Envestnet aggressively taking market share from wirehouses

CEO says majority of high net worth clients will move toward independent advisers

Mar 27, 2014 @ 10:54 am

By Jeff Benjamin

Don't even bother asking Judson Bergman about how much Wall Street appears to love the company he founded 14 years ago, because that's not what he can, will or wants to talk about.

The founder, chairman and chief executive of Envestnet Inc. (ENV) would rather talk about how aggressively his company is taking market share from the big wirehouses by giving independent financial advisers a platform that he hopes will leave commission-based advice in the dust.

“When we started this, our original premise was conceptually pretty simple; we envisioned a web-based platform that would enable independent advisers to better compete with wirehouse advisers,” he said. “We believed that the fee-based business model was a superior paradigm, but independent advisers didn't have access to the technology and products that the wirehouse brokers had.”

Mr. Bergman, 57, a former managing director for mutual funds at Nuveen Investments, leads a company that today serves more than 30,000 advisers, has $500 billion in total platform assets and brought in more than $240 million in revenue last year.

The stock price performance?

Mr. Bergman doesn't want to talk about it, but at close to $40 a share, it's up more than 330% from the July 2010 initial public offering.

(Don't miss: Envestnet gets a lot of love from advisers and the Street.)

InvestmentNews: You talk often about the financial advice industry transformation being at a tipping point and a new advisory paradigm. What does that look like to you?

Mr. Bergman: When I started this company 14 years ago, the vast majority of financial advisory assets were in commission-based brokerage accounts at wirehouses. We've been undergoing more than a decade-long transformation where advice is based on assets instead of commissions.

Today there are still more high-net-worth client assets in commission accounts, but within the next few years, I reasonably expect the shift will move toward fees, and the majority of high-net-worth clients will move toward independent advisers.

The emerging paradigm is a conflict-free independent advice model that is 100% fee-based, as opposed to a combination of fees and commissions, and general lack of disclosure on compensation.

InvestmentNews: Where is your biggest competition in the marketplace, the wirehouse platforms or other platforms like yours that target independent advisers?

Mr. Bergman: With respect to the emerging advice paradigm, our competition is the wirehouses. We believe advisers using Envestnet and other companies like Envestnet are on the right side of the trend. So, whenever those on the right side of the trend win, it's good for everybody.

InvestmentNews: Where do you envision Envestnet's next area of growth?

Mr. Bergman: To this point, the biggest part of our growth has been organic, which is why we've been able to grow the top line by over 20% per year. And right now, our core offerings are growing nicely.

InvestmentNews: What about the growth through “disciplined acquisitions” that you have often mentioned?

Mr. Bergman: We have been able to accelerate and enhance our organic growth with disciplined acquisitions. We've been able to do that because as we onboard tens of billions of new accounts, we've been able to manage complex system conversions. I expect that it will continue.

InvestmentNews: Do you think Envestnet is a potential takeover target?

Mr. Bergman: I can't comment on anything like that. We're building a business, and that's our full orientation right now. We are focused on building value for advisers, and that's our North Star.


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