Forced to reconcile with the growth of automated and cheaper robo advisor services, the traditional wealth management industry has turned to technology to keep its high-touch, high-net-worth-focused approach relevant.

Financial advisor platform and service provider Envestnet is taking the acquisition route, spending an estimated $32 million on financial technology companies Finance Logix and Upside -- a bet that the best wealth management model combines human advisor-client relationships with the latest technology.

"The robo offerings are helping to spotlight two trends," says Stuart DePina, the group president of Envestnet | Tamarac, the division of the company that provides rebalancing, reporting and practice-management software.

"The first is that the mass-affluent, or millennial, marketplace is underserved," he says. "The second is that consumers are looking for more automated digital advice – which is also influenced by the ongoing trend in mobile communications technology."

DePina says the initial direct-to-consumer robo offerings are focusing on addressing the first point: reaching the elusive new investors. Just like traditional businesses, digital businesses take time to build and scale. This will be a long arc that will play out over years, DePina predicts.

Envestnet's purchases are the latest in a series of acquisitions in the digital financial advice space. Earlier this year, Fidelity scooped up eMoney Advisor and Northwestern Mutual landed LearnVest. Meanwhile, both Schwab and Vanguard have been ramping up their own robo-advisory platforms, in both cases building them in-house.

The deals done by Envestnet, Fidelity and Northwestern are estimated in total to be worth in the hundreds of millions (Fidelity acquired eMoney for a reported $250 million, while Northwestern's purchase price of Learnvest was more than its $250 million valuation, according to Bloomberg.)

Future buyers may not be willing to pay a premium. However, it won’t be long until the industry is talking about another big acquisition in the space, wrote Will Trout, senior analyst of securities and investments at Celent and the co-founder of Bank Innovators Council, in a blog post.

What’s behind the interest in these digital-advice and financial-planning software vendors?

"As a class, they enjoy an important point of distinction from other vendors in the wealth management ecosystem, in that the tools they offer enable real proximity to the end customer – think client portals and the ability to tweak data for visualization," Trout writes. "Closeness to the consumer helps a firm to exercise market power.

"In this context, the more than $30 million Envestnet paid for Finance Logix is almost immaterial," he added. "Envestnet is jockeying for position in the bigger wealth management ecosystem, and they really wanted this kind of client touch point. This deal was about strategic considerations, not price."


DePina says Envestnet saw opportunities for their own business opened up by the popularity, strengths and weaknesses of robo advisors. Because the digital advisor offerings focus on their market efforts, he says the element that has been overlooked is the service side to the investor.

"[And] the service side is where Envestnet excels," DePina says. "By adding Upside’s comprehensive digital model to our massive investment infrastructure, we can empower advisors with their own digital advice capabilities that are built on our full-service platform.

Upside’s platform is advisor-branded and includes paperless onboarding, required automated trading and rebalancing, portfolio selection, client and advisor portals, and practice analytics.

The acquisition combined Upside’s investor-facing financial planning and investment management software with Envestnet’s turnkey asset management program, portfolio analytics, account-servicing infrastructure and reporting capabilities.

"Clients of all sizes—from mass-affluent to the ultra-high-net-worth—want to engage with their wealth in deeper, more connected ways," he adds. "Envestnet will deliver a broad range of services, like aggregated performance reporting, tax and other management tools, goal tracking, as well as other ways for an investor to engage in achieving and tracking goals. And we will do it through financial advisors who already have large and successful businesses."

His company will integrate Finance Logix’s financial-planning application with Envestnet’s suite of investment products and services, portfolio analytics, account servicing and reporting capabilities. Envestnet will continue to support the standalone financial planning software model for existing and new clients, and it will also offer integrated software to the wealth management platform’s users.

DePina says that Finance Logix was an attractive acquisition target because it has been a pioneer in developing a goals-based approach to financial planning and has developed an impressive suite of financial-planning capabilities in a way that is easy to customize, deploy and integrate.

He expects this new functionality of Finance Logix’s financial-planning modules will become a core component of Envestnet’s digital advisor platform.

"Finance Logix has been in the financial planning space for quite some time, and it makes it easier from a software perspective to integrate their technology into Envestment’s platform," DePina says. "The purpose for us is to have more of an ecosystem around the entire advisor experience.

"In a core financial-planning practice, having these digital tools in place to build portfolios and manage client relationships will tie into the proposal process," he says. "The software’s functionality helps advisors to assess the appropriate risk profile and investment goals of individual investors when it comes time to identify the components of a particular portfolio."

Envestnet’s current plan is for the integrations of the acquired companies to be fully in place by the end of the year.


Many of the fee-based advisory platforms and independent broker-dealers are powered by Envestnet or a platform like Envestnet. Wealth management firms currently Envestnet clients and wanting to offer robo service can either leverage infrastructure of the platform they already use or build a new one. Envestnet is betting that most will choose the first option.

"That might or might not be desirable, as many wealth management firms want to keep the investment management on one platform, which Envestnet has recognized early on," says Alois Pirker, research director at Aite Group. "Many of the players in the market with a similar position as Envestnet see robo advisors as a threat.

"They have the option of criticizing and hiding and trying to protect their turf or embracing the digital advice model," Pirker adds. "Envestnet has taken the latter path to a greater extent than any competitors."

Pirker says with Fidelity’s eMoney and Northwestern Mutual’s LearnVest acquisitions still in the early days, others in the industry are figuring out strategy.

"It’s a bit of a land grab right now, and it does require strategy-building," Pirker says. "Firms such as Fidelity, Northwestern Mutual have bigger marketing muscle and bigger client bases. After the repercussions of these acquisitions are felt, adoption of robo-advisory platforms will go up and the ability of such technologies to scale across the market will be much greater."

Pirker adds Envestnet’s plan is based on the realization the more traditional wealth management firms will start to want to engage with consumers in a similar way, including ones that are using Envestnet already.

"Envestnet executives most likely asked themselves, ‘Why not give them the tools to do that right here rather than take assets to a different robo-advisory platform?’" Pirker says. "These acquisitions allow advisors to use that software as a client-facing front end and Envestnet can still add assets to their core platform rather than assets moving away to competitors.

"Envestnet is not just competing with other TAMPs – market sentiment has gone from ignorance to fear of robo-advisors," he says. "There’s an opportunity there for firms that actually are figuring it out sooner rather than later – for example, Schwab and Vanguard both went all in on it."

"What we see now, firms such as Envestnet and Fidelity and Northwestern Mutual investing in it, not just well-capitalized startups, so the trend is real. Firms are actually adopting new ways of working with clients, which puts the transition to digital into the next stage, moving from fear to taking advantage of it and adopting it."

The main problem slowing industry adoption of robos or digital wealth management capabilities is not the technology, Pirker says. Rather, it’s that going digital typically requires a shift in traditional wealth management firms’ business model and segmentation to gauge what tools various investors want, which takes work.

"Changing the business and service models is much harder than just throwing the digital wealth management tool out there," Pirker says. "It takes a certain innovative spirit to make it work, as demonstrated by the early-adopters.

"Some firms are simply not in a position to make that leap – they don’t have the funds or the commitment for it, or they may other problems to fight within their organization that take priority," he says. "That will create a gap between the early-movers and the rest, so Envestnet will do really well with that. These acquisitions put them in a really good position."

Read more:

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access