As regulators take a closer look at adviser fees and billing, the wealth management industry is looking at technology for a solution.
Financial technology and investment outsourcing firm Envestnet announced Wednesday it had acquired Redi2 Technologies Inc., a company that provides revenue management and billing software to the financial services industry. Terms of the deal were not disclosed.
The acquisition brings more than 700 registered investment adviser firms using Redi2’s billing and invoicing software, BillFin, into the Envestnet ecosystem. Envestnet also sees an opportunity to better serve the institutional market with Revenue Manager, Redi2’s accounting and billing tool, which is already used by 40 asset management firms, said Rich Aneser, Envestnet’s chief strategy officer.
“We want to build out that network of services. Asset management is an immediate interesting market for us, and they are interested in us building this out,” Aneser said.
The acquisition also includes Wealth Manager, Redi2’s multiparty billing and payouts product for broker-dealers and turnkey asset management providers.
“With Redi2’s solutions, we become the industry-leading provider of revenue and billing tools needed by all industry constituents — including advisers, wealth firms and asset managers,” said Tom Sipp, executive vice president of business lines for Envestnet. “This acquisition enhances our strategic enablement of service and data, and over the next two years will create operating leverage by bringing Envestnet and Redi2’s administrative, revenue and billing services together.”
Many larger advisory firms and broker-dealers haven't adopted any technology for billing or payment processing, according to the 2022 T3 Inside Information Survey of adviser technology. However, the idea does appear to be catching on. Eleven percent of advisers reported using billing technology, up from 9% in 2021.
The Securities and Exchange Commission’s increased focus on fees is helping to drive advisers away from manual spreadsheets and toward automated technology, said Seth Johnson, chairman and CEO of Redi2. In November, the regulator published a risk alert noting that many firms are inaccurately calculating fees and over-billing.
“The SEC is sending letters to firms making sure there is a strong process in place to track fees,” Johnson said, noting that software can track any changes and help with audits. “It’s trend we’ve been noticing in the past three to five years. Firms are contacting us saying, ‘We need to improve our billing operations.’”
This is driving increased action on the fintech landscape. Startup Smart Kx closed a $750,000 seed funding round for its automated billing technology and struck a partnership with adviser network Wealthramp. AdvisorEngine, the adviser fintech brand backed by Franklin Templeton, added automated fee billing in the latest update to its portfolio management software.
Also driving momentum is increasing adoption of new business models. XY Planning Network co-founders Michael Kitces and Alan Moore launched AdvicePay to help flat-fee planners bill clients in a subscription-style model, and the software is now licensed by broker-dealers including LPL Financial, Cetera and Ladenburg Thalmann.
Envestnet sees an opportunity to integrate BillFin with MoneyGuide, Envestnet’s financial planning software, to support these business models, Aneser said.
“Everybody in the industry needs to have a meaningful billing and revenue management system in order to keep up with [industry] changes and the benefits you want to provide to clients,” he said.
Service will continue uninterrupted for existing Redi2 clients without their being required to adopt other Envestnet technology, Aneser added. In the future, the company envisions additional benefits that will come from integrating Redi2 with other Envestnet products, such as Tamarac.
The acquisition is Envestnet's third in 2022, following the purchase of 401kplans.com in June and business intelligence company Truelytics in May.
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