. Thank you for joining us for this week’s edition of WealthTech on Deck. Our industry feels like it’s in a persistent state of fast forward. Everywhere I turn, I see lots of new ideas, technologies, investment products and solutions. Seems like a lot is happening all at once and all the time. Today we’re gonna speak with someone who has been a leader in the FinTech space for a long time. Our guest today is Pete Hess. Pete has been around the FinTech world from what feels like its founding more than 30 years ago. Pete got his start at Advent in 1994 and rose to become CEO there. Not too long afterward, SS&C Technologies purchased Advent and Pete went on to lead the Advent business unit there through 2016. After stints at fintechs, including InvestCloud, Pete is now the president of PureFacts. We will learn what PureFacts does from Pete in a moment, but suffice it to say, what they do gets to the heart of the matter, revenue generation, and the insights that can be gleaned from that data. PureFacts is a revenue management solution that helps wealth management, asset management and asset servicing firms grow and learn from the data and learn from what they can glean from the revenue information. We’re going to hear from Pete around how they work with investment firms to calculate and collect fees, optimize compensation, and derive insights from their data. Pete, welcome to WealthTech on Deck.
Pete Hess: Jack, thank you for having me. Appreciate the opportunity.
Jack Sharry: Yeah, looking forward to the conversation. So Pete, let’s start with you taking us through your career journey over the past few decades. You’ve been… seen at all as a leader at fintech firms. Tell us about your journey and what led you to join PureFacts.
Pete Hess: Yeah, so I guess I, in some ways, I joined Pure Facts because I missed what I did for the first 20 plus years of my career, which is working with the good people of the back office in wealth and asset management firms. At Advent Software, where I started right out of college, we were providing back office and middle office tools for asset managers and wealth managers, portfolio accounting, performance measurement, trading and order management, compliance, all of those types of technologies, which were mission critical for firms to run the wealth or asset management business. And Stephanie DiMarco was the founder of that company. And she’s really been my kind of life mentor, certainly professional life mentor. It was a, it was kind of a magical place to stumble across right out of the gate, out of college. And I really never left until we sold the business, as you said, in 2015 and I stayed until 2016. But, it was a great experience for me, just being young and learning the business. The ethics and sort of the principles with which Stephanie ran that business really stayed with me. And it’s largely being client centric and also being employee-centric so that you can make sure that you’ve got consistency in the people who are working with your clients. The domain in this vertical of fintech and especially wealth and asset management, it’s not easy to master. And so having your employees stay with you for a long time is really helpful. And I was an example of many at Advent who stayed for so many years, 20 years, there were a lot of people like that at Advent and still there are. The team that are running Advent right now under SS&C are still my colleagues from when I worked there. It’s been nine years since I left. So yeah, there’s just something about it. I don’t know what it is, it’s addictive, but one of the nice things though that I learned there is the complexity of the space. And what we sold at Advent, same thing we do at PureFacts, is mission critical software. So it has to be on, it has to be right, and it has to be ready for firms to do business. And that was something that I didn’t know the difference because it’s the only software company that I’d ever worked at. But after Advent, I went to work at Vista Equity Partners and I was the CEO of a company called Khoros, which was a different industry. It was social media management software. And it was a toolkit that enabled largely B2C brands to engage with their clients through social media and, totally different space. And I went there because while I’d been at Advent, I had been promoted up and I was the CEO when we sold the business, I kind of didn’t know what I knew because I’d only seen it through one lens. And when I went to Vista, they were, they’ve done 300 plus at the time, software companies, and they had a very prescriptive playbook, operational playbook about how to improve the client experience and the financial results in software companies. And so I got to go get a crash course really, and it validated a lot of what I’d learned at Advent, but didn’t know that I knew in terms of operational processes and things. But everything was done in perhaps a more regimented and accelerated rate as most private equity companies do. But I learned a lot at Vista. After that, I was an operating partner at Welsh, Carson, Anderson, & Stowe, which is a private equity firm as well that split their focus between tech and healthcare. And so I was working for them during the first year of COVID and stumbled across InvestCloud, not really stumbled across because John Wise, who was the founder of InvestCloud, was a longtime friend of mine. And so I decided to join InvestCloud, which was going through an exciting stage of being merged with Tegra 118, which was another company that Motive Partners, the company that recapitalized InvestCloud, had already owned. And so they merged those two businesses together and that was a different part of fintech and wealth. It was really wealth focused, but it was about digital client and advisor experience. So it was much flashier than what I was used to at Advent, which was the back office accounting. Really interesting, great technology. And anytime I can go and work in a new environment, work for a new really talented leader like John Wise. It’s just a great learning opportunity. And I think that’s been important to me is always feeling like I don’t have it figured out. And every time there’s a technology paradigm shift, you have to sort of unlearn what you’ve learned because you can do things in such more responsive and quicker ways, more effective ways with new technology than you could back in the days when I started at Advent when it was on prem flat file databases, that’s how old I am. So anyway, you know, it’s been a great. I mean, some of them have gone better than others and some of them I’ve lasted longer than others, but I’ve got no regrets on any of the decisions I made because I’ve always enjoyed, I’ve always enjoyed the challenge and the learning that I’ve been able to do. I ended up at PureFacts somewhat accidentally. GrowthCurve Capital, who just invested in PureFacts, they’re now two thirds majority owner of PureFacts, reached out to me to help them do some due diligence and then do some consulting after they acquired the company. And I live in San Francisco and this job’s really in Toronto. And so they asked me, do you want to come and run it? And I said, no, I didn’t think my wife would go for that. But then I really kind of really learned more both about the people, who are amazing. I love the people here at PureFacts and at GrowthCurve. The opportunity is really interesting because when you see, if you know, as I do, the wealth and asset management space and you look at the systems that they use and the operations it takes to run those businesses, anytime you find spreadsheets, you’ve got an opportunity to sell software and largely fees and billing and advisor compensation, which is sort of the core of what we do at PureFacts, is largely still done on spreadsheets. There are systems out there, and we have some very strong competitors, but lots of the firms that are out there are using the capabilities that are delivered to them by their portfolio management providers that aren’t as robust as the business has become. And so they end up doing and supplementing a lot on spreadsheets and a lot of homegrown system that are antiquated. And so there’s a Canadian company that we’re in conversations with right now that just explained to us that they had something like 50,000 hours a year that they spend in spreadsheets outside of the purpose-built fees and billing system that they have because of the limitations of that system vis-a-vis some of the changes that have taken place in the market around UMA and some of these other innovations that have taken place in terms of the productization of investments. And so it’s a complicated space, but it’s not bespoke. It’s not custom. I mean, everybody does it a little differently, but it can be productized and it shouldn’t be in spreadsheets. And I recognize that. And PureFacts is focused entirely on this, this revenue management, which is fees and billing and advisor compensation and the insights that you can get out of that operational data to make better decisions about how you commercialize your offerings.
Jack Sharry: So tell us a little bit about what that looks like. You don’t have to name names, of course, but what types of firms, what are some of the specific ways that you help them? I understand the going from spreadsheet to a more modern day version. I’m also curious about how you harvest the data or use the data to inform the business, the business strategy, I’m assuming. So fill us in on that.
Pete Hess: Yeah. So we have about 130 clients globally. And PureFacts was born in Toronto, but we acquired a business that’s in the US called Xtiva, no longer called Xtiva, now we call it PureFacts Rewards. And that’s the advisor compensation capability that we have. And then in Europe, we acquired another fees and billing application that was used to be called Quartal. Now it’s called our fee manager product that focuses on the asset management market. And then the Toronto based business that is known as PureFacts, the legacy PureFacts was fees and billing, and that was focused on the wealth management business. And so when we engage with our clients, what we will find inevitably is that there are two core parts to the value proposition. One is that you want to make sure you’re getting paid what you’re contractually entitled to get paid. And most of our clients and most of the firms that are out there in the industry are not doing that. They have what we call revenue leakage. And that’s a function of errors that are made, time it takes to do the math and get the bills out and get collected. There are lots of complex schedules that go into how different clients are charged. And if the system isn’t built to support it, they actually lose track of it. And so as a consequence, you end up leaving money on the table. That’s the number one thing that we do. And we go in and talk with our prospective clients and our clients, it can be up to five basis points of revenue that’s just dripping through the drain.
Jack Sharry: And is that, when you talk about leakage, is that essentially human error?
Pete Hess: Well, I would characterize it… It is human error in the context that the technology and the operations are intended to support the business terms that the advisors are striking with their clients or the asset management firms are striking with their clients. And the technology, if the technology were better in many of these firms, they wouldn’t miss it. They would never make mistakes because the system would be able to accommodate the variability of those contracts that they strike. So it ends up being human error only in that the system doesn’t support it, so you’re on spreadsheets and once you get on spreadsheets, things get missed. Part of it is that. The other part of it is how much time it takes. So it is costing firms money when it takes them months to collect payment from clients instead of two weeks. And that’s another thing that we help our clients with. So it can add up. We tend to service larger firms, so captive advisory firms, global asset managers. So these firms have scale. And when you have vulnerabilities in your technology and your operations, that can add up into real dollars pretty quickly. And that’s where we seem to resonate the best. So that’s the first part is just making sure you’re plugging the revenue leakage and getting paid what you’re supposed to be getting paid.
Jack Sharry: I’m curious about how you harvest the data or the insights from the data. Tell me a little bit about that.
Pete Hess: So, when we look at the data, for example, when you go through your operational process at the end of the month or the end of the quarter and you’re calculating all of your fees, there are insights that you can pull out of that to determine what kind of discounting is taking place vis-a-vis the pricing policies of the firm, which advisors are doing those discounts. And there is an element of practice management that’s incorporated when we can show our clients that you have certain outliers and you have certain advisors or certain branches where they tend to be discounting more heavily than they should be, right. And those are some insights. That’s an example. Another would be just operationally, just making sure that you got the numbers right for the clients. We do anomaly reports that pinpoint for the management team and the operational compliance team where there may be errors. Now, we point them where to look, and eventually we want to actually do better than that with using artificial intelligence and some of the work we’re doing in the platform right now. But what we can do for them today is we can actually make sure they know where to go looking because something doesn’t look quite right. And so that’s another example of that. The second biggest value prop that we have is that we help, and this is what we’re arguably aspiring to do with our Insights product that we’re building out right now, but it is to help wealth management and asset management firms make better commercialization decisions in the first place. So part of it is making sure you get paid to what you’ve already contracted. And then part of it is making sure that you’re actually contracting the terms that are beneficial for your firm. You have to think about things like what’s the profitability of a client relationship? You have to think about how am I pricing my services relative to my peers in the market? Or how is one advisor pricing his services or her services relative to the other advisors within his or her own firm? So there’s an aspect of operational rigor in getting paid and stopping that revenue leakage. That’s number one. And then number two is making better decisions about how to price your services in the first place. And so that’s really the value proposition that we’re delivering at PureFacts. And it resonates really well, I will say, especially in down markets. I mean, it’s rare that I call someone who I’ve met in the industry over the years and say, hey, do you guys think about this? Is this on your radar? That you might actually have some quick low-hanging fruit revenue to collect if you just fix your technology and your operations around fees and billing and advisor compensation. And oftentimes they will say, no, I didn’t realize we had any problems. And I’ll suggest, why don’t we come in and do an audit of your practices, which we can do in a few days. And then we’ll come back and tell you if there’s a there there. If we identify things that probably could be improved and we can quantify the potential value. And so when they go through that exercise, typically they’ll be intrigued because there will be something there. And they’ll ask us to come in and do a deeper dive. And we do. And then it gets very specific about what we can do to support a better outcome for them. And that’s how we sell. That’s how we convince clients to do it. Once they go forward with us and we implement them, then we do post-mortem checks to see how those same metrics look in the new environment. And that’s how we know that we’ve been able to save some of our larger clients, enterprise wealth management firms, just in the fees and billing area, we’ve been able to save them anywhere from $12 to 15 million in revenue. So it’s real money and it’s money you’re entitled to and it’s sitting right there. It’s just, oftentimes it’s not really known. And I guess maybe that’s a good way to characterize the whole space of revenue management. It kind of gets taken for granted. And you know that’s true because people are using spreadsheets and fingers to do it when that’s kind of not what you should be doing in a space that actually can be programmatically automated.
Jack Sharry: Now, because you can quantify everything you’re talking about going in, you’re making some assumptions, I’m sure. And on the other side, you can track that. It seems like kind of a no-brainer. Why wouldn’t you do it?
Pete Hess: Honestly, they wouldn’t do it because they may not know that the opportunity for improvement exists or the need for improvement exists. That’s number one. When we engage with them and there is legitimate improvement that can be made, we generally do end up contracting with that client.
Jack Sharry: I would think.
Pete Hess: But the timing may not be right because they have a queue of other priorities and budget commitments and technology commitments. And so it’s not so much that the idea isn’t a good one. It just may not be the right time based on other priorities that they have.
Jack Sharry: Gotcha. As I’ve said many times on our podcast, no podcast is complete without asking about AI. You mentioned that earlier. How are you applying that or how are you looking to include that as part of your value prop?
Pete Hess: Yep. So GrowthCurve Capital, who are the new owners of PureFacts, their whole thesis is leveraging AI to differentiate the products that their portfolio companies offer to the market. And when you think about what AI can do, there are lot of different ways that it manifests. Part of it is leveraging AI tools to build the software so that you can do things more quickly and be more responsive to your clients. And there are a lot of new tools to help people be more productive in R&D, et cetera. So that’s an internal use case of AI. With the product itself, the data set that we have, when you actually map out all the systems that a wealth manager or an asset manager uses, all those systems have a database and they have some form of data that is of value. Within our database, it is one of the most interesting sets of data that’s inside the entire enterprise because it includes the investment data, it includes the client data, and it includes all the terms and conditions and the fees and billing information. And so people always come to us and say, can I just get your data? We use the data to calculate fees and billing and advisor compensation and invoices and all those things. But what they also want is just access to the data so that they can do their own analytics on it, leveraging their own tools. And so what we’re doing now is we are enhancing our data access, building out a data platform that incorporates the data from all of our different products, and then delivering it via API and other methods so that our clients can get at the data because it’s the only place where all that data is in the same place. And so they’re very interested in that. We’re also building, using AI, applications, when I mentioned the anomalies that we can identify today, that’s a business logic program that we’ve built in there. But if we can leverage AI to have the system and train the system to identify trends in the data, and we have a list of about 30 different questions that our clients, we’ve gone out and done validation with them and 30 different questions that they’ve always sort of said, hey, that would be really interesting to have an answer to and not have to ask the system, but have the system just tell us that those things are happening when they’re happening, then all of a sudden they can get out ahead of the problems and/or the opportunities to improve the business rather than having to wait and/or never get there because the data was never available and there was no artificial or machine learning on top of it to find those anomalies and/or exceptions and/or opportunities that would have otherwise gone unnoticed. That’s generally speaking what we’re doing. We’re relatively new in the application of the AI. It’s going on the data platform that we’re developing right now. So that punchline and power that we’re going to be delivering is more likely to come towards the beginning of calendar 26. But it’s a very exciting differentiator for us and not something that people are going to be able to get probably anywhere else, or at least not for a while, just given the focus that we have on leveraging AI and growth curves, expertise and on staff expertise that are data architects and data engineers. So it’s exciting. It’s definitely exciting. It was definitely one of the big reasons why I wanted to come because it’s the next frontier. Talk about paradigm shifts. It’s changing the way that systems are developed for sure, but it also then changes the way businesses are run because you just have much more valuable information on a much more frequent basis.
Jack Sharry: That’s great. Well, this has been very interesting. A whole area that I give a lot of thought to, and I imagine there’s a lot of others as indicated in our conversation that haven’t thought much about it. But then when they realize there’s this leakage that, and there are ways to, I don’t want to call it free money, but money that is due them, that they’re able to tap into, that’s terrific.
Pete Hess: There’s actually one other side to that too, just as bad as, or as damaging as not getting paid what you’re due is overcharging a client. And so we also solve that problem and that’s a regulatory issue. And we also obviously generate a lot of regulatory reports to provide transparency around fees. But there’ve been some high profile, especially in the UK, there’ve been some high profile fines that have been served to wealth management firms that got it wrong. And so that’s actually, talk about up at night issues for the CFO. I mean, those are the two big ones, right? I’m not collecting what I’m supposed to, and I’m also potentially overcharging my clients. That is a very important problem to solve. So, it’s one of the easiest places I’ve worked to get conversations going with people about what we do because it is immediate gratification.
Jack Sharry: Love it. Any final thoughts? Any key takeaways you want to share with our audience before we look to sign off?
Pete Hess: The one thing I would say, you know, if you’ve been listening to this is don’t take for granted that all of your back office proxy, where you see spreadsheets, there are probably errors being made and, and time to money is being delayed. So that would be one. That’s just kind of a high level thing that I always think about. The other thing is just, I’ve worked at different software companies and I was lucky enough to start at Advent where we really did what we said we were going to do. We were very disciplined. And every software company is always trying to invent and create new capabilities and they bring clients on to help them get there. One of the great things about PureFacts culturally and ethically for me is just the alignment that we’re just gonna do what we say we’re gonna do. We’re gonna be really transparent and thoughtful in how we engage our clients. And so it feels really good to work here. I, just through my private equity days and everything else, I’ve seen places where that wasn’t the way that it worked. And safety in numbers, I guess, is another way to say it. When, when you, when a firm’s got a great reputation, they’ve serviced a lot of clients with a product. That’s a great company to work with. When it’s more of a one-off custom engineering type exercise that can get sideways pretty fast in building things out. So I think everybody knows that now. And the clients we spoke to who, or we speak with or have converted systems for, oftentimes they were on more of a custom development type project that didn’t meet expectations or got outdated. The cost of maintenance got too high. And so that’s a big thing that we have going for us that I think is really important is that productized approach and that measure twice and then cut, instead of sell it and figure it out later.
Jack Sharry: Sure. So one last question. We always like to ask our guests before we sign off, what do you do outside of work for fun or you’re passionate about that people might find interesting or surprising?
Pete Hess: So I am pretty active. I ski. I race cars actually, which is a hobby that I’ve had for about 25 years. And I love to play golf. My wife and I love to travel. I would have answered this question differently maybe five years ago. My children were still in high school, but they’re now out of high school. But it used to be I spent a lot of time with my kids. That’s not true so much anymore. But that’s it, a lot of exercising and drinking lots of water and trying not to let the years bring me down.
Jack Sharry: I hear you brother. So Pete, thanks a lot. Really have enjoyed our conversation. Thanks for filling us in on PureFacts and your days going way back to Advent. Fun to hear about that. And so I want to thank you for the conversation. Also as I turn to our audience, thank you for tuning in. If you’ve enjoyed our podcast, please rate, review, subscribe and share what we’re doing here at WealthTech on Deck. We’re available wherever you get your podcasts. You should also check us out at our dedicated website, wealthtechondeck.com. All our episodes are there along with blogs and curated content from many folks around the industry. Once again, thanks a lot, Pete. Really appreciate it, it was a pleasure.
Pete Hess: Well, Jack, on behalf of Rob Madej, our founder of PureFacts and myself, thank you very much for bringing us on the show. So, thank you so much.
Jack Sharry: My pleasure, our pleasure. So, good to have you on. ‘Til we meet again. Thank you.
