BlackRock takes equity stake in Envestnet

To get its technology in front of more advisers, the asset manager is acquiring a 4.9% share of the fintech and TAMP giant

Nov 27, 2018 @ 8:42 am

By Ryan W. Neal

The world's largest asset manager is buying a piece of one of the largest adviser technology providers.

BlackRock plans to invest $122.8 million to acquire a 4.9% equity stake in Envestnet in an effort to integrate BlackRock's technology, including a robo-adviser and retirement planning tool, with Envestnet's wealth management platforms.

BlackRock will purchase 2.36 million new shares of Envestnet common stock valued at $52.13 per share. The asset manager also has the option to buy an additional 470,000 shares valued at $65.16 per share after four years. BlackRock will not have a seat on Envestnet's board.

The investment is coming from BlackRock Inc. and not from client assets under management, a BlackRock spokesperson clarified.

Executives told InvestmentNews the financial commitment will accelerate plans to tightly integrate Envestnet platforms with BlackRock Digital Wealth technology like iRetire, a retirement income planning tool; FutureAdvisor, an adviser-facing digital advice engine; and Advisor Center, a digital suite of resources for portfolio modeling, risk management and business support.

"The conversation started at a technology level, and we got excited about what the relationship was becoming and said, 'Hey, let's put something behind this,'" said Envestnet president and co-founder Bill Crager. "BlackRock is showing some conviction in Envestnet's marketplace position by making that investment."

The vision is to create a seamless flow of data between BlackRock, Envestnet and custodial platforms, eliminating the need to to manually move information or toggle between dashboards. Offering "frictionless" access to BlackRock's services and capabilities will encourage the opening of more accounts, which will ultimately be beneficial to Envestnet investors, Mr. Crager said.

Envestnet partners with more than 1,000 asset management firms through Envestnet PMC, its turnkey asset management platform, and the BlackRock deal will not hinder access to other providers, Mr. Crager said.

"Will BlackRock investment products benefit? Probably," Mr. Crager said. "Will all of our asset manager partners see inflows? We believe so."

For BlackRock, the acquisition is a chance to get technology from its Digital Wealth division in front of a large pool of retail financial advisers and their clients. Envestnet currently serves 93,000 advisers from 3,500 different firms, including some of the largest banks, registered investment advisers and broker-dealers.

Venu Krishnamurthy, global head of BlackRock Digital Wealth, sees an opportunity for the company to help advisers improve portfolios and scale their practices as they switch to fee-based relationships with clients.

It makes sense for an asset manager to be investing heavily in developing technology for financial advisers, said Denise Valentine, an Aite Group senior analyst who recently published a report on TAMPs and wealth management outsourcing. Companies like BlackRock have a lot of products to sell, so building something to facilitate access creates a distribution loop, she said.

"TAMPs are nice because they come fully formed," meaning they not only provide technology but business operations, knowledge and expertise, and even practice management, Ms. Valentine said.

While the deal could increase asset flow to BlackRock products and models, Mr. Krishnamurthy maintains the company is not conflating investment products with Digital Wealth technology. The primary focus of the Envestnet deal is expanding adviser access to BlackRock technology, he said.

"We know that this is a long play on the growth of model [portfolios], and we know technology is going to be a big part of how advisers conduct their business moving forward," Mr. Krishnamurthy said. "We want to make BlackRock technology ubiquitous to advisers."

This isn't the asset manager's first push to get its technology into the hands of retail-facing advisers. For example, BlackRock's Aladdin risk analytics engine is a core component of the WealthDesk dashboard that Morgan Stanley is rolling out to its 15,000 advisers.

FutureAdvisor is also powering digital advice capabilities at LPL Financial and at regional banks like U.S. Bancorp.

(More: LPL rolls out robo-adviser to regional bank)

"We see the wealth management ecosystem evolving very, very rapidly," Mr. Krishnamurthy said. "Helping our wealth management clients transform their business – that is not a new ambition for us."

FutureAdvisor, iRetire and Advisor Center are first on the integration road map, but other BlackRock interests could follow. In 2017, the asset manager led a $50 million investment in iCapital, a digital marketplace connecting advisers with alternative investments.

(More: Digital marketplaces aim to ease RIA access to alternative investments)

"We absolutely have a lot of respect and enthusiasm around what iCapital is doing," Mr. Crager said, adding that an integration could help expand the menu of investments available to advisers through the Envestnet platform. At the company's annual Advisor Summit in May, Mr. Crager announced Envestnet's plans to add annuities to its platforms.

"For financial advisers of the future to be competitive, they are going to have to broaden the scope of what they offer," Mr. Crager added.

(More: Allianz Life joins Envestnet digital annuities marketplace)

Aite Group's Ms. Valentine agreed, saying a technology partnership between a TAMP and an asset manager "sounds like a nice play." In her report, Ms. Valentine discussed how market forces are driving advisers to adopt new business models, and how TAMPs like Envestnet are positioned to take advantage of that.

"There is phenomenal change at the front end with the client experience, but it's not just investing," Ms. Valentine said. "It's prepping yourself to be able to deliver a much broader concept: financial wellness."

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