Navigating the Complex World of Wealth Management: An Insightful Discussion with Envestnet’s Tom Sipp

We had the privilege of sitting down with Tom Sipp, EVP of Business Lines at Envestnet, at the company’s recent Elevate Conference. Our conversation revolved around the topic of integration—specifically, how Envestnet is combining its numerous acquisitions and services to enhance and expand their industry-leading, wealth management platform. During the interview, he shared valuable insights regarding the company’s vision, achievements, and upcoming product roadmap.

Scaling Up and Consolidating

Sipp began by highlighting Envestnet’s impressive track record and scalability of their platforms, boasting $6 trillion in AUA, over 20 million client accounts, processing 200 million trades annually, and the MoneyGuide division is monitoring over $2 trillion in assets with 2.4 million new financial plans​ created last year. 

He attributed these achievements to the consolidation of their outsourced investment management business and technology products, as well as finishing the integration of a number of acquired businesses. Consequently, customer feedback and service scores have seen remarkable improvements, he noted.

Existing clients have shown an eagerness to add new Envestnet services, presenting a prime opportunity to deepen their relationships without adding more clients. We refer to this as increasing wallet share which is a great way for a market leader to grow revenue as gaining each new point of market share becomes increasingly more difficult. According to Sipp, diversification and enhancement of services are vital for sustained growth in the highly competitive wealth management landscape.

Connecting the Ecosystem: Tamarac and Beyond

Another notable aspect of Envestnet’s evolution is highlighted by (finally) connecting Tamarac with their outsourced middle office services and manager marketplace, which were previously only available to clients on their enterprise platform. Combining the ecosystems brings several advantages, including enhanced user experience and a more straightforward adoption process for RIAs of investment outsourcing. Furthermore, Sipp hinted that future expansions are on their roadmap, which means more enterprise functionality will be extended to Tamarac clients.

Planning, Wealth, and Analytics Integration

When discussing the practical implications of integrating financial planning, wealth, and analytics, Sipp explained that the primary objective is to enable seamless transitions from insights discovered within a plan to executing transactions based on them.  This is only possible with tight connections that maintain client context from MoneyGuide into Tamarac or the enterprise platform.

These types of linked transactions from financial planning into portfolio management are becoming more common as Envestnet’s competitors move towards the same goal of a seamless advisor workflows across their ecosystem. Last year, Pershing invested in Canada-based Conquest Planning as part of their Series A capital raise and have demoed similar integrations between their application and Pershing’s new Wove platform. Orion acquired financial planning software vendor Advizr back in 2019 and has been busy integrating it across their system.

Integrated Custody: Deep Connections

We asked Sipp about his announcement during his keynote about Envestnet launching an integrated custody offering. He clarified that although Envestnet currently supports an open architecture model with 33 custodians, a handful of them will enjoy deeper integration. The rationale behind limiting the number of tightly connected custodians stems from the substantial effort required to coordinate technically and commercially. Nevertheless, customers will retain freedom of choice, albeit limited compared to the initial open architecture concept.

According to Sipp, their alliance with FNZ (which was announced in Oct 2022) isn’t driven by strategic considerations for global expansion. Rather, it serves an immediate need of US clients for better custody experiences supporting more comprehensive wealth management solutions.

At Ezra Group, we see the Envestnet-FNZ partnership as having tremendous benefits to both companies.  FNZ brings a strong wealth management technology platform that has been very successful outside of the US and Envestnet may be able to leverage some of that, especially FNZ’s support for multi-currency and multi-language support.

FNZ also brings a highly-capable enterprise-level account opening and workflow engine from their acquisition of Appway, which was their first foothold in the US wealth market, counting JP Morgan, Credit Suisse, HSBC and LPL Financial as clients.  Envestnet would do well to look for ways to leverage Appway’s tech, if possible.

But it’s the concept of combining Envestnet’s market-dominant enterprise technology platform, their TAMP, their outsourced middle office services and their PMC asset manager with an integrated custody solution from FNZ that we believe could be incredibly attractive.  

Right after their announcement, an analysts at JMP Securities said the custodial business “could be one of the (Envestnet’s) biggest opportunities to date.”  (per WealthManagement.com)

While Envestnet makes roughly 10 basis points on assets on its platform, according to JMP, custodial revenue could be twice as much, when adding up all the various ways that custodians generate revenue from assets they hold for clients. Of course, they would need to split this with FNZ so it’s not a slam dunk doubling of income. But when you’re the market leader in an industry with extremely long sales cycles and tremendous inertia from clients to replace their existing platform, you don’t turn down complementary revenue streams. (See Ep. 157: Don’t Go Broke! Tips for Keeping Tech Vendors in Line with Jason Albino, Grove Point Financial)

What complicates the new offering is that it’s non-trivial to combine these various services together, especially when they are provided by different entities. FNZ’s US custody platform was acquired from State Street, which sold a majority stake in their Wealth Manager Services business to FNZ in 2020. The unit was later renamed FNZ Trust Services, with a minority ownership still held by State Street, who acts as the sub-custodian.

These multiple layers increase the level of difficulty in constructing what the customer sees as a seamless end-to-end solution from financial planning to account opening to custody to portfolio management to reporting to billing. Which is probably the reason that Envestnet has not yet launched their integrated custody offering even after publicly announcing it would be ready by the second half of 2023.

Sipp is known as a straight-shooter and he addressed this issue head on when he emphasized that Envestnet’s record on delivering new functionality has skyrocketed since Molly Weiss took over as Group President of their Wealth Management business.  While this has greatly increased client confidence, Sipp conceded that, “we’re not batting a thousand”. (See Envestnet’s Molly Weiss on the Value of AI-Driven Insights in Financial Planning)

This delay gives a little breathing room to Pershing Wove, which announced a suite of new products and services at their recent client conference that appear to directly target Envestnet including a TAMP offering, tax transition services and access to third party models. 

Pershing has the advantage of being vertically integrated by directly owning both the custodian and the technology, so there is no need to build connections to another company with a different infrastructure. They still have a long way to go until their offering is as robust and scalable as Envestnet’s, but with backing from their parent BNY Mellon, they appear to be investing for the long haul.

Regarding additional integrated custody partners, we suggested that Fidelity seemed a likely candidate considering their long history of partnering with Envestnet, as shown by the recent ​FMax expansion announcement.  Sipp demurred and did not directly address our suggestion and remained vague about the identity of a second custodian. However, he assured us that Envestnet intended to maintain a small pool of deeply integrated custodians to preserve the benefits of open architecture while still delivering exceptional service to clients.

Trust Services 

We then mentioned that SS&C had recently announced a new platform targeting firms with both trust and wealth management business that combined Black Diamond with Innovest and asked Sipp if Envetnet had any plans to enter the trust space with a technology offering.

Sipp stated that neither an acquisition nor internal development of a trust accounting platform is on the horizon. Instead, Envestnet prefers forming strategic partnerships, including through their trust services exchange, and potentially leaning on FNZ to provide integrated trust services alongside their wealth management offering and also continuing to promote their PMC direct indexing and high-net-worth investment solutions.

Final Thoughts

Our conversation with Tom Sipp shed light on Envestnet’s ambitious integration plans that will eventually deliver a seamless, end-to-end experience for advisors from financial planning to proposal generation to portfolio management to reporting to billing and to custody while maintaining open architecture throughout.  

This is a tall order and there have been a number of fits and starts along the way, but the firm’s ability to deliver promised new features and functionality has shown a strong upturn in the past two years, bringing a sense of confidence to their huge client base that they will continue to maintain their leadership position.

Tom Sipp Integrated Custody

In October 2022, Envestnet partnered with New Zealand custody and wealth tech firm FNZ to build a holistic digital experience for clients. 

Many existing clients are looking for a stronger custody experience with more robust wealth to custody, front to back capabilities. To better service those clients, Envestnet will be developing deep integrations with a few of their custodian partners. While FNZ is their main custodial partner, Envestnet is and always will be open architecture, currently working with 33 custodians. 

FNZ’s offerings strongly suit certain client personas, but in order to effectively serve all their customers Envestnet will be bringing at least one or two other custodian partnerships on board. The custodian options will be designed to complement FNZ, not to compete with it. 

Creating thorough integrations requires a huge amount of work from both parties, so the list of options will be narrow and specific. For FNZ in particular, the custodian has to customize an international platform to serve American customers, altering their trading, broker dealer, and operations systems to fit the large and complex US market. 

The benefits of their holistic offering will eventually cross all sectors of the industry, starting with bank units and RIAs and moving towards broker-dealer customers at the end of the year

Integrated custody is a big step forward for Envestnet’s growing offerings from a client service perspective but also as a business decision. The firm is expecting to make an additional 2 to 5 basis points on custodied assets, and earn money on a spread for cash it holds.

FNZ has built out extensive services, including their Yield X integration, but they’re not alone in the race to improve. As a wider trend, custodians across the industry have started working to bolster their offerings and provide competitive capabilities through expanded digital experiences and other product enhancements. 

SEARCH

ABOUT ME

The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at craig@ezragroupllc.com

SUBSCRIBE TO OUR NEWSLETTER VIA EMAIL

@CRAIGISKOWITZ

ARCHIVES

Archives