Analysts: INVESTENT and New Zealand Free Zone Partnership May Change RIA’s Custody Landscape

Analysts: INVESTENT and New Zealand Free Zone Partnership May Change RIA’s Custody Landscape

During a third-quarter earnings call from Envestnet Tuesday night, CEO Bill Krager announced that the company, with $5 trillion in assets under advice across its platforms and relationships with more than 100,000 financial advisors across nearly 5,000 companies, will enter the custody business.

Specifically, Envestnet is partnering with New Zealand-based FNZ. CitywireRIA was the first industry publication to note Crager’s comments.

Two years ago, FNZ purchased a majority stake in State Street’s trusteeship business, Wealth Manager Services, giving the company a foothold in the US wealth market. The unit was later renamed FNZ Trust Services, with the minority ownership still owned by the State Street Company. State Street acts as a sub-custodian of assets owned in the New Zealand Free Zone.

Little is known within the US, and FNZ is active globally as an integrated wealth management platform – account opening, portfolio management, reporting and trading – for banks and other financial services firms; It has $1.5 trillion in management assets, including more than 8,000 companies in the UK, Europe, Australia and Canada, including Barclay’s, Lloyd’s Bank and Santander. It operates Vanguard’s direct-to-consumer technology in the UK

Nothing has yet been built between Envestnet and FNZ, but Crager said the joint custody partnership will hit the market in the second half of 2023.

The timing somewhat coincides with Schwab’s recent announcement that the transfer of all institutional TD Ameritrade accounts to the Schwab booking platform will occur over Labor Day weekend in 2023.

The question remains as to which part of the US advisor market Envestnet and FNZ will look to pursue. The deal also opens Envestnet’s asset management services to New Zealand Free Zone customers outside the United States

In a research note, analysts at JMP Securities said the custodial business “It could be one of (Envestnet’s) biggest opportunities to date.”

Envestnet makes roughly 10 basis points on average on assets on its platform, analyst Devin Ryan and Brian McKenna wrote, while custodian revenue is nearly double that on assets held.

“We suspect the opportunity will be accurate because the company could pool more services under the custodial umbrella to generate a higher average income from users (plus the additional economics of custodial), or could bring some of the economics of custodial back to the advisor to create a more compelling offering in terms of terms. economic growth compared to current custodians, which may support accelerated growth.”

Pressing their place in the overall RIA escort market, Rich Aneser, chief strategy officer at Envestnet, will not name any competitors, any demographic consultant or a particular segment.

“We’re going to be open architecture, as it is already across our ecosystem, and we’re already working with many custodians,” he said.

“He. She [the new custody platform] Noting the complementary nature of what each company had to offer from Envestnet’s “front-end” advisor interfaces and portals to “FNZ’s back-end” custodian services around the investment ledger of trade registry and data settlement, Anser said.

Tom Shard, chief executive of North America for the New Zealand region, agreed that the benefits of integrating advisor-facing wealth management tools with back-end custody and settlement services would allow for better and more accurate data and record-keeping, as well as more fluidity. Account opening and trading. aHe said the aggregated data and analytics “create some great insights for advisors,” too, which can benefit Envestnet clients.

While Envestnet published a press release outlining the technology partnership with FNZ a little over a week ago on October 27, nothing was said about moving into the preservation business specifically.

This announcement states that Envestnet’s wealth data platform will be integrated as part of the global FNZ platform and will be distributed to international markets starting in the first quarter of 2023, thus rapidly expanding this portion of Envestnet’s commercial footprint.

Alois Pirker, director of research for Aite Group’s wealth management division, noted at the time of the FNZ partnership and State Street investment that a deal could be envisaged by advisors such as “Envestnet, as well as the trustee.”

However, Berker himself said about the latest news that much about her is still not clear.

“I’m convinced that’s just the tip of the iceberg,” he said, “I don’t think the story is fully visible yet and there are a lot of moving parts involved.”

A lot of Envestnet’s platforms are already entirely digital, which includes a lot in the way of setup, yet Crager focused during his earnings call on the onboarding technology provided with FNZ.

This raises questions about where the platforms will start and end after any integration efforts that have been made during the partnership.

“In a partnership like this, the devil is definitely in the details,” said Scott McKillop, founder of TAMP First Ascent Asset Management and a seasoned RIA entrepreneur. “These are two very large companies with many competing priorities. If the two parties do not put too much focus on this endeavor, it will have little impact on both companies. Competition is fierce in the technology platform and custodial spaces, so these two giants will need to focus their resources and devote significant attention to the project if They hoped to have any chance of success.

Pirker noted that FNZ’s acquisition of Appway, which completed in February, with the technology integration completed two months ago in August, gives FNZ a really good configuration option.

There is also potential for some strange companions when it comes to Envestnet as a trustee, when it also acts as a technical partner for other custodians. For example, the managed account solution for Trust Clearing and Custody is powered by Envestnet.

“Envestnet is one of the industrial facilities here,” Berker said, noting that it makes the partnership with FNZ even more interesting when it comes to future developments.

Will Trout, director of wealth management at Javelin Strategy & Research, said the potential, while short of the Crager discussion, is enormous, especially as it impacts the advisor’s day-to-day functioning.

“The benefits here focus on the direct flow of data between the broker-dealer and custodian,” he said, meaning that eliminating the need to transfer files to and from a third party fintech — the integration solves the hand out of issue and can also provide operational efficiencies around areas such as rebalancing, which It can be executed in real time rather than overnight transfer of batch files.”

Trout also said that the benefits of the partnership could easily be extended to certain areas that the competing guardians saw as adding significantly to the bottom line.

“Pershing, Fidelity and Schwab with strong cash management positions will face losing that money and their fat margins,” Trott said, recalling Envestnet’s partnership with insurer MassMutual’s Flourish cash management service, as well as the ability to invest it in its asset management arm.

He also added that Envestnet can obtain the spread through credit facility via Envestnet Credit Exchange; For example, in the form of collateral-backed loans, student lending, and home loans among other options.

“The ability to leverage these liquidity mechanisms – cash and credit – on behalf of advisors is a key incentive for Envestnet to undertake this transaction, especially in a price-surging environment.

In recent weeks, Envestnet has made a series of announcements. On October 21, it announced its wealth data platform, which will be one of the pieces of its technology referenced by Crager in the earnings call that FNZ will leverage (and distribute to clients outside the US) in the partnership.

Recently, on October 28, Envestnet announced a “new vision” at the Money 20/20 Personal Finance Conference. The announcement highlighted a complex list of additional data, analytics services and technology platforms other than wealth management including its businesses serving the banking industry.

New products included a portal specific to small and medium-sized businesses (within both banking and technology platforms), and partnerships ranged from payments (VoPay) to identity intelligence (Deduce).

At the beginning of October, two cryptocurrency exchanges focused on advisors, Flourish Crypto (a wholly owned subsidiary of MassMutual) and Gemini BITRIA simultaneously announced an integration with Envestnet.

All of these developments come on the heels of a major restructuring of Envestnet in June, and rumors in February that the company was “exploring its options” and potentially for sale.

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