Stephen C. Daffron, how Motive and BetaNXT are helping drive the industry transformation in Wealth and Asset Management

A discussion of BetaNXT's carve out between Stephen C. Daffron, our Chairman and Chief Executive Officer, and Motive Partners Raunak Sainani, Sam Tidswell-Norrish, and Alastair Barber.

Raunak Sainani

Hello, and welcome to Motive Insights, the Motive Partners podcast where we live and breathe the next generation of financial technology. Hi everyone, and welcome to the podcast. My name is Raunak Sainani, and I’m a Senior Associate on the Motive Investment Team.

I was very fortunate to be on the BetaNXT carve out, and I’m going to provide a brief walkthrough on the Motive investment thesis for the deal. Motive was a five-pronged investment thesis, which drove our pursuit and ultimate acquisition of BetaNXT.

First, we’ve acquired a scaled and stable core infrastructure platform with tremendous opportunity to enter high growth markets. BetaNXT currently provides mission critical self-clearing software to retail wealth operations at large financial institutions. To supplement this, we plan to pursue a total addressable market expansion strategy within retail wealth driven by accretive M&A and functionality expansion.

Second, the sticky customer base creates an opportunity for a typical Motive asset transformation strategy for the longer term. The asset has an average customer tenure for about 23 years and has inherently high switching costs. More importantly, customers are very excited to partner with motive given our tendency to accelerate technology investment as well as innovation and our experience in the space, which has culminated in our unique wealth ecosystem.

Third, the asset has a defensive revenue model with strong cashflow generation, which together unlocks the ability to pursue a multifaceted value creation strategy. A key part of this strategy is augmenting the technology platform, and importantly, Motive Create’s diligence found no technology constraints preventing the delivery of development initiatives. With this in hand, Motive plans to execute on clear, actionable enhancements to the R&D roadmap.

Fourth, the fragmented M&A landscape provides an attractive catalyst to reignite growth and accelerate the technology strategy. Our internal M&A plan has been mapped out in detail over several years and is validated by market work. The ample opportunities in the space are near term actionable and we have already begun discussions with various targets.

Lastly, a key part of our thesis was the formation of a two-way partnership with the London Stock Exchange Group to protect and grow revenues for both parties, including the broader Motive Wealth assets. As we did with Pfizer during the Integra carve out, Motive prefers to partner with the sell side for full alignment. We are partnered with the London Stock Exchange across data and content as well as commercial opportunities at both BetaNXT and in InvestCloud.

In conclusion, we have strong conviction in our investment thesis and the ability of the existing management team led by the experienced Steven Daffron to execute upon it.

Thank you. Passing on to Sam and Steve.

Sam Tidswell-Norrish

Thank you. You’ve heard it from Raunak – the thesis – but there’s a lot more to a thesis in doing a deal than just what the plan is. After all, men make plans and the gods just laugh.

Today we’re joined by Stephen Daffron. I’ve had the great pleasure of working with Steve since the inception of Motive and also recently on our largest legacy transformation in the motive portfolio to date where Steve was president of Dun & Bradstreet. At Dun & Bradstreet, Steve and the team delivered over $250 million in cost savings, whilst executing an end-to-end transformation of unique and unparalleled proportions.

Steve, it was quite a journey. Can you tell us a little bit about that journey and what similar transformation and growth strategies might be deployed at BetaNXT?

Stephen Daffron

Thank you, Sam. The transformation at Dun & Bradstreet was indeed a journey. It took a while. Transformations are different for every company. You know as I do that they’re a function of both where the business is at that point – the starting point, in terms of economics and technology and regulatory oversight – and the timing and endpoint of what we plan for the liquidity event. They’re all unique, but at the same time, there is a playbook, and it applies in general to all the transformations.

For example, at Dun & Bradstreet you’ll remember the first innings right after the close were all focused on the understanding and rationalizing of the cost basis, which is when we did most of the focus on cost savings. We aligned the technology and ops platform with the strategy we were going after and getting a lot of the right people in the right roles with the right motivation (a lot of people in the door and a lot of people out the door).

In the middle innings, I’d say that after you’ve got that alignment done, the middle innings are about getting a better handle on the demand curve – where the clients for that company are now and where they’re headed (getting to where the puck is going, not to where the puck is).

At the close, in the final innings before the liquidation event occurs, you’re focused on developing a monetization narrative where you’re highlighting focusing the marketplace on the value we’ve created, and of course the additional potential that lies ahead, which I think is a basic playbook for all transformations, including what we’re doing right now with BetaNXT.

BetaNXT will follow that same playbook. It’s now, I guess you say, ‘at the top of the first inning’ and we’re rationalizing the cost basis, we’re upgrading and aligning the tech and ops platform, and we’re getting the right people in the position. We’re looking ahead to the middle innings already though, because we’re spending a lot of time with the CEOs of our clients – from Wells Fargo to Stifel to LPL to Vanguard – all understanding what they’re looking for and where they’re headed so we’re ready to swing ahead to the next pitch.

Sam

Thank you, Stephen, and what a journey that was. I’m standing here in a meeting room overlooking the area where St. Paul’s is, and the London Stock Exchange ultimately. In the beginning of this podcast, Raunak described this journey as a pursuit, and it really was. The journey with BetaNXT, before it was even called that, began a long, long time ago; something of a Motive special, this deal. We identified an asset – a unique asset others hadn’t seen – we pursued it for as long as it was needed and we eventually carved out three core solutions from LSEG. And that’s what formed BetaNXT: It was Beta, Maxit, and Digital Investor. Can you tell us a little bit about those core solutions? What do they actually do, Steve?

Stephen

When you think about BetaNXT, we need to frame it in terms of being a “software as a solution” company and a “data as a solution” company; a SaaS and a DaaS company. Beta is a securities processing ‘software as a service’ and ‘data as a service’ company. It takes all the data that a wealth manager has – from the institution itself, from the client itself – and then allows that wealth manager to provide complete service to its client as a self-clearing institution. That means they don’t have to give away their revenue to a correspondent clearing firm. That means they get to focus on their own clients, their own advisors, to the exclusion of all else. Beta allows them to do that. Maxit is an addendum to that, a correlate to that, because one of the things that happens in most cases – again, and what a firm is or is not self-clearing – is they lose control of parts of their business, and the parts of their business that are more complex tend to be those they lose control of first.

For example, tax recording and ‘for cost basis’ accounting are two highly complex technical functions that firms give up the rights to, and frankly the revenue from, when they don’t have a comprehensive solution that ties out to the securities processing solution. Because Maxit uses the data that BetaNXT provides, it allows the wealth manager to keep control of that and to keep the revenue up and the cost down. Digital Investor, which is the smallest of the three by far, is simply a client portal that allows the wealth manager to give access to the client – to the data that both Beta and Maxit provide.

Sam

Steve, you make it sound so simple, but I know just how complex these things are. Not just because financial technology is complex, but because carve outs are complex, particularly when you’re putting three assets together – really the most complicated of all things. Fortunately, Motive and Clearlake have worked well together in the past. Clearlake: our partner on this transaction and a brilliant partner.

What are some of the key tenants as Chairman and CEO of BetaNXT that you’re deploying – some of the key principles, Steve Daffron style – to ensure a really successful carve out and growth of the business?

Stephen

Carve out is a particular variation on the theme of transformation that’s both easier and harder than transforming a standalone company. You’re right, I have done this more than a few times before. Carve outs are easier because you’re not saddled with the baggage of the overhead that a standalone company tends to accrue over the years.

The first things that a standalone company – and you’ll remember this from Dun & Bradstreet, and I remember it too from Dun & Bradstreet, even further back to Interactive Data – we spend the first innings just clearing up the debris of this sclerotic HR, and finance, and oftentimes legal, and compliance, and real estate procurement debris that cluttered the landscape before you can actually get focused on getting the company aligned and moving forward.

Now, that makes the standalone company harder, but at the same time, in a carve out, you’re actually starting with nothing. You’re actually not starting with debris that you have to clear out, but you’re also not starting with any formation that you can build on. A standalone company, you got something to start with. With a carve out, you literally start from scratch.

In BetaNXT, for example, when we closed on July the 1st, we had no HR, we had no finance, we had no legal, we had no compliance, we had no pro curement. We start from scratch, literally hiring and building the teams, the software, the processors, to be able to do that from scratch. Now that’s complex, especially across multiple businesses because you’re building on something from scratch; it’s both better because you don’t have to deal with the debris, but it’s harder to start it from scratch.

Sam

Steve, it sounds like both the gift and a curse, building up those new departments and divisions from the ground has, I guess, a lot of upside, but also a lot of complexity. With BetaNXT, it’s a technology platform leveraged by some of the largest financial institutions any of us know in North America. How do you view its relevance across the broader wealth management ecosystem? And obviously, it goes without saying, we have a strong pedigree at Motive in the wealth management space with a number of our other portfolio companies within this segment, and we’ve had a lot of learning. How do you see that transpiring?

Stephen

Well, as you said, BetaNXT is a kind of a Motive Partners special because we have been looking at this company for a long time. We actually began our investigation and diligence into BetaNXT back in 2019 when we identified it as being at a particularly salient part of the wealth management infrastructure. It was undernourished, it was undercapitalized, it was under supported, it was the afterthought of a larger business instead of being the focal point that it needed to be to service the clients it has. And it is an impressive part of the overarching support structure for the wealth management world.

BetaNXT, as a platform, underpins the processing necessary for more than 50 million Americans today to invest their savings and grow their portfolios. The advisors who serve those clients require BetaNXT every day to operate. They can’t turn on their screens, they can’t see their client portfolios, they can’t place their orders, they can’t monitor their transactions without BetaNXT. It is the foundation upon which most of the self-clearing firms in the country depend. BetaNXT literally underpins the wealth management for the United States. Without our operations, without us doing this effectively (and more effectively), the wealth management process doesn’t work.

Sam

You’ve successfully just anticipated the next two questions I was going to ask you. So, skipping forwards a little bit, in my research and speaking to the BetaNXT team, to Raunak, and to Caroline – our industry partner in there alongside you – it became clear to me that the average tenure of client at BetaNXT is something quite extraordinary. It’s about 23 years I believe, and these are some of the largest wirehouses, brokerages, and fund managers in the United States. That’s pretty unusual. How do you intend to meet the demands of them? These guys are all loyal customers, they’re all going to want their own platform enhancements of some sort. How are you going to balance that and ensure that in true Steve style, you’re “client-first, client-centric” and giving them what they want whilst also making sure there’s parity across the client base?

Stephen

Well, most of those wealth managers – and again, the top 10 wealth managers in the country use BetaNXT as their platform – they all want to have a consistent, reliable, inexpensive way to get their processing done. And if you divide where they see the value that their firms create between facing off the client, understanding the client, and delivering for the client versus the part of this that’s actually operational and technological processing south of the trade blotter, they all want that to work effectively. They don’t really want to spend a lot of their time thinking through how corporate actions need to be processed, but they want their client to be able to trade at corporate actions intraday, in near real time, with absolute certainty that the data will be kept consistent. So, the client sees what they’re doing, makes sure that their orders flow through properly, makes sure their reporting happens accurately. They want all that to happen without having to spend a lot of time and a lot of effort on it. That’s what we’re going to do.

And we think hard about being clear with the leadership of the wealth managers to say, “What do you want to do? Where do you want to go with your advisors? Where do your clients need you to go?” More and more of these clients want a broader set of products, more rapid and cleaner reporting, and they want to do that without having to have a lot of overhead from what happens downstream.

To meet their demand for platform enhancements, we have to put capital and talent to work, to bring more and more talent from the best and the brightest that Motive Partners has given us to support us, and to bring that talent to bear to give them the kind of client reporting – the kind of client interaction – that they need to have in order to satisfy the new demands of their clients.

Self-clearing is an economic and a demographic drive. A self-clearing firm controls their own destiny. The revenue that comes from self-clearing, that comes from the cash sweeps, and the stock loan, and the fully paid lending, those kind of revenue streams that the wealth managers have been giving up in the past, they now want their platforms to enable them to do that. We are spending money, we are spending capital, we are investing time and talent to be able to give them that even before they need it.

Sam

Speaking of the best and the brightest, one of my favorite meetings this week was actually when I sat down virtually with Raunak and we spent time going through the value creation plan for BetaNXT. Anyone who spent time with the Motive team or know, that’s quite an exercise. We tend to get stuck into the detail, none of this is surface level stuff. And as we went through the value creation plan and all the different levers – some more traditional and typical, some slightly more complex – but one of the areas I was really interested to hear was for the platform to enter into new, high growth markets. This is principally a North American domicile and focused asset.

Steve, tell us a little bit about some of the new markets we’re looking to enter. What stopped the platform from entering these markets historically, and what do you think you’re going to need to succeed in markets you’ve not yet been to?

Stephen

So, you can take the distribution of the wealth management marketplace and you draw it into a normalized curve. The top of the curve, let’s call that top of the curve LPL, which is kind of the center mass of the kind of wealth management firm that’s growing rapidly right now.

To the left of it, you have the sloping down to the even larger firms like Wells Fargo. Those firms are well within the BetaNXT camp. They have the depth and the breadth of demand that suits what we’re building, have built and are building, to satisfy the wealth management client. Their advisors are more sophisticated. Their advisors have a greater expectation of their ability to talk to clients. Frankly, they have a higher proportion of mass affluent and ultra-high net worth clients.

To the right of that distribution, on the right side of that curve as it slopes down, are smaller wealth managers and digital broker dealers that don’t have those same kind of requirements. In fact, they don’t have most of the complex requirements for their clients that the upper part of the distribution requires as a daily part of their work. But they need to do this on a much more rigorous basis: so much more timely, much less overhead, much lower cost. That part of the marketplace is in fact demanding; needs to grow. That’s the part of the marketplace that BetaNXT wants to move into as well. We want to keep what we have with the existing platform, and the growth in that platform that comes from both the growth in those businesses themselves, the growth in more and more companies moving towards self-clearing, and the growth that comes from RIAs, moving away from the larger warehouses into self-clearing firms like LPL. At the same time, we want to find a modicum of support for those smaller, less sophisticated companies. Why? Because they’re growing. They are their radical new change in the marketplace than need support from a company like BetaNXT.

But we are going to take the technology that we have, and we’re going to refine it and streamline it, if you will, we’re going to take off all the pieces that we don’t need to support those smaller, more agile firms and give them what they need. That allows us to grow into a space that frankly Beta has never been able to grow into before because if you look at who the BetaNXT clients are right now, if they don’t have an assets under management of more than 2 billion, they feel Beta’s simply too large and too complex for them. What we want to do is find a way to find a technology and operational support solution to give them what they need. And by, “Operational support,” I literally mean give them what they need from stem to stern, including operations itself.

One of the things that those small broker dealers worry about as they won’t move into the self-clearing space is they look at the complexity and the regulatory risk and the capital risk that goes when becoming self-clearing. We want to give them the clarity that they need in terms of seeing BetaNXT as that solution. They don’t have to go to FINRA, or the SEC by themselves. When they become a self-clearing firm, we help them, we support them. We allow them to grow into this space they want to grow into by giving them support they need from a technology, from an operations and a regulatory oversight perspective so they can understand what their capital requirements are and deliver for their clients. That gives us, frankly, green fields. Places in the marketplace that Beta could never go before will now be ours for the taking.

Sam

And I assume, where others haven’t gone before.

Stephen

That’s correct.

Sam

Excellent. Well, let’s stay on this thesis point, and rather than drilling into it, I want to ask a kind of holistic question. We are a specialist, thesis-driven investor. Easy to say, very difficult to apply in practice. We’re going to hear from Al in the Motive Create team a little bit later, and it was great to see when Raunak and I went through the value creation plan, all the different components, bringing together our investors, our operators, and our innovators through that piece of work. Steve, tell us a little bit about what at Motive differentiates us and our ability to execute thesis-driven investing.

Stephen

It’s a triple threat. In order to be a superlative ball player, you need to be able to hit, to field, and to throw. And Motive Partners is one of the few places that I see in the marketplace where we have that threat across all aspects. So we can do the things we need to do from a theoretical perspective, because we have people who are well-versed in the underpinnings of the marketplace. We have partners like Blythe, like Rob, who are actually part of the team that created the infrastructure we’re working on right now. So they have the long view – I won’t call it an academic view because that sounds like we’re being professorial and doing this on arm’s length – but they have the long economic view to understand the underpinnings, the factors, that ‘what it takes’ to drive the marketplace in the right direction.

At the same time, we have the short game. We are very focused, and we have great practical experience. You have people like myself, like Rob, like Scott, who have actually been in the forefront, who are actually running companies. And we have practical experience that allows us to do that day in, day out. So you have both the long game of having people who have an appreciation for how the markets are built and where they’re headed, the short game of practical experience, and add to that a creativity that comes with Motive Create, which allows you to take the practical experience we have and apply to where the market is going. Using the same analogy, it’s not good enough to know just where the market is. It’s important for us to have the kind of partners who are constantly thinking and stretching to understand where the market is going so that we can bring our practical experience to bear, and the creativity – especially creativity in the technology space that Motive Create helps us bring to bear – to get there first.

Sam

Thank you, Steve. Yeah, there’s no one better positioned, having already been through this process with Dun & Bradstreet, to opine on that than you. And Steve, you’ve been in this industry for several decades. I won’t say how many because you may not thank me and the video is not on, so no one will be able to see just how young you still look. But you’ve always had a view to transform large organizations from the inside. Those organizations are organizations everyone listening to this has heard of: Goldman Sachs, Renaissance Technologies, and Morgan Stanley, as well as the others more recently, which I’ll come to in just a moment.

At a macro level, how do you view the role of technology and data in shaping modern wealth management solutions and capabilities for organizations of that scale today? And I guess ultimately, what role have the BetaNXT solutions played in that exact evolution?

Stephen

Well, the industry is at an inflection point and BetaNXT is at the point of that inflection point. And the capital markets themselves are changing and need to change, and we want BetaNXT to be a part of that change. There’s not a one-size-fits-all solution, but the size and scale of what needs to happen in the wealth management space has to be done with the best interests of the investors, the clients, at mind. As I said, there are 50 million plus investors out there that depend on us, not only to do what we do every day, but to think about where we need to go next. And we need to be a part of improving access to the right kind of information, the right kind of advice. We need to be part of the process for educating those investors to do the right thing. And frankly, we need to work harder to rebuild the trust that those investors can have in the wealth management industry as a whole and prevent us from falling into the lack of trust that many of the institutions have fallen into.

Access to capital markets is still limited – we need to broaden it. Access to personal advice is largely done for those who are at the upper end of the economic scale, not the middle and the bottom. And you can see that because of what they’re investing in and what they can invest in. And again, we should be giving access to the kinds of alternative investments to people who can actually use them effectively to grow their portfolio, to pay their mortgages, send their kids to school. And they need to know how to do that, so we should be focusing our efforts on educating investors – consumers worldwide – to understand how to do so. Financial literacy is part of all our responsibility, and an awareness of what they can invest in and how they can invest in it and why it can be secure, and understanding the channels and the media that they have access to and how to control them. Because right now, that media access, those new channels, are outpacing us as an institution, us as an industry, the ability to adapt to it. That leaves the people we are trying to support at sea. They can’t verify information. There’s no single source of truth.

We need to be a reliable source of truth for them so that we can build the trust that the consumers have in us as an institution (thinking of BetaNXT) and us as a part of the institution of their advisors and the overall wealth management process. If the investors lack trust that the money they’re investing will actually be stewarded by those of us who are the personification of the financial system, that perception of us versus them harms their overall economy. Some investors still suffer from trauma from what they saw in 2008/2009 or what they saw in 2001/2002. We need to be a part of the macroeconomic context that helps them reestablish that trust, that helps them see us as a part of the solution. BetaNXT – yes, it’s only a part of the solution – but it’s an important part of the solution that along with the other Motive portfolio companies can be a big part of reestablishing that trust.

Sam

Thank you. We’ve spoken a little bit about how technology and particularly BetaNXT affected the larger corporations. Steve, you’ve done it all: global corporations, IPOs, take privates, combinations and carve outs. In all of these complex transactions – and business always is complex, particularly in our sector – there’s been one consistent theme, and that’s people. People do the planning, people do the execution, and you’re a great leader of people. I remember the first time I stood in the town hall when we’d taken Dun & Bradstreet private. It was 178-year-old patron analytics business at the time. You had people who I’d qualify as “old guard”, you had “new guard”, you had people from a different investor group all in the room. There were many different factions and bringing them all together was not an easy thing to do, but you did it. You painted a vision, you pointed at the mountain, and we charged at it. We did it unified, with thousands of people, on multiple continents, in many countries around the world. And that’s what made the Dun & Bradstreet transformation that we were a part of special.

When you stood up at the first town hall with BetaNXT, what did you say to the employees and the team, and how did you lead them? What was the mountain you pointed towards?

Stephen

Well, part of what every transformation – every company that I’ve worked in and that I’ve led – relies on is a connection between the leader and the led. So I lay out the basic rules for how the company will grow, and those rules are aimed at growth, aimed at progress, aimed at progression and our expectation that we’ll do more with less. But they’re mostly of aimed at making the people who are in the company understand where we’re headed, and there are two basic rules for that.

The first rule is treat people like you’d like to be treated. We focus hard on making sure that people in the company know where we’re going, and we make sure that people understand that we will deal with them with clarity, and honesty, and transparency. It doesn’t always mean it’s easy. It doesn’t always mean it’s soft and cuddly. It means it’s honest. Treating people like you want to be treated means telling people when they are doing a good job and acknowledging it and making sure they feel rewarded, and telling people and they don’t do a good job and acknowledge it and making sure that they understand what they need to do better.

Treating people like you’d like to be treated enables people to work together for a greater good, for greater goal, in ways that having a more bureaucratic or sclerotic organization won’t. So, getting people to see that we’re not asking them to do something that we wouldn’t do, getting people to see that we’re actually trying to do this together actually gets people moving in the right direction together, and the careful analysis of what we need to do is done together.

Now, the flip side of that coin is, as you do it, you want to make sure that everyone’s aware of what’s going on and we don’t surprise each other. So the second rule is simply that, no surprises. Getting the people to recognize that when we actually have problems – we actually have issues that arise – as long as we get those issues in the open and we lay them out so everyone can see them, then we can bring all the collective intelligence of the organization to bear on solving them, and we can use that collective intelligence to go to greater heights, to actually go to places where the company has never been able to go before. We have the ability at BetaNXT to do things that no one in this space has ever been able to do before because we have the collective intelligence, the collective experience, and the collective will to make a lot of changes that were never able to be made before because the company wasn’t focused on them. We are, in fact, a smaller company, much smaller than they were a part of before, but we’re a much more focused company that’s focused on making sure that we treat each other like we’d like to be treated, with clarity and honesty and transparency, even when it’s tough, and at the same time, working together to make sure we’re achieving the higher goal.

Sam

Brings back a lot of memories, Steve, in a wonderful way. Final question before we hand over to Al and the Motive Create team. We’ve heard a couple of snippets of analogies in there, some sport team ones. We’ve had “innings” and “where the puck is going.” And I remember at a particular time when we did a “Power of Data: Dun & Bradstreet” podcast together, you gave me a military analogy on where we were at that moment in time. I’m sure you remember it, it was “don’t forget the nails”. The essence of that, for those that aren’t familiar with the analogy, is when you’ve prepared and you’ve got to battle and you’re at the front line, don’t forget the final piece of the puzzle – execute. Do you have any analogies for where you are today, Steve? Anything that represents that well from your deep repertoire?

Stephen

Those who don’t know the story, there was a famous cavalry charge where the French cavalry was instructed to sweep across and take a British battery of cannons and spike them with nails and then withdraw. And the magnificent cowboy charge happened. They swept across the valley, they swept over the batteries, they took the cannons, sabered the gunners and then realized they’d forgotten the nails; had nothing to spike the cannons with. So as soon as the British drifter came up, the cannons were back in action, and it was all for naught. That “don’t forget the nails” piece is very much along the lines of making sure that you thought the problem through before you attack.

Well, at BetaNXT, we’ve been looking at this company for a long time, and we’ve thought about this for a long time. When we realize the pieces that are there are macroeconomic pieces, we’re actually supporting a change in where the wealth management industry is, and we need to be carefully focused on getting ahead of where those economic interests are going. So the military analogy would be “scouts out”. We need scouts who are capable of looking beyond where we are right now to where the industry’s going, and we have to be conscious of reaching out – not just to the institutions themselves, not just to the Wells Fargos and the LPLs and the Stifels of the world – but reaching out all the way past the vanguard to the clients themselves to understand what the demands are that those clients are raising and how we’re going to be able to get there first.

This comes down to some technological things like real-time data. It’s necessary to provide clean, accurate reporting. It’s not sufficient to do so on a monthly or even a weekly basis. It needs to be intraday, and it needs to be near real-time. Why? Because the marketplace is moving that fast, and we have to be prepared to support that. “Scouts out” means we are thinking hard about where the economy is going, how to be there with the right kind of operations as a service, right kind of software as a service, right kind of data as a service before the economy gets there. Scouts out.

Sam

No better place than that to hand over to Al from Motive Create. Steve, thank you so much for yet another enthralling podcast and we are watching on and behind you through this BetaNXT transformation.

Stephen

Thank you, Sam.

Sam

It’s always a pleasure.

Alastair Barber

Thank you, Sam. I’m Al, head of advisory at Motive Create, and Raunak and I are just going to spend a few minutes now just building on a few of the points that we heard from Steve and Sam there in their discussion. First of all, I want to pick up on one interesting point, which is really a fundamental shift in the industry at the moment, and that is the generational wealth transfer we’re seeing taking place at the moment.

We are at a real inflection point across the industry as money is starting to move down into the new generations, and that’s really coming at a time when we’re seeing a fundamental technology shift and a move towards digital and new digital solutions cropping up across all industries, but particularly in the wealth management space, to help end customers manage their portfolio and take out investments in traditional and new asset classes. BetaNXT is right in the perfect position to capitalize on that being a great foundation – supporting some of the biggest clients in the United States and over 50 million Americans, as we heard – that has an opportunity now to expand its client base and support the next generation of its clients coming on to provide new services to the next generation of end consumers.

So Raunak, one of the things that we heard is around the two different models around self-clearing and fully disclosed. Maybe you could touch on quickly what the difference is between those two models.

Raunak

Thanks, Al. Yeah, happy to. I think first we should define what clearing and settlement is. Clearing and settlement comes right after a trade is made. Clearing comes first, where all the terms of a transaction are verified. Settlement happens post clearing, in which the security and money exchanges hands.

So, what is self-clearing versus fully disclosed? In a fully disclosed relationship, a buyer and seller of securities, they make trades. This happens through a broker or a broker dealer. The broker sends these client orders and their respective dollars to what is called a correspondent clearing firm, who is responsible for matching buyers and sellers. As I like to say, Beta and the core Beta platform should be thought of like a dating app. It matches buyers and sellers of securities. What happens is, the correspondent clearing firm bears the financial and legal risk for trade execution once the broker has passed it on to them. Put simply, the broker takes the trade, and it passes its data in dollars to a correspondent clearing firm.

Self-clearing, however, and self-clearing software and technology like BetaNXT, allows brokers to clear and settle their trades independently. That means that the trade is fully executed at the broker and enables the broker to retain the data and dollars as I was mentioning from the trades that it executes within its ecosystem.

What are some benefits of a self-clearing model? It provides brokers with greater control and three main benefits. First is incremental revenue opportunities. Second is the ability to offer a greater mix of products and asset classes, and third is the improvement to customer insights. Self-clearing and BetaNXT therefore allows brokers to create a differentiated customer experience.

Passing it back to Al. Al, I know part of the technology roadmap involves moving downstream to enabling more firms to self-clear. Would you be able to walk through some of the economic drivers of self-clearing?

Al

Sure, Raunak. So in terms of economic drivers, essentially what self-clearing enables is greater control by the firm over its operations, and that includes being able to manage its products more closely and identify and leverage new revenue streams to that effect. So these include such sources of income as cash sweeps, margin lending, securities lending and repos. There are a number of associated costs with this and other considerations that need to be taken into account in terms of the overall decision to move to self-clearing. For instance, clearly there’s some upfront implementation costs and operational costs to actually stand up the new business model; cost to deploy vendors as part of the overall backend service offering; resourcing, obviously, and making sure that you have the skills available to provide a seamless and sophisticated operations to clients; ensuring you can continue to meet the regulatory and compliance demands that comes with being a self-clearing firm; and being able to afford processing of omnibus accounts.

Those are a few of the economic considerations as part of that, but assuming that a firm is a sufficient size, then there is a clear driver of a move to self-clearing and moving to self-clearing is becoming more economical and potentially viable, particularly in this environment as interest rates are starting to rise as we see both in the US and in the UK. That enables the barrier to adoption to be reduced and a firm such as BetaNXT to start to get more traction and move downstream across the business model.

Raunak

That makes complete sense. Really appreciate the explanation. Thanks Al, and thank you everyone for listening. Goodbye.

Al

Goodbye.

Sam

Thank you for your time and insights and thank you very much for tuning in. I’m Sam. See you next time.