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Pros, Cons of Envestnet’s Move Into the RIA Custody Space

Envestnet’s recently announced plan successful run,” he explained. “The Although FNZ has “caused a lot of
to enter the custody business challenge is that custody is a excitement in the market,” Fritz said, “I
for RIAs is generally seen as a low margin business, so it haven’t seen them execute broadly on
positive move by a group of requires tremendous scale. anything yet. I’ll remain suspicious of
technology executives and I don’t think it will be easy, their abilities to deliver on custody offer-
consultants. These experts, but the market could use ings for U.S. clients until I’ve seen it in
though, had more mixed another custodian, and I the wild.” He added: “Assuming that FNZ
predictions on what effect never count Envestnet out.” can do this without heavily testing [such
this new business could have on Timothy Welsh, president of a move first] would be a mistake.”
Envestnet’s relationships with the Nexus Strategy, agreed: “While this As to whether Envestnet’s decision to
“Big Three” custodians — Charles Schwab, is very big news, it is not surprising. The enter the RIA custody space will harm its
Fidelity and BNY Mellon’s Pershing. industry has been speculating for a num- relationships with Fidelity, Pershing and
The custody offering — set to be rolled ber of years that Envestnet had to go there Schwab, Bruckenstein believes “it is too
out in the second half of 2023 — relies to continue to grow with RIAs. Its past early to tell.” Fritz, though, said: “Nope.
on the firm’s recently formed partner- strategies for growth via acquisition have No harm there. … Bank trusts and firms
ship with New Zealand-based FNZ, stalled out for a variety of reasons, most like AssetMark already do.”
which offers custodial and technology importantly, there’s not much left to buy.” But Welsh disagrees. “This is a highly
services and owns a majority stake of Some new TAMPs “making traction dangerous move as some of Envestnet’s
State Street’s Wealth Manager Services’ with RIAs are GeoWealth and SMArtX,” biggest clients (Fidelity is its largest) will
business. Envestnet, mainly known for Welsh said via email, noting that these now be direct competitors for RIA custo-
its turnkey asset management program, two firms have “modern, tech forward dy” services, he said. “I’m sure this is what
or TAMP, disclosed some details about platforms.” Meanwhile Envestnet’s sys- has kept them at bay for opening a cus-
its move into the custodial field during a tems are older and “have not integrated” tody business, but it has now changed.”
quarterly earnings call earlier this week. technology added via acquisitions — like Still, many RIA custodians currently
“I think this is an AMAZING develop- MoneyGuidePro, Tamarac and Yodlee — benefit from their work with Envestnet,
ment,” Doug Fritz, founder and CEO of F2 “into one user interface.” because “their RIA hybrids do a lot of
Strategy, told ThinkAdvisor by email on Nov. Envestnet’s plan “once again proves business with Envestnet through Schwab/
10. “AssetMark has offered custody on its out that RIAs are the top of the food Fidelity,” Welsh said, noting that Schwab
TAMP platform for years, and it’s very well chain and that if you want to grow, no sold its PortfolioCenter to Envestnet three
adopted. While the call didn’t specifically matter who you are, you have to enter years ago. But Welsh’s overall predic-
reference which client types they’re [intro- the RIA space in a big way, or else get tion is more negative. “This will become
ducing] it to, it’s safe to assume TAMP first.” left behind,” the consultant added. more like Russia-Ukraine than the friendly
While “we welcome additional entrants Still, Envestnet faces a tough road ahead, neighbors they once were,” he said.
to the RIA custody world,” Fritz said, “advi- Fritz said. “I don’t see advisors suddenly When asked about Envestnet’s move into
sors need choice and new entrants like this switching/re-papering all their clients to custodial work, an executive from Charles
might come with far more automation and Envestnet. Switching and operations costs Schwab gave a more upbeat, diplomatic
integration than their legacy U.S. peers.” would be prohibitively high vs. any value view: “The RIA industry is dynamic — and
“I am not surprised” by the news, said FNZ can bring. Plus, adding FNZ/Envestnet we are confident in the continued growth
Joel Bruckenstein, head of Technology an RIA’s list of its custody providers — aka of the profession,” said Jon Beatty, COO of
Tools for Today (T3). “There have been “going multi-custody” — entails “a huge Schwab Advisor Services, in a statement.
suggestions that this might happen mul- new set of challenges for CRM integra- We welcome any new entrants seeking to
tiple times over the years.” Envestnet tions, oversight, billing, etc., [which] few help advisors do what they do best — and
“certainly has the advisor base to make a RIAs are ready for,” he explained. that’s serving clients.” —Jeff Berman
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