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Alexander Graham Bell made the famous announcement, “When one door closes, another opens.” While this may seem quaintly optimistic, many world-famous scientists and entrepreneurs who struggled through years or decades of failure have spoken about learning from their mistakes to reach success.
Bell himself had many failures and setbacks in both his career and private life, but he didn’t use these as reasons to quit. Instead, he forged new opportunities for himself, his family, and his career.
This is our monthly news roundup on the Wealthtech Today podcast. We are coordinating with our partners at Kitces.com, so please check out The Latest In Financial #AdvisorTech (May 2021) and their Advisor Tech Map (which we collaborate on with him).
This podcast features interviews, news, and analysis on the trends and best practices all around the wealth management technology industry. A few housekeeping tasks before we start, be sure to subscribe to this podcast wherever you listen to podcasts so you don’t miss future episodes. And a quick shoutout to our sponsor, the SebastianStrong charitable foundation, you can find them at SebastianStrong.org.
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- 1248 Holdings [11:49]
- Acorns [02:10]
- Appian [05:06]
- Betterment [27:20]
- BlackRock [07:59]
- BNY Mellon | Pershing [08:37]
- CANNEX [27:40]
- Canvas [23:06]
- Charles Schwab [08:00]
- Docupace [18:42]
- DocuSign [19:51]
- DPL Financial Partners [29:57]
- Edward Jones [06:05]
- Envestnet [01:37]
- Ethic. [22:14]
- Fidelity [07:59]
- FINTOP Capital [11:45]
- FIS [03:11]
- Flyover Capital [11:50]
- Halo Investing [28:08]
- Harvest Savings & Wealth Technologies [01:37]
- Innovest [11:00]
- iPipeline [05:09]
- Just Invest [23:05]
- LPL Financial [07:58]
- Luma Financial Technologies [27:38]
- Morningstar, Inc. [23:36]
- OpenInvest [23:03]
- Orion Advisor Technology [23:03]
- RetireOne [29:58]
- Salesforce [20:02]
- SEI Investments [11:05]
- Simon.io [28:12]
- Skience [17:00]
- SMArtX [23:51]
- Snappy Kraken [11:22]
- SS&C Technologies [11:08]
- Truelytics [18:22]
- Vanguard [07:58]
- Wealthfront [25:16]
- Envestnet Acquires Harvest Savings & Wealth Technologies
- Snappy Kraken Raises $6 Million in Series A Round Led by FINTOP Capital
- Skience Launches Advisor Transitions Solution
- Ethic Raises $29M to Grow Customized Sustainable Portfolios for Wealth Advisors
- Wealthfront Launches First Self-Driving Money™ Service
- Luma Selects CANNEX to Enhance Annuity Offering
Envestnet Acquires Harvest Savings & Wealth Technologies
Craig: First story of this month’s News Roundup is Envestnet Acquires Harvest Savings & Wealth Technologies. This was a really interesting announcement to me because I know both firms really well. A lot of the news articles that I read were focusing on one of two aspects of Harvest Wealth, and one is their ability to do small accounts, micro savings accounts. So things like an Acorns type of service where they can do roundups, micro savings. And a lot of the articles were focusing on that, but I’m not going to talk about that. I’m going to talk about another aspect of Harvest’s software, which is new account opening, and specifically around bank trusts.
Now Envestnet has a good track record in the bank trust base. They’ve won a fair number of deals over the years in that area over other other companies. So they’ve got some solid credentials in the bank trust space, but they are always looking for more. Always looking for more ways to sell more products and solutions to the bank trusts, and dig in more, get more wallet share from these firms. So the new account opening process that Harvest Wealth has I think it’s interesting because it’s plugged into a lot of bank trust systems already. And from my conversations over the years with CEO Drew Seivers, Harvest entered into a partnership with FIS, which also purchased Drew’s previous firm called mFoundry. So he has a good relationship with them, and I believe they spent significant resources to build out integrations from Harvest’s account onboarding and digital advice tools, into FIS, and former SunGuard, and their trust accounting systems, which is not a trivial task.
There’s a lot of work involved in opening trust accounts. It’s much more difficult than an RIA or opening the brokerage or an agency account. So having done all that work and plugged into one of the biggest vendors, FIS, saves a lot of effort on the part of Envestnet having to build out all that technology in the backend. Many banks have trouble, that we’re seeing, connecting with wealth to the trust side of their business because they usually run them totally separately. They’re discreet platforms, they’re different portfolio accounting systems, and trust accounting systems are much more expensive to maintain on a per account basis. But banks are forced to open agency accounts inside the trust accounting system, which drives up their costs because they want to keep everything in one place. There is no good way to see accounts spread out across different systems. So with these new account opening process that Harvest can plug in and they can bolt on top of the trust system, it might make it easier for Envestnet to dig a little deeper onto the trust side, and provide more value there.
New account opening is an interesting area. It was very rare to find firms that did fully electronic new account opening just five years ago, now everyone’s got it. The leaders in the space would be Docupace, they’re also a leader in the document management and workflow systems. So Docupace, very well known for their technology, new account opening and document management. IFS, which is more on the big end, more in the broker dealer, enterprise end, they’re owned by iPipeline now. Appian, which came into the market more from the bank space and built out a wealth business, and they’ve closed some deals, TIA, Edward Jones, LPL. So they they’ve been making waves in the, in the wealth of the wealth side, but they’re better known for large banks, but that’s also a competitor. You want to control more of the advisor’s workflow. So if Envestnet’s just in the backend and Appian is opening accounts, that’s one less piece of the puzzle that Envestnet owns. So if they can deploy Harvest to do the same thing, that gives them more of the wallet share of banks.
So the top 250 banks, from what we’re seeing, they want a single solution for everything. Mobile lending, wealth management. And it seems like the technology from Harvest can do this. From what I’ve seen, it’s API-based with multiple tools that can run digital advice and services inside of the banks’ mobile apps. That’s something I believe is lacking on Envestnet’s platform, they don’t have tools that can plug into the banks’ mobile apps. And we already know banks have a huge lead when it comes to mobile over the wealth side.
The top 10 apps in the app store, banking is a lot of them. So if you can plug into that existing app, existing mobile app banks have and offer wealth, it saves a lot of effort. It lowers the cost of client acquisition and reduces the friction to opening a wealth account if it can be done from the same app. So the bank customers never need to leave that ecosystem. It’s another reason why I see Envestnet buying Harvest and wanting that because gives them that plugin to the banks’ apps.
So they’ve already got the integration, lots of banks have trust charters and back to the cost limitations, they want to open an agency account if the operate inside of the trust accounting system and in the past there weren’t a lot of APIs. So Harvest has been there when the APIs were being built on the trust side and has connections to them I believe. That’s something that Harvest can provide, and they’ve built their APIs natively. It’s a critical component of the end investor experience that I believe Envestnet will likely capture, they want to push more into the end investor experience for their tools and technology.
Another aspect of this is small account solutions. So just like on the wealth side, the banks have trouble retaining deposits from lower end clients with money going to Vanguard and Fidelity, BlackRock, Schwab, etc. So how do they offer a solution that could plug into the Acorns-like solution, the microsavings that they could then plug that in and offer bank customers the ability to open wealth accounts with small amounts. And also small trusts, if the trust accounting platform could be run cheaper, they could offer smaller minimums for trust clients and shield them from taxes, and allow for better distribution of assets to their heirs, or allowing retail customers to open up small accounts with systematic deposits.
Banks want to make money off retail accounts. They want to convert deposits to wealth managers, they see the higher revenues and higher basis points they can get on the wealth management side. So they would love to be able to do that, they just need a way to do it. That’s integrated into the rest of their environment. Why? Because banks also are under pressure for new sources of revenue outside of lending. As they lose the posits, they lose net interest margin on lending deals and bigger banks have other ways to make money, whether it’s debit cards, credit cards, but everyone else, a lot of the smaller banks might be having trouble and that they’re struggling retail banking. So Envestnet being able to offer the solution that crosses over from the wealth management side, where they’ve had success over to the banking side could be another revenue stream for Envestnet.
Envestnet does not have a trust accounting platform, they just interface with them, which has been good enough up until now. I’ve always wondered why Envestnet didn’t buy an existing trust accounting platform like SS&C last year bought Innovest for $100 million that which gave them a foothold into the trust accounting business.
We helped the Pershing back in the day, 10 years ago when they were doing the Citigroup deal, connect APL to Trust 3000, to display a DVP RVP data on the managed account side, that way advisors could see everything in one place. But it wasn’t a trust solution, it was just an interface to pull trust data from Trust 3000 into APL that way the advisors could see it in one place. But if you owned both systems, you own the agency managed account portfolio accounting system and you own the trust system, that would give you a lot more power. But apparently Envestnet isn’t doing that at the moment.
So they’re not going up head to head with firms like SEI or FIS. They’re just being an integration partner with them. And that’s about it. So that’s my take on this deal. I see it as a big win for Envestnet. I’m looking for them to do a lot more integration, a lot more building out their trust ecosystem, especially with their trust exchange, which they just announced. That will offer services and connection to resources for advisors that don’t maybe don’t have the trust experience inside their firm. So the trust exchange will give access to lawyers and estate planners and other tools for advisors who can then access that hopefully at a discount and then scale. They can then plug in their new acquisition of Apprise Labs, which provides estate funding tools. And then finally plug it into the Harvest Wealth new account opening and you’ve got a nice little ecosystem on the trust side for Envestnet. So I’m looking to see what comes from that, and this is my take on this particular deal.
Snappy Kraken Raises $6 Million in Series A Round
Craig: Our next story is Snappy Kraken Raises $6 million. Snappy Kraken, an automated growth program for financial advisors, close a $6 million Series A financing round led by FINTOP Capital. The round was joined by Flyover Capital and 1248 Holdings, both of which participated previously in the 2019 seed round. We like Snappy Kraken and here at Ezra Group. Great company, innovative, really killing it in the automated marketing space for financial advisors. According to their press release, they’ve hit 3000 advisors as clients, which is tremendous growth for a firm in a very crowded space. Not only is the financial advisor marketing space crowded, but just the MarTech space is hugely crowded. I think I saw a map of icons for MarTech firms, and there were seriously 3000 icons on this one page. That’s how many different marketing technology companies are out there. So to get some traction, to get recognition is very difficult and Snappy Kraken and their CEO, Robert Sofia have managed to do that.
They’ve got a great board, Marty Bicknell from Mariner Wealth Advisors, Aaron Klein from Riskalyze, both on the board, I’m sure that helps them with direction with strategy. They’re raising money to serve advisors, better, build up their software platform, which we think is unique. We’ve done a fair amount of research at here at Ezra Group in our research division on the marketing automation sector and Snappy Kraken usually comes out ahead with things like their multi-step campaigns organized by goals, online advertising, their campaigns, dedicated marketing coach. Their territory exclusive activity was a unique feature, which I know some people thought was silly, but it has turned out to be very good for business and has created some scarcity in their product for advisors who will call and fight to get their territory because once they sell it, they’re not selling it again.
So the advisors we speak to, they really like the Snappy Kraken campaigns and how it is an omni-channel package of content that is built and handed to you, so it’s easy. It’s the easy button for marketing and the software does a great job of automating it and tracking it. It’s got a lot of statistics. If you go to their websites, SnappyKraken.com, I love the new website by the way, guys, it really looks great. It’s unique, and that’s what it takes when you’re marketing firm, you’d better have a unique website that draws you in. So we’ve always liked their technology, all the demos we’ve gotten we’ve always been impressed with how the technology works and how it’s coordinated across social media and email and other content. And it’s just plug and play, really good stuff.
Looking at some of the statistics, one of the things that advisors continue to struggle with is marketing. At least 40% of advisors report they can’t find the time, they can’t find the right people, they have trouble developing a digital marketing strategy. And when they do, they have trouble evaluating the marketing ROI. So handing it over to Snappy Kraken it’s one-stop, everything gets done for them. It’s the easy button and advisors seem to love it. I believe that they’re looking to expand. Another interesting part of this story is I believe their annual revenue could range from $6 million-$16 million, which is a great increase from where they were and given a multiple of 6-9X earnings or revenue. Their latest funding round values the firm between roughly $34 million-$145 million. Nice! Congrats to Robert Sofia and the Snappy Kraken team on this, can’t wait to see what they’ve got coming up next.
Skience Launches Advisor Transitions Solution
Craig: Next up is Skience Launches Advisor Transitions Solution. We talked about Skience in last months news, an up and coming platform, now branded as a wealth management platform. We always thought of them as a new account opening product, but they have since expanded their software offerings, fast and furious. They’re building out their team and building out their technology at quite a pace. I remember seeing them a couple of years ago, and they were just an account opening process sitting on top of Salesforce, they’ve certainly built out a lot of tech since then. This is their latest product in a stream of new products, transition tools. So this is designed to move a book of business over from another broker dealer or RIA, or onboarding advisors. Really helpful, automates a lot of manual processes. Most broker dealers and RIAs do this manually using spreadsheets passed back and forth to pull data in, relatively inefficient. Could take weeks or months to move the data, especially for larger books of business.
So this software does have a lot of runway to help firms scale, especially larger ones. There are a number of competitors in the space. Skience is not the first to offer this software. A company called Truelytics, if you haven’t heard of them you should look them up, that’s T R U E L Y T I C S. They offer recruiting, succession planning, practice management, and business valuation. There’s a really interesting way they do that, and they have advisor transition software. And the leader in the space would be Docupace, you should take a look at them. Docupace with advisor transitions, as well as a new account opening, workflow, and document management. So Skience is not the first obviously, but they’re playing catch up. They want to get into this market. They see it as being lucrative, as more and more broker dealers in a large RIAs are looking to scale, better looking to improve efficiency, cut some of the manual processes.
The use cases are very valuable. You know, we do our evaluations of broker dealers or our large RIAs, the use cases involving new account opening and onboarding, advisor transition is always a relatively high use case. Especially for the firms that are growing quickly since they’re usually pulling advisors from other firms. So having some automation around the onboarding of advisors or advisor transitions or repapering of clients is important. And especially hybrid RIAs, where you may have to enter your data into two systems, which could become a big issue. Of course, it’s got to be integrated with your e-sign technology, which is usually DocuSign, bulking up the custodial paperwork and contract creation for the document business. One of the nice things about Skience is they are built on top of Salesforce. So enterprise firms, mostly Salesforce, which is nice for Skience to have.
They’re also integrated to the CRM very tightly, which is important for the advisor transitions because they can move the data easily into Salesforce since they’re already into the database. They don’t have to do it an import export of data, they’re already there. That that helps a bit. They’re launching this product soon, it’s in open pilot in April. It’s still April. So the Skience advisor transition product is still an open pilot as far as we know, hopefully to be launched soon.
Skience wants to license the platform to broker dealers and custodians, which makes a lot of sense, although we do know that a broker deals with custodians have a lot of manual processes around this, but they may see it as a companion tool, not a replacement. So they may still want to have their dedicated transition teams as every broker dealer does. And every RIA custodian has it, where they help advisors move over, help with paperwork, transferring registration, tech, support, any kind of bugs or glitches in the account moving. They have people to do the work. And even if it’s software, the software isn’t automated totally, you still need people to run the software. The advisor translation software needs a person to run it, although it should in theory, be way fewer people than a dedicated transition team at a broker dealer. Now they have said at Skience, that this particular technology is not Salesforce specific, it’s CRM agnostic, as Marc Butler, the president has said. Although, who are we kidding? They live in Salesforce, that’s their main system. That’s going to be the first offering and the primary offering. Why someone would use it in another CRM, I don’t know, without the tight integration, you’re losing a lot of benefit. But this seems like a great product love to looking forward to seeing it launched on the market.
Ethic Raises $29M to Grow Customized Sustainable Portfolios for Wealth Advisors
Craig: Okay. I’ve been given the sign that I need to wrap this up, so I’m going to run through three more stories really quickly. I just wanted to squeeze them in on this News Roundup. So first Ethic raises $29 million. What is Ethic? Ethic is a direct indexing ESG platform, SMA manager, asset management platform for financial advisors to build custom portfolios for clients. They raised a $29 million Series B round of funding bringing the total to more than $48 million in value in the company at $139 million. ESG is hot, global ESG inflows shot up 88% in the fourth quarter of 2020 to $150 billion. Again, it’s global assets, not the US so you have to temper that number with just looking at US assets. There’s a number of other players in this space, including Orion, OpenInvest, Just Invest and Canvas, which manages a billion dollars.
So it’s definitely getting more crowded, and the technology is expanding. I know Envestnet also has some DI or whether they have algorithmic DI tools that they’re offering to their PMC platform. So lots of options here and really investors or advisors are swamped with choices. They can leverage their tech platforms, whether it’s Tamarac, BlackDiamond, Orion, Morningstar, or something else, and access different asset managers, including ESG managers of all different shapes and sizes. Again, Tamarac and Envestnet own PMC, their own asset manager, they’re a TAMP. BlackDiamond partners with SMArtX, which is a UMA rebalancing and trading platform. Orion owns FTJ and Brinker, and they’ve also got their own direct indexing product. Morningstar does not have a direct indexing product yet, but they have a model marketplace. So they can certainly launch some sort of direct indexing solution as well.
Lots of ways for advisors to get direct indexing. I’m sure there’s plenty of room for Ethic to continue to grow, even with all of the competitors, just because of the size of the RIA space. It’s just tremendous when you’ve got 17,000 SEC registered RIAs out there. Lots of money sloshing around that these guys can try to pick up. Their research has shown 42% of advisors expect to increase their use of ESG in the next two years. That’ll be good. I believe that number seems pretty reasonable. one thing I think might be an issue, Ethic charges clients between 28 BPS and 35 BPS for its fund. That seems high for a directing indexing fund rather than an actively managed SMA. So I would look for that number to get a little pressured as more competitors come out to the space and offer more solutions, but hopefully they’ll be able to keep going and and make their investors give them a good return.
Wealthfront Launches First Self-Driving Money™ Service
Craig: The next story is Wealthfront Self-Driving Money launch. As we all know, Wealthfront, one of the original robo-advisors, they have been in a battle to be relevant, really, to be more than just an online RIA which they have been trying very hard to do. And the Self-Driving Money could be it, Wealthfront did launch their own banking. They realized they needed to get into that space and they have a cash account. So they’re looking to offer this Self-Driving Money where basically, if you have money, you have enough cash to put in a couple different accounts, you can move it around automatically. It’ll have your direct deposit, which all of these companies are just dying for. Getting direct deposit is like the brass ring of a lot of these robo bank challenger banks is once you get direct deposit, you own the client. It’s hard to switch. There’s a lot of inertia for clients to switch their direct deposits. Once you have that, you pretty much have the client for a long time. There’s a much lower churn on clients that have direct deposit. So once you get direct deposit into your Wealthfront cash account, you can set up some sort of automated money movement every month to cover your bills, to cover spending, to put a little bit into an emergency fund, to move some to long-term investing. They have a cash sweep designed to move money over a certain amounts into different accounts. From savings to checking, or checking and savings, or savings to investing, it all could work well if you’ve got enough money. And we all know that most Americans don’t, they can’t even afford a $400 emergency expense.
A lot of Americans are living paycheck to paycheck, so I’m not sure how many people will want to use this or understand how it works or understand the value of moving money around like this. It’s a lot of education, hopefully Wealthfront’s got the education part covered, and we’ll be able to slowly build up the number of clients who are using this and accessing it. And it makes it stickier, it makes Wealthfront stickier. It’s a unique service. I know Betterment has some sort of sweep function, but it’s not as complex as this, not as functional as this. This seems cool to me, but I’d like to see what the uptake is. If enough Wealthfront customers actually use it to make it worthwhile.
Luma Selects CANNEX to Enhance Annuity Offering
Craig: Third story, Luma partners with CANNEX offer annuity data tool. That’s a complicated storyline. And what is Luma? Luma is a platform. It started out as a structured note platform for advisors to purchase structured notes, and structured note providers to offer them in a sort of a marketplace. There’s a number of these online marketplaces, Luma is one it’s Luma Financial. Another one is Halo Investing. And the third one is Simon.io. And they all offer structured investments, things like buffer ETFs, other very complex solutions, which most broker dealers won’t touch. Some advisors see it as a big advantage for them, especially with higher net worth clients. And these platforms allow advisors to get in on some things that they had to buy for middlemen. Now they get a direct access to the marketplace and these platforms have taken off.
Luma is now offering annuities, which they hadn’t offered before. Although their competitors did, I believe. I believe Halo and Simon both offer annuities Halo says new, so that might just be a recent addition. But now all three, I guess, Luma felt the pressure to offer annuities as well. And I know my firm Ezra Group, we’re seeing interest from firms in launching the new annuities products, but mainly tech based annuities. Either annuities that are built into something, annuities that are wrapped in something. Technology that can offer more advice to clients about what annuities they should buy and how they can improve their use of annuities. And we got a lot of feedback on that, a lot of input from firms asking us for help.
So we’re seeing a lot of this coming down the pike and these marketplaces, I think, are going to get a lot of uptake as more advisors start getting into annuities, the Envestnet insurance exchange is really pushing the ability for advisors to look across different annuity providers and make decisions inside a platform and never having to leave. So that’s giving more advisors the understanding of how to do this firms like DPL and RetireOne offering advisors who don’t have insurance licenses. They go to buy insurance. So lots of different ways for advisors to get into the insurance market. It’s really expanding well. And we’re seeing a lot of movement there.
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