After a quiet period, Envestnet returned to blockbuster wheeling and dealing, announcing a $195 million cash acquisition of wealth management platform competitor FolioDynamix.

Envestnet’s sixth largest deal this decade will create a platform serving nearly $2 trillion in assets and 10 million accounts, the firms said in a joint statement.

“FolioDynamix gets Envestnet into a corner of the industry it was struggling to get into by itself,” says Alois Pirker, research director at Aite Group’s wealth management practice. “This is the area of large broker-dealer firms and independent networks such as Raymond James and LPL that want a fully custom desktop strategy that also includes top notch trading tools.”

The deal broadens its offerings after its last major acquisition of data aggregator Yodlee in 2015 for $590 million, says Bill Crager, Envestnet’s president.

The FolioDynamix acquisition is "another important investment in what we anticipate the future of investment advice to look like,” says Bill Crager, president of Envestnet.
The FolioDynamix acquisition is "another important investment in what we anticipate the future of investment advice to look like,” says Bill Crager, president of Envestnet.

“It’s another important investment in what we anticipate the future of investment advice to look like,” Crager says. “That is the delivery of fiduciary advice to end clients in different ways within an integrated framework, scaled and fully powered by very robust data.”

The acquisition will provide Envestnet with greater trading ability and add commission and brokerage support, Crager says.

“In this regulatory environment, it is this combination of fee-based and commissions in a compliance framework that helps that advisor meet that fiduciary standard,” Crager says.

‘AHEAD OF THE CURVE’
Joseph Mrak, FolioDynamix CEO, says he’s not concerned that FolioDynamix clients may bleed off as it becomes part of Envestnet.

The integration “offers each of our customers the best of both worlds,” Mrak says.

Mrak and Crager declined to discuss pricing strategy, but Mrak expects little change for existing FolioDynamix clients.

“Pricing in this space is more art than science,” he says. “We definitely take the same approach to figuring pricing on client business models. I don’t see that changing very much in the future.”

Crager says he’s not concerned that the market may react adversely to the deal in the way that it did with the half-billion dollar acquisition of Yodlee. In 2015, after the acquisition announcement, Envestnet stock dropped 35%.

“We look at the strategy and long-term value of the business, and how those investments pay off. Yodlee speaks to this,” he says. “As the technology has evolved and the importance of data has become clear, the industry recognizes the value it brings to an investment platform. Software is fueled by data, data is powered by computing power, and ultimately delivered by AI. I like to think we were ahead of the curve.”

NO SMALL FEAT
The deal solidifies Envestnet’s dominant position in the wealth management platform space, notes Aite Group’s Pirker.

Envestnet’s other major buys since 2010 include software firm Finance Logix and automated advice provider Upside in 2015, and Tamarac in 2012 for $54 million.

Pirker adds that Aite Group estimates total fee-based assets across the U.S. brokerage and RIA industry at $8 trillion. “Envestnet can claim to be the backbone of a quarter of the industry’s fee-based assets,” he says. “Not a small feat.”

Crager and Mrak acknowledge the pace of digital transformation across wealth management necessitated a quicker cycle of development and investment by firms.

“In the last number of years, the stakes have definitely gotten higher in terms of delivering top notch technology,” Mrak says. “A lot has been driven by the end consumer, the end investor and technology. The robo movement was about putting tech into the hands of the end investor and making advisors more efficient.”

Crager left open the door for further acquisitions by Envestnet.

“Clearly there’s been an increase in the speed and tempo of change across the space,” he says. “The digitization of everything has been disruptive and I believe beneficial to consumers, in how they receive information and coordinate their financial lives.

“Our posture here is that we invite it, we want to instigate it,” he adds. “I think the service model will continue to evolve for advisors and firms.”

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