Financial data wars heat up as Envestnet sets lofty goals for Yodlee post-acquisition

The firm explains its aggressive M&A strategy and shares its objectives for its newest subsidiary

Sep 25, 2015 @ 1:35 pm

By Alessandra Malito

Envestnet plans to break even on its latest splashy acquisition by 2020, despite the hefty price tag it paid to land data services provider Yodlee. But the latter's competitors are positioning themselves to make sure that doesn't happen.

The financial services technology provider announced in August that it acquired the data analytics and aggregation firm for $590 million, raising eyebrows among some in the industry who felt Yodlee's valuation was on the rich side. Executives backed up the decision, saying it would place its financial adviser clients at the forefront, offering them a way to create a full financial plan for clients.

The firm announced Thursday that if it hits its penetration potential of an additional $31.5 million in annual revenue by 2020, it will exceed the rate of return on its capital for the technology.

It broke it down like this in its investor slide presentation: The total addressable market includes 300,000 advisers in the industry at an annual subscription price of $1,500 per year. That would be a market share of $450 million if all advisers in the industry used data services such as Yodlee. Envestnet, if all the 70,000 advisers who use its platform signed on, would see $105 million of that.

The firm calculated that it needs roughly a third of that, at least 30%, to break even on the Yodlee acquisition.

Envestnet was not available for comment.

The data analytics and aggregation market is heating up, and will only continue to do so. More advisers are seeing personal financial data take center stage having access to credit card, bank account and 401(k) data. Effective data analysis provides advisers with an ability to create more efficient financial plans for clients in real time.

"All that type of information is necessary to build a holistic financial plan," said Bill Butterfield, a wealth management analyst at Aite Group. "This is a complementary move for Envestment — they are becoming a one-stop shop for the industry."

Mr. Butterfield was referring to the fact that Envestnet has shelled out more than $800 million in acquisition costs to acquire eight companies in the last five years.

Yodlee already has a decent client base in the data-services market, working with investment and wealth management firms such as Merrill Lynch, Personal Capital, Vanguard, Scottrade, UBS, Northwestern Mutual and E*Trade. It is expected to add at least 100 basis points to Envestnet's 2016 revenue and adjusted EBITDA growth rates, according to the investor slideshow.

A number of players in the market also are looking to ramp up their own efforts to stay ahead of the competition. Aside from Yodlee, Quovo, another financial data analytics and aggregation company, has been gaining headway. It saw big name advisers such as Ron Carson, Steve Lockshin and Marty Bicknell back it up in a funding round at the beginning of the month.

There's also Xignite, AdvisoryWorld, Firmex, Morningstar's ByAllAccounts and Wealth Access striving to gain market share in the data and personal financial management space.

In order to make additional inroads into the wealth management industry, big data companies are going to need to get more detailed — moving beyond credit cards and bank statements into including assets like alternative investments — to reach higher levels of the market share, said Joy Dasgupta, senior vice president of marketing and corporate development at Rage Frameworks, another data aggregator.

"In order to get a higher AUM, you have to move upstream," Mr. Dasgupta said, meaning tilting towards high-net-worth and institutional investors. "If you have to move upstream, you have to get more granular in your extraction.

"There will certainly be increasing competition in that space," Mr. Dasgupta said. "Especially if you try to solve for previously unsolved issues like alternative investments, where the barrier to entry would be low."

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Jul 10

Conference

Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

Advisers should look beyond 529 plans for college planning

Editor Fred Gabriel talks to reporter Ryan Neal about how college-savings strategies are more important than ever as tuition costs soar.

Latest news & opinion

New ways to pay for college

Experts respond to real-life scenarios of people struggling to afford higher education.

Best- and worst-performing sector funds and ETFs this year

A rising tide may lift all ships, but a bull market doesn't lift all stock sectors. Here are the best- and worst-performing sectors this year, with the top and bottom fund in each sector.

Supreme Court ruling on SEC judges unlikely to upend advice industry

But it could give rise to new hearings for some advisers who are already in litigation with the agency such as Dawn Bennett.

It's official: DOL fiduciary rule is dead

The 5th Circuit Court of Appeals issued a mandate Thursday making its March 15 decision to strike down the regulation effective.

Advisor Group acquires Signator Investors and plans on folding it into Royal Alliance

Advisor Group takes 'orphan' broker-dealer off the hands of John Hancock Financial Services.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print