Envestnet has a clear and defined roadmap for creating what CEO Jud Bergman calls a financial wellness platform — a cloud-based technology ecosystem advisers can use for financial planning, budgeting, savings, protecting capital, legacy planning and managing credit.
There are still years of work to be done and it remains to be seen how successfully the technology giant can tie everything together. At least on paper, it has all of the pieces it needs.
But there are still parts of the adviser's technology stack that Envestnet doesn't own. Advisory firms have to fill in these gaps with third-party integrations. They work fine most of the time, but never as good as when one company owns all of the underlying code, said Envestnet director of product strategy Blake Wood.
"There are areas of friction because you do things slightly different," Mr. Wood said.
So if Envestnet wants to build the most "frictionless" platform possible, it will need to make a few more acquisitions. Here are some possibilities, ranked in order of most to least likely.
1. Client Relationship Manager (CRM)
Possible targets: Redtail, Junxure, Wealthbox
CRM brings in a lot of data beyond that which Envestnet's Yodlee's aggregation can pick up from financial accounts. Examples of these data include personal information like hobbies or children's birthdays, and communication history between the adviser and client.
Buying a CRM rather than partnering with third parties could bring that data in-house, helping to supercharge some of the analytics and artificial intelligence tools Envestnet is building.
Envestnet Tamarac has a CRM component for RIAs using a customized version of Microsoft Dynamix, but it does not have one for enterprise clients, said Envestnet director of product strategy Blake Wood. And as some advisers on Twitter pointed out, it's not a tool that really stands on its own.
"If you look at the pieces of the puzzle that Envestnet would clearly want to own but doesn't, clearly the last big piece is CRM," said Riskalyze CEO Aaron Klein. "That's the nerve center of the advisory practice, and if Envestnet really wants to be there, a Microsoft Dynamics overlay isn't going to cut it."
Possible targets: FMG Suite, Vestorly, AdvisorStream
One area Mr. Wood said the company hasn't really been focused on is the adviser marketing side of things.
It's a piece that would make a lot of sense for Envestnet to add to its ecosystem. Advisers still need a lot of help with social media, managing email campaigns and content marketing. It would also fit in with Envestnet's goal of helping advisers deliver financial wellness to as many people as possible. After all, that huge investment in building a technology ecosystem would be for naught if advisers can't demonstrate their value to the investing public.
It should be noted that Fidelity's eMoney Advisor, the biggest financial planning competitor to Envestnet MoneyGuide introduced a lead capture tool and content marketing solution in 2017. It would only make sense for Envestnet to introduce something competitive.
3. Risk Tolerance
Possible targets: Riskalyze, FinaMetrica, RiXtrema
Envestnet has a risk tolerance questionnaire and supports firms that have their own, but Mr. Wood said the current platform lacks "a lot of the interactivity that we're seeing in a lot of the tools out there."
These tools, particularly Riskalyze, have proven immensely popular with advisers, and would fit in nicely with the ecosystem Envestnet is building.
It would be shocking if Mr. Klein sold his company to Envestnet. With its own model marketplace, automated investing component and integrations with just about everyone, Risklayze is moving more and more toward being an alternative to a TAMP like Envestnet.
But it wouldn't be shocking at all for Envestnet to pick up one of the newer, smaller risk tolerance tools on the market, such as FinaMetrica, RiXtrema and others.
Possible targets: Apex Clearing, Folio Institutional
Rumors that Envestnet might eventually step into the asset custody and clearing business have persisted for years now. One of the smaller, technology-focused custodians could help Envestnet get even more traction with large financial institutions.
The BlackRock investment in Envestnet makes this move pretty unlikely. As SS&C Advent strategist Kyle Van Pelt pointed out on his blog, buying a firm like Apex would limit Envestnet's potentential as a distribution platform.
When asked, Mr. Wood said Envestnet likes to have a clear distinction between its business and the custodial business, and that its technology and TAMP work well with all major custodians.
"With Jud and the activity, you never know," Mr. Wood said. "But for the foreseeable future, we'll stay right in our lane."
Possible targets: SigFig, Advisor Engine, Investment POD
Betterment and Wealthfront likely have their eyes on going public, but could Envestnet eventually acquire any one of the numerous smaller robo-advisers on the market?
Doubtful. First, Envestnet acquired Upside in 2015 for some digital advice capabilities. Firms already use Envestnet's existing technology to build their own robo-adviser, Mr. Wood said.
Second, one of BlackRock's stated goals in taking an equity stake in Envestnet was integrating FutureAdviser. Third, BlackRock has partnerships with consumer-facing robo-advisers, including Betterment.
Acquiring one just wouldn't make much sense for Envestnet.