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.