Fintech on Friday: How Envestnet blazed a tech trail for wealth management
Modern wealth advisers increasingly require the support of a broad technological toolkit to do their job. Through the vision of its late founder, chairman and CEO, Judson Bergman – who died tragically in October – Envestnet blazed a trail as one of the first firms to seriously play in this new, technology-enabled wealth space.
Not only was the US firm a pioneer in this sector, but it continues to live and breathe that reality through its long-term strategy, which will now be carried out by Bill Crager and others on the leadership team. Founded in 1999, Envestnet was based on the belief that the independent investment market was set for growth, as advisers became frustrated within the ranks of the big banks and so-called ‘wirehouses’.
At that time, the technology available to any adviser looking to branch out as an independent was relatively poor.
Impressive growth
Yet, during the subsequent 20 years, by marrying market demand with strategic developments, the firm has grown to deliver services to around 100,000 advisers – approximately one third of the US market – servicing an incredible $3.4tn in assets.
While the firm started as a turnkey asset management platform (TAMP), through its journey, it evolved to become close to a one-stop-shop, full-service, tech-led-provider for independent advisers.
In today’s demanding marketplace, an adviser needs not just access to investment products, but an expanding toolkit to manage these and the private client’s entire “wellness picture”. Under Mr Bergman’s guidance, these tools have helped connect with, engage, manage and understand clients, providing solutions to support financial planning, aggregation and insurance and compliance. Envestnet has managed to cover this growing list, all under one roof.
On several occasions, it launched services, which would later become mainstream, says Sharmil Patwa, founder of Opus Una wealthtech consultancy. “They introduced the first SRI platform in the industry back in 2008 and technology to allow advisers to analyse and report on ‘off-platform’ assets back in 2010,” he says.
From its TAMP model start, the firm has done deals when it saw the need. Mr Patwa lists more than 10 “intelligent, strategic, best-in-class acquisitions”. These include Yodlee in 2015 to enhance data aggregation to provide a holistic view of the client’s financial estate, PieTech in 2019 to improve financial planning and PortfolioCenter, also this year, to boost portfolio management capability. Envestnet has not been afraid to spend big, take risk and a longer-term view with its biggest deal, the $590m investment in Yodlee.
“Some could not make sense of the acquisitions or partnerships that Envestnet made under Jud’s leadership,” says April Rudin, CEO of New York-based consultancy The Rudin Group. “But in time it all made exquisite sense. That said, Envestnet still has work to do toward one streamlined view for advisers.”
By bulking up on buying power, investing collectively and pulling so many players under their umbrella, Envestnet and fellow travellers have helped make the previously primitive US wealth market more conducive for higher-quality technology providers to join.
Doing the dirty work
The next challenge is integration, particularly for smaller wealth managers. As the mothership, Envestnet can do the dirty work, helping the adviser access a much cleaner technology stack.
All in, the technology gap between big and small wealth managers has been narrowed, thanks to Envestnet and others in its cohort. They have helped smaller firms marry their service proposition of independence, transparency and, in the case of registered investment advisers, fiduciary responsibility, with a capable, modernised and integrated technology infrastructure.
The success of Envestnet means its buying audience and opportunity has also evolved, as evidenced by Merrill Lynch signing on as a client. That deal goes to show the new power of the technology-enabled wealth management model.
Mr Bergman and his team did an outstanding job in reading the trends and positioning the firm, says Alois Pirker, research director at Aite Group. “The acquisition of Tamarac, Yodlee, and the Wheelhouse Analytics were all years ahead of its time. Similarly, the launch of the insurance exchange is a visionary step and facilitates the creating of efficient multi-product adviser practices.”
Stephen Wall is co-founder of The Wealth Mosaic
