InvestCloud took a shot at Envestnet and missed

The company, which made a significant investment to challenge Envestnet's supremacy among TAMPs, underwent a sudden shakeup in leadership last month.

Back in 2019, I asked Jud Bergman, the late co-founder and former CEO of Envestnet, how he felt about his company’s market position in the face of rising competition. He answered by quoting a Bruce Springsteen song, “Badlands,” from 1978: “Poor man want to be rich; Rich man want to be king. And a king ain’t satisfied, till he rules everything.”

I’ve been thinking about that in wake of an executive leadership shakeup at InvestCloud, a company that made a significant investment in technology and asset management to challenge Envestnet’s supremacy among turnkey asset management providers. In mid-April, CityWire RIA reported that InvestCloud CEO and co-founder John Wise was suddenly out, along with chief corporate development officer J.P. Whelan and president of sales operations and integrations Fiona Francois. A few days later, four more executives — all co-founders — were gone.

But I’ve also been thinking about another quote, one that originated on HBO’s classic show “The Wire,” with the character Omar Little: “You come at the king, you best not miss.”

In the fall, InvestCloud was one of the most interesting stories in wealth management after a series of acquisitions and a recapitalization deal, which merged it with Fiserv’s former wealth business, Tegra118, transformed the company from a small fintech vendor to a significant player in the turnkey asset management market. The company said it now counts 150 asset managers, 400 wealth managers and 140,000 financial advisors as clients. Combined, those clients support $6.5 trillion in assets under management and 27.4 million accounts, though InvestCloud doesn’t specify how much of that sum is actually on InvestCloud.

The metrics the company touts are meant to show it has become a significant challenger among TAMPs. The release of InvestCloud X in late 2021 looked to roll planning, investment products and digital client communication into a single platform to compete with Envestnet’s technology offering, and the company was reportedly looking to go public before the market became unsuitable for IPOs.

With that kind of size achieved, why the sudden shakeup in leadership that included the public face of the company?

InvestCloud declined to comment beyond referencing a press release, which says only that Wise “left the company.” The statement doesn’t make any mention of the other former executives, nor does it make the rote “we thank Wise for his contributions” statement the industry usually provides in these situations.

Some industry observers and clients of InvestCloud, who wished to remain anonymous due to their relationship with the company, said Wise was simply an ineffective leader who overpromised and under-delivered.

Others said it was unfair to throw Wise under the bus because no one could have successfully integrated the various companies that Motive Partners, the private equity company that drove the 2021 recapitalization deal, acquired. For example, NaviPlan, one of the oldest financial planning technologies on the market, struggled to maintain users during the ascent of eMoney (which was sold to Fidelity) and MoneyGuide (which Envestnet bought). InvestCloud’s deal to acquire NaviPlan was reportedly a debt assumption deal.

“It seems to me that Motive purchased a bunch of assets that were not exactly best of breed, and the various technologies were not easy to integrate, so the InvestCloud team was faced with some major challenges that were not of their making,” Joel Bruckenstein, producer of Technology Tools for Today, said in an email. “Clearly, InvestCloud was not meeting expectations, so changes were made.”

Meanwhile, Envestnet had its share of challenges. In the past year, the company reportedly explored a sale to a private equity firm that fell through, went through its own leadership shakeup, relocated its corporate headquarters while closing its Tamarac office in Seattle, and went through a public contest with Impactive Capital that resulted in new appointments to its board of directors. Executive leaders including CEO Bill Crager, CFO Pete D’Arrigo and chief legal officer Shelly O’Brien took significant pay cuts in 2022, according to a statement filed with the Securities and Exchange Commission, and Envestnet shares dropped after its first earnings report of 2023 fell short of Wall Street’s expectations.

That’s all after a global pandemic and the loss of co-founder and former CEO Jud Bergman, who was killed in an automobile crash in 2019.

[More: Envestnet CEO on the company’s recent challenges and the opportunities ahead]

Envestnet has 106,000 financial advisors and $5 trillion in assets tracked across its platform, falling short of what InvestCloud claims, but it is still a market leader in some key metrics, such as net new assets, total accounts and AUM, on its product TAMP. It’s unclear how much market share Envestnet is really losing because of a threat from InvestCloud.

“I think that people underestimate how challenging it is to build something like Envestnet,” Bruckenstein said. “Envestnet has finally made major strides bringing all of their silos together. I don’t think anyone else is close.”

It will be interesting to see what happens when the dust settles. InvestCloud could come through the executive shakeup stronger than ever with new leadership. Envestnet’s direct competitor AssetMark continues to post record earnings, and Orion Advisor Solutions continues to build momentum.

InvestCloud took a shot at the king and missed. Now it’s dealing with the consequences.