Nearly six months ago, BlackRock announced plans to spend $122.8 million to buy a 4.9% equity stake in Envestnet.
The partnership was built to bring BlackRock's technology — iRetire, FutureAdvisor, Advisor Center and Aladdin — to the thousands of advisers using Envestnet's platform. At the 2019 Envestnet Advisor Summit this week in Austin, Tex., the companies gave a glimpse of what that will look like.
InvestmentNews sat down with Envestnet Wealth Solutions CEO Bill Crager and BlackRock chief operating officer and global head of solutions Rob Goldstein to learn more about the two industry giants coming together, the strategy driving them forward, and what it all means for financial advisers.
The following was edited for length and clarity.
InvestmentNews: What do you want advisers to know about this partnership between BlackRock and Envestnet?
Bill Crager: The integration is beginning to happen in a meaningful way, and the power of that is yet to be felt by our industry, but it's going to be pretty seismic.
Rob Goldstein: If you went and sat with different advisers, you would see that they were sort of bouncing around to do things in a very deleveraged way. They're switching between paper and the screen. They're switching screens. They're sort of going to multiple different tools. People tend to take shortcuts, and what we want is for the easiest, most convenient solution for the adviser to actually be the best, most content-rich solution for the adviser.
You're recording this interview on the same thing you make a phone call with and check your email and tweet, and if you think about it, the investment technology space, particularly the wealth tech space, has so many different providers, that it just hasn't caught up.
IN: BlackRock seems to be leading the way in partnering with technology firms like Envestnet and others. What's driving that strategy? How are you deciding who to work with?
RG: We believe that our Aladdin platform and the value that it provides actually has the ability to be the language of how people construct portfolios, and today there really isn't a common language in terms of how people do that. And we believe that if there was a common language, if there was this concept of institutional quality risk analytics, more integral to the portfolio construction process, that you would help people build better portfolios.
As we're observing workflows, we're looking to partner with the companies that we believe are integral components. And we feel like our sort of unique value proposition, that analytic core, would benefit from being an analytic core in their own platform.
IN: With Envestnet's background as a TAMP and working with firms across the asset management market, how do you address concerns with others asset managers about this partnership?
BC: So we are an open architecture platform relationship with a thousand different asset managers. The relationship that is the strategic one with BlackRock is with BlackRock Wealth Technologies, it's with their technology team. On the asset manager side, we look at BlackRock the way we look at every other asset manager, and we want them to be super successful on our platform. We want them to grow assets. We want them to impact the way advisers are managing money, just as we want everyone that's down in the exhibition hall to do that.
What they've done from a technology standpoint is differentiated, and it impacts the way an adviser delivers advice. So integrating that technology makes all the sense in the world to us. If we can build a better ecosystem around the data and technologies that we use and lay that on top of a solution set — BlackRock is one of the solutions, but there are a lot of others — we think that's a really good environment for advisers.
I've been very clear about this. Our conviction on which we started the firm around open architecture has not wavered one bit. What has is that our ecosystem and our ability to integrate technologies … that's possible now, so of course we're going to do that.
RG: Our tools are also open architecture.
If you want to model another asset manager's portfolio and take that part of the solution, you can do it. We consider that great functionality.
IN: Do the other asset managers agree with you though?
RG: I'm sure there are some who may not, but I think many do as demonstrated by the fact that if you look at our Aladdin business today — where we provide the Aladdin platform to other asset managers, insurance companies, sovereign wealth funds, pensions funds — we have over 250 organizations worldwide who are leveraging it as the asset manager or asset owner in the institutional space.
IN: How is the technology and this shift toward finanical wellness impacting investment products?
BC: I think there is a lot of buzz around financial wellness. What we're about is saying yeah, financial wellness is important, but we want to make it a reality. We want to actually make it executable. So, it's hard today for an adviser to really understand the daily financial lives of their clients, to integrate that into a financial plan, to keep that goal in mind while they're building a strategy to go get it, to rebalance that on an ongoing basis, to meet the needs as that client evolves.
What we have done is made a massive investment in data. With Yodlee, we're the market leader in retail data, so [we have] consumer data on their financial habits. We just made a very significant investment in financial planning. We put those pieces together. You've got the daily financial lives and the long-term financial goals for clients that are going to sit together. That's going to trigger a strategy, and inside that strategy then, you've got BlackRock's technology that's helping to optimize how that's executed. Then that sits in and lays on our investment product universe — investments, insurance, credit.
IN: Why did BlackRock take an equity stake in Envestnet rather than form a partnership as it did with other technology companies?
RG: We do have other equity-oriented partnerships. It's very simple, which is I think that we should have skin in the game together.
The collective vision that we have, it's simple in terms of the vision, it's really hard to execute. And it's going to require a lot of work on Envestnet, it's going to require a lot of work from BlackRock. There's no better way to focus the mind than to make sure there's truly money that we're both sharing. That's effectively what we've done.
IN: What's the payoff, what is the goal of all this hard work?
BC: It's bringing those technologies together to create better portfolios. The return profile of those portfolios is going to lead to massive improvement that's going to land in the household of the American investor. If we change the returns and ability for a family to reach retirement and achieve their financial goals, that right there is so significant.
We'll benefit. We're going to grow. We're a public company, Blackrock is a public company. We're going to benefit because we'll be the service providers, but at the end of the day, I think if we keep our heads and our eyes on what we can do impacting investors' quality of life, that's a game changer.
RG: If we could help more people build better portfolios, we know that will be good for BlackRock, we know that will be good for the industry, and, most importantly, it will be good for the society that we serve.
IN: I hear rumors that BlackRock wants to eventually increase its stake in Envestnet. Any comment you guys can give on that?
RG: We haven't yet rolled out the first integration. I would say we're focused on rolling out the first integration.