Every so often a new tech solution comes along that makes you say, “why did no one think of this before?!”
This what I said to myself when I first heard of Pontera and their technology enabling advisors to trade directly in 401(k) and other retirement accounts.
It has revolutionized how advisors interact with assets that they do not have custody over as well as their justification for charging a fee for managing them.
As Pontera has gained traction with advisors, vendors of portfolio management software have taken notice and reached out to build integrations into their platforms. Pontera currently lists eleven partners who have done this and the two most recent are Envestnet and AssetBook.
At Ezra Group we take a special interest in all things integration, and so we sat down with Dani Fava, Group Head of Product Innovation at Envestnet, and Marwa Zakharia, CEO of AssetBook, to find out more about the arrangement and the new opportunities it offers to advisors.
The Background
Employer-sponsored retirement accounts like 401(k)s, 403(b)s and 457s were once part of the last frontier of assets that advisors could not reach. With consumers holding over $10 trillion in assets in these and other other defined-contribution plans, this meant almost a third of all retirement assets were off limits.
Pontera is opening the door for advisors to directly manage these assets for the first time.
Pontera is not a new startup. They launched back in 2012, branded as FeeX, with software that provided portfolio analytics fee review fees in 401(k) accounts.
As more advisors began using these tools, they wanted more than just viewing and recommended portfolio changes. They wanted the ability to make the trades themselves.
The firm developed a secure communications layer connected to each of the major 401(k) plan providers and were able to extract the individual positions and prices as well as directly send the trades requested by advisors.
In 2022, FeeX renamed themselves to Pontera.
Pontera’s technology securely enables advisors to manage their client’s 401(k)s, 403(b)s and other commonly held-away accounts. The software gives clients control of permissions and allows advisors to manage held-away assets without obtaining credentials or accessing the accounts directly. By putting 401(k)s within advisors’ reach, platforms can increase their AUM by incredible rates without adding a single new client.
Broadening Their Horizons
“We wanted the integration so we could give AssetBook advisors a holistic approach to their planning,” Zakharia stated. So far, the integration seems to be a win for everyone involved.
Envestnet was fielding a long waitlist for the service before it was even announced, Fava explained.
Firms were so excited to get their hands on the integration that they lined up for months to access it. “The demand has mostly come to us,” she said.
Interest has been widespread, with firms of all sizes and specialties requesting it to streamline their portfolio management processes. This interest includes both from Envestnet’s enterprise clients and Tamarac clients as well, Favi noted, and the reviews have been overwhelmingly positive.
Wins All Around
“Being client-focused is at the core of every decision and partnership we make,” Zakharia said. “Adding Pontera helps us improve the user experience while driving revenue growth. It’s a win-win.”
Most firms accessing held-away assets through Pontera charge clients the same fee as they do for assets custodied directly. Although, Fava estimated that Envestnet’s clients are charging around half of their standard fee.
Even so, the additional benefit has delivered significant revenue gains, with one of Envestnet’s larger broker dealers projecting a 30% AUM increase from the integration.
From the customer’s perspective, they’re willing to pay similar fees to their advisor to extend implement their recommendations directly in their employer-held retirement accounts. Recent studies have found that professional investment management can add more than three percent of accretive annual returns, net of fees.
Firms accessing Pontera through Envestnet are not charged extra for the service, Fava noted, but those using Envestnet’s outsourced portfolio management services will see their AUM-based fees increase as the additional held-away assets are included.
How Does It Work?
On Envestnet, 401(k) and other accounts will appear on the advisor’s dashboard as an externally held account similar to those imported from data aggregation feeds like Yodlee or ByAllAccounts, Fava explained.
While trading still requires an extra step, deployment for small and mid-size firms is relatively straightforward, Fava noted. They first sign an LOA for permission to gather client data, then their rep code is added to the data interface in Tamarac, and the feed is turned on in the dashboard. For enterprise firms, Envestnet goes through a full consulting engagement to create a plan that complements the firm’s specific process.
Is it a Custodian or a Rebalancer?
“Clients considered Pontera to be a rebalancer when they requested the integration, but it works more like a custodian from our perspective,” Zakharia observed. “I really see them as a hybrid of both.”
This hybrid will wind up increasing the amount of work that rebalancers are required to perform, since they usually deal with only a single custodian per household. But with the Pontera feed, almost every household will have accounts from at least two custodians. To better support this additional effort,. AssetBook has been working to enhance their rebalancer, Zakharia said.
Putting in the Work
At Ezra Group, we know that creating strong integrations isn’t easy, and takes an incredible amount of work from all parties.
“Pontera is a great partner, and they do a lot of work behind the scenes,” Fava emphasized. “It isn’t a cheap business that they’re running, there’s lots of fraud prevention and manual reconciliation they have to go through to make it all work.”
Envestnet ran a beta for the service at the end of 2022 to ensure that they could complete their side of the reconciliation process. Much of the math is happening on Pontera’s side, Fava noted, but Envestnet’s platform had to be extended and tested to prevent any mistakes or oversights.
Points for Improvement
The integration with Pontera gives Envestnet and AssetBook much greater functionality, but there doesn’t seem to be anything stopping other vendors from doing this as well. There are already nine other vendors listed as partners on Pontera’s website, including Morningstar, Orion and Addepar, so it seems only a matter of time before these capabilities become table stakes across the industry.
While Pontera is integrated inside of each portfolio management platform and looks just like another custodian feed, neither Envestnet nor AssetBook has built a two-way integration, so advisors must switch to a different browser tab to execute trades in Pontera.
While this is certainly an improvement, we’d like to see this integration go a step forward and turn into a straight-through process that advisors can complete without leaving their portfolio management platform.
They need to use this head start to make their product better than anything else on the market, and they should start by building it into a straight-through process. Right now it’s still an extra step the advisor has to go through, and that step is adding friction to their workflow. Having a better interface that removes those extra steps that users hate will give them a reason to choose Envestnet or AssetBook for the direct Pontera access.
Our Takeaways
It’s always exciting to see new strides made in wealth technology, and Pontera’s recent entry is no exception as they redefine the limits of portfolio management. Envestnet, AssetBook, and others are starting to see their integration work pay off in growing AUMs, which is excellent news for clients and advisors, as well as for future cutting-edge partnerships.
Direct management of company-owned retirement accounts will soon become ubiquitous, although the need to tab switch will limit adoption rates. Full, two-way integration is the next step, and we’re betting that the first vendor who is able to built direct Pontera access into their environment will have a distinct market advantage.
