Why Envestnet bought Schwab’s PortfolioCenter

Register now

With ambition to gain entry into new markets, Envestnet | Tamarac is buying PortfolioCenter, a Schwab portfolio management platform.

“We see this as a tremendous opportunity for us to focus the Tamarac offerings on the mid-sized advisor, which is a huge part of the market that we have not intentionally emphasized,” CEO Jud Bergman said during an earnings call. “That changes with this acquisition.”

Envestnet expects to add $10 million in revenue once the deal closes later this year. The company posted fourth quarter revenue of $210 million, up from $183 million for the year-ago period, a 15% increase.

Although terms of the deal were not disclosed, Envestnet CFO Pete D’Arrigo said the price of the transaction was “immaterial” to its overall balance sheet.

Some advisors said the technology wasn’t up to par with other industry options. “We find that the PortfolioCenter is a little clunky and could be more user-friendly,” says Monica Dwyer, a West Chester, Ohio-based advisor at Harvest Advisors.

In a statement, Andrew Salesky, senior vice president of digital advisor solutions at Schwab, said Envestnet is best positioned to “to acquire and continue to support the platform.”

He added in a follow-up interview with Financial Planning that there is a wide array and diversity of third-party options in portfolio management tools. “What we hear from clients is they don’t want to have Schwab limiting their choice,” Salesky said.

Tamarac has used PortfolioCenter as its primary portfolio management system and the underlying database since 2008, according to Andina Anderson, executive managing director of Envestnet | Tamarac. By purchasing the software, Envestnet also saves money on the licensing fee.

Of the 3,000 RIAs currently using PortfolioCenter, about two thirds access it through the Schwab network, meaning Envestnet has the opportunity to get the remaining 2,000 or so RIAs on the Schwab platform to adapt other software products from the company, Bergman said during the earnings call.

Half of the firms using PortfolioCenter on the Tamarac network have $500 million or more in client assets, according to the company. The advisors on the Schwab platform are generally smaller in size and are a prime target, Anderson tells Financial Planning.

“It’s a really big opportunity for us,” Anderson says. “We’ve gotten a lot of penetration with larger firms.” Over 35% of firms with $1 billion or more in assets currently use the Envestnet platform, she says. “We’ve talked for years about being able to focus on the smaller end of the market and this is going to jump start us getting there.”

Schwab, meanwhile, is introducing Portfolio Connect, a next-generation system which has begun a phased rollout for a limited number of firms, with general availability scheduled for mid-2019, according to the firm. The new tool lets advisors choose from over 50 of the most commonly used benchmarks for comparison purposes.

“They spent years talking about a cloud-based solution that just didn’t materialize,” says William Trout, an analyst for Celent. “It’s the endgame.”

Now, the pain points for advisors using PortfolioCenter like a lack of real-time processing and integrations fall to Envestnet, Trout says.

Some advisors, like Dwyer, are optimistic. Integrating PortfolioCenter into Tamarac's dashboard, Advisor View, may improve the technology, she says, “which would be a big win for us.”

Envestnet ended the fourth quarter with more than $2.7 trillion in assets and more than 10.8 million investor accounts, according to the company’s earnings report. In its wealth solutions segment, sales topped $33.6 billion in the fourth quarter.

Envestnet supports more than 96,000 advisors.

For reprint and licensing requests for this article, click here.
Portfolio management Investment technology RIAs Independent advisors Clearinghouses/custodians Jud Bergman Envestnet Schwab Advisor Services