Earlier this week, BlackRock said it is buying a roughly 4.9% stake of wealth platform provider Envestnet, which works with about 93,000 advisors.
The deal effects “how wealth is being delivered to U.S. households,” said Envestnet President Bill Crager, because it “connects BlackRock technology with our platform and creates streamlined, frictionless advice that is … powerful for financial advisors.”
For Envestnet, the arrangement means its advisor clients can work more with BlackRock’s planning and risk overlay tools, for instance, and that should help Envestnet attract more advisors and investor clients to its platforms “because the solutions are differentiated,” explained Crager in an interview.
Is the tie-up a surprise? Not really, according to Tim Welsh, head of the consultancy Nexus Strategy.
Today, technology is driving “the distribution of assets away from human wholesalers, asset managers and … asset-management [programs] … via the technology pipes of the portfolio-accounting and risk-management systems (Orion, Black Diamond, Tamarac, Riskalyze) to their model marketplaces,” Welsh explained.
BlackRock is the 800-pound gorilla on the asset-management side of the wealth business, and “most distribution of assets today is going through tech pipelines rather than wholesalers,” he said.
Both BlackRock and Envestnet “have big, powerful brands, market share and distribution power, so it’s almost inevitable that they would cross paths,” the consultant added. With BlackRock as a powerful product maker and Envestnet owning a powerful pipeline to advisors, “This is a killer combination.”
“We are in the early innings of a bigger, broader game,” said Welsh, in which technology is driving the distribution of assets onto platforms that are used by advisors and investors.
And BlackRock’s acquisition of an Envestnet stake reminds the consultant of what insurers did a few decades ago — buying broker-dealers, so they could have a distribution network for their annuity products. The difference, though, is that “technology has no conflict of interest or regulatory problems, so this [latest deal] can work” longer term.
“It’s just day one,” said Welsh, who thinks BlackRock will likely buy more shares of Envestnet “as part of the digitization of wealth management.”
How It Happened
When asked how the deal came together, Crager points to Envestnet’s “long-term relationship” with BlackRock and a pilot project that involved a couple hundred advisors at two broker-dealers.
After Envestnet did some integration of BlackRock’s iRetire onto its platforms, its executives had a “wow” moment as more and more advisors started to adopt the tool and use it more than expected.
The two firms then got together to explore what steps they should take next. “BlackRock wanted to solidify the partnership, and they saw an investment in us as a way to fund their vision and support the model and platform,” Crager explained.
For Envestnet, “The next phase is full integration [of more BlackRock technology], which we are planning releases of … through the end of next year,” the executive said.
Crager insists that deal with BlackRock “does not create a bias … and we remain completely open architecture and open to partnerships with all asset managers to deliver to the best for all our advisors.”
In general, he explained, “Technology will draw more advisors and more assets flows” to platform providers, and that benefits all asset managers.”
The combination of the two firms “really signals a future for financial advisors who are tech supported. [It’s about] more driving capabilities and the scaling of human advice to deliver better outcomes for clients,” Crager said. “That is our purpose, and the news shows the progress of our ability to achieve it.”
‘Tech Is Driving Everything’
Other industry players are upbeat on the significance of the BlackRock-Envestnet partnership. “It’s another data point that reconfirms that financial advisors are demanding a better tech experience,” said Mike McDaniel, co-founder and chief investment officer of Riskalyze.
In response to this and other changes in the marketplace, firms are “being creative,” McDaniel explained. “Demand percolates. It starts with the advisor, moves on to the home office, and then those in the home office say what they will do about it.”
Advisors and their firms “look to us and other platforms to satiate the demand [for technology]; they need lots of partners to help to deliver the experience” that advisors desire, he said.
Riskalyze, which focuses on helping advisors who embrace the “rep as portfolio manager” approach, works with a variety of “advisor-centric” asset managers, according to McDaniel. For instance, it partners with BlackRock, First Trust and American Funds, which create core portfolio models that advisors build satellite programs around.
While the tech firm has not sold a stake to an asset manager or other outside organization, “We do feel the demand for that,” he said, adding that Riskalyze technology is used by about 20,000 financial professionals.
This week’s BlackRock-Envestnet new is “exciting,” according to McDaniel. “It’s about two [firms] we partner with, and we love to see action that continues to prove what we see in our data: Tech is driving everything from asset flows to recruiting to better investing decisions … distribution and more.”
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