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Technology > Marketing Technology

The Dark Side of Technology Consolidation

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What You Need to Know

  • The fast success and outsized growth of the IA segment attracted larger technology players and private equity investors eager to get in on the action.
  • Is consolidation limiting innovation and shrinking the wealth management arena?
  • History has taught that the more an industry consolidates, the more opportunities are created for innovators on the fringe.

A long time ago, in a galaxy far, far away, there lived a peaceful and harmonious group of independent software companies with a combined mission to make the lives of independent advisors and their clients better.

The general focus on trust and collaboration led them to open up their systems through APIs to facilitate data flows that created efficiencies, enabling advisors to thrive, and life was good for everyone.

But like most things in business, it didn’t last. The fast success and outsized growth of the independent advisor segment attracted larger technology players and private equity investors eager to get in on the action — and consolidation began. It accelerated as the first group of innovative, cloud-based portfolio management platforms were scooped up:

Envestnet bought Tamarac, Advent Software purchased Black Diamond, which was then consumed by SS&C, and Orion sold itself to private equity.

Next came financial planning systems, with Fidelity starting it by buying eMoney for $250 million, an unheard-of sum at the time. Envestnet then responded with mega-deals for Finance Logix and $500 million for MoneyGuidePro, while Orion picked up Advizr. AssetMark got in on the deal action with a large purchase of Voyant, which just left the mercy killing of NaviPlan by InvestCloud. And then InvestCloud was also consolidated by its PE backers with Finantix and Tegra118 to form a new fintech supermarket valued at $1 billion.

But we aren’t done with the deals just yet. While all of the above was going on, the popular CRM Junxure was bought by Wisdom Tree-owned AdvisorEngine, which was then sold to Franklin Templeton; SS&C picked off Salentica, Morningstar bought TRX, Orion acquired two TAMPs and Hidden Levers, Schwab unloaded Portfolio Center on Envestnet, robo advisors Jemstep and FutureAdvisor were acquired by big asset managers, and the list goes on.

Rebel Alliance

Despite this runaway consolidation, a rebel alliance kept the collaborative spirit alive in the wealthtech community and these emerging technology goliaths at bay. That was TD Ameritrade, an advisor-technology-friendly custodian. TDA’s open architecture for integration via its Veo platform provided a safe ecosystem for small, independent technology players to operate and thrive with the thousands of TDA technology-forward advisors.

But consolidation struck again and TDA’s light was snuffed out by the Schwabitrade Death Star, creating a new era of angst in the independent advisor tech space.

Of course, the consolidators and their PE backers will argue that scale is needed to continue to invest in wealthtech — and there is merit to that argument with commissions and interest rates going to zero — but at what ultimate cost? Is consolidation limiting innovation and shrinking the wealth management arena so much that firms are starting to turn on one another due to competitive pressure or desperation to distinguish themselves?

A case in point is Riskalyze’s recent ill-fated “marketing campaign.”

In an unprecedented industry move, Riskalyze CEO Aaron Klein called out Orion-owned Hidden Levers and Rixtrema by name and declared that these firms provide “predictive guesswork” that unnecessarily flames investor fears, leading to “widely inaccurate” outcomes.

Through direct and bold communication, Riskalyze lashed out with an orchestrated campaign that included a dedicated website, “,” inflammatory videos, and talking points for reporters and industry influencers.

At the same time, the short-lived campaign promoted Riskalyze’s approach as the preferred route for fiduciaries, and anyone serious about advising clients needed to stop using Orion’s Hidden Levers and Rixtrema immediately.

What could possibly go wrong? Well, just about everything.

Oops! Never Mind

Most notably, the thoughtful, high-road response from Orion and Rixtrema was quick and effective — so much so that it took less than 48 hours for Riskalyze to realize the strategic error it had made.

The firm walked back this communications disaster, took down the “” website and deleted all references to videos. These actions were followed by an even more public “mea culpa” due to all of the attention the attack campaign garnered, which was humbly delivered via a Twitter thread from Klein wishing he could take it all back and not name competitors directly.

What makes this whole incident even more curious is that Riskalyze didn’t have to take on this level of brand risk, as it is by far the market leader in its category.

By definition, market leaders do not need to engage in guerrilla marketing, as the only outcome will be to elevate competitors, damage their own brand and plant doubt in the industry regarding the long-term viability of the firm.

Even more curious is that the approach is so out of character for Klein, as he is widely known, admired and respected as a collegial, authentic and positive leader.

Which leaves the industry scratching its collective heads and wondering, why this approach? And why now?

One popular theory is Riskalyze’s evolving strategy to venture further up the investment management supply chain, not by acquisition, but by adding new capabilities for trading and rebalancing, model marketplaces and even a white-labeled robo advisor to the platform. At the same time, Riskalyze has pursued an aggressive integration strategy with adjacent technology platforms, successfully embedding itself in just about everyone’s workflows.

As a result, it could be that Riskalyze is running out of room to collaborate with the industry and now needs to compete directly with the consolidating giants.

Riskalyze’s evolution brings the profitable basis points that TAMPs, trading, rebalancing, reporting and portfolio management systems deliver directly into Riskalyze’s competitive sights — all of which, by the way, make up the majority of Orion’s revenue streams. Thus, it is clear that Riskalyze and firms like Orion have been on a collision course for some time.

Complicating matters for Riskalyze is the capital raise of $20 million in institutional funding it received from FTV Capital back in 2016. Perhaps that equity needs to be replaced, as PE and VC funding typically has a time frame of five to seven years?

These financing issues could be putting even more pressure on Klein and Riskalyze to grow faster and attract new investment as more large-scale competitors are entering the risk space, such as Orion with its purchase of Hidden Levers.

Don’t Offend Prospects

As a result, the attack campaign becomes even more confounding given Riskalyze’s precarious “boxed-in” position as an island in a sea of giants. The best it can come up with is to assault smaller competitors, which it had to know had the real possibility of backfiring in a spectacular way.

This competitive message had no chance of propelling the brand forward, let alone persuading Hidden Levers and Rixtrema users to change their minds and buy Riskalyze licenses instead.

The particularly aggressive message suggested that, as an advisor, if you use these platforms, then you are not worthy. I’m pretty sure that in the history of business, deliberately offending prospects has never worked as a marketing strategy.

As we look forward, the question remains: Is this just a marketing blunder or the start of an ongoing war, as Riskalyze’s product development road map brings it more into direct conflict with the consolidating giants and the rest of the wealthtech industry? Will others move to the dark side and respond in kind?

Meantime, history has taught us that the more an industry consolidates, the more opportunities are created for innovators on the fringe. The good news is that all you have to do is take one look at Michael Kitces’ fintech landscape chart to see the light glowing from the emerging renaissance in technology innovation that is alive and well in the independent wealth space.

Timothy D. Welsh, CFP, is president, CEO and founder of Nexus Strategy, LLC, a consulting firm to the wealth management industry and can be reached at [email protected] or on Twitter @NexusStrategy.


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