Jud Bergman defies advisor feedback as Envestnet stares down the barrel of change

Brooke’s Note: Business is easy. Give the clients what they want and let’er rip, right? Sometimes it works like that. They know and they tell you and you abide their wishes and voilà. Other times clients are unreliable co-pilots. As Envestnet faces down two mega-trends, automation and commoditization, its CEO faces these issues. What Jud Bergman showed in Chicago yesterday is that he has a very clear view of his challenges and a very assured sense of what needs to happen next. “Like many in this room, we’re involved in building an adventure,” he said in his speech. “This is a great adventure one we can share. Until recently, many independent advisors were like early pioneers of the Red River Valley – self reliant but were removed from infrastructure or a rail network. We believe advisors are their best when they tap into a network of resources.”

One side of the road is littered with the remains of software companies that built technology based upon intellectual far-seeing but a lack of consideration for what clients actually want.

The other side of the road has just as much litter. It is the debris of companies that lacked leadership and vision and did only what their customers told them to do.

As founder, chairman and chief executive of the biggest and most successful technology companies to independent advisors, Jud Bergman has stayed intact, on-course for Envestnet’s 40,000 [29,000 doing some fee-based business] advisors by balancing his vision with advisor exigency.

But as Bergman took the stage yesterday in Chicago at his company’s own national conference he was going to need his best stuff to finesse a dual threat.

The automation of financial advice and its first accompanying effect — the commoditization of investment management — are both barreling down the robo tracks. Envestnet is potential track-kill on both counts — as a giant purveyor of separately managed accounts to IBD reps and as a deliverer of conventional technology to RIAs and IBD reps.

Ace up sleeve

As speakers go, Bergman came with an ace up his sleeve. Envestnet is buying Finance Logix . See: Envestnet acquires Finance Logix on heels of Upside.

The Tuscon-based company not only advances Envestnet’s ownership of robo-capability but, more important, elegantly offers an answer to how the Envestnet will dodge the threat of having its investment offerings marked down as commodities. Finance Logix is planning software that can grow with proprietary Envestnet technology from a single Envestnet engineering brain, Bergman told Wall Street analysts.

“The advantage long term for us in developing it or acquiring it, which always takes some additional development, is that when you own the resources and the domain knowledge in the code base, you can do things that might work better in tandem or in harmony,” he said on the earnings call. “So we’ll do a deep integration but their business is going to, if it’s a third party, it’s going to adapt and evolve in ways beyond Envestnet, because Envestnet, while we’re the largest platform provider in this independent space, we’re not the only one. In contrast with Finance Logix, over time the kinds of features and functionality are going to evolve, more in keeping with the Envestnet user base. And I think that that’s an advantage for advisors that use Envestnet over time.”

Envestnet’s new robo-offering is called Advisor Now and it will be part of both Envestnet and Tamarac products. The deal with Finance Logix took six to nine months to pull together.

A smugger CEO than Bergman, take that and that, might have left it at that for his audience at the Chicago Hilton — and to a reporter in a follow-up interview.

But the executive confided in his audience, and the reporter, the no less formidable client-indicting challenge laying in wait — advisor intransigence and negative feedback from end investors.

“Advisors haven’t crossed the digital divide,” Bergman says. “They’re using the first version of a digital advice platform but they’ve not brought their practices across the digital divide. They’ve not fully extended and embraced the part that goes to investors.”

Not so fast

Exhibit A: Brad Ughetta, an attending advisor from BancWest Investment Services in San Francisco, says that this firm is not quite ready to dive into automation. “I don’t think robo advising is customizable for people with real sophisticated financial planning issues,” he says.

His firm does have self-directed options available but maintains that not all consumers would be comfortable with an electronic-only effort but he can see the industry will need to change. “This will influence the future of the industry and how advisors will have to position themselves.”

In fact, Bergman says the bulk of advisors aren’t using the client facing portal, which proves how far behind they are, he says. “They all tell me that their clients don’t want it,” he says.

Still, Bergman says that there are pioneers that affirm his robo faith including an unnamed $9 billion RIA where nearly all of the assets are set up and operated through the internet with phone support for backup.

“It’s hard to do both, but the most successful advisory practices of the future will do both. “You can lay the tracks but if the tracks don’t promote connections, it’s worthless. You can provide digital connection but if advisors don’t solve investor problems and create solutions there is no network.

Vanguard and Schwab as proof points

Bergman adds: “If you look at who has the biggest platform for investors using digital investment management it is Vanguard and who is the fastest growing it is Schwab.The key to meeting client needs is leveraging digital wealth management and automating parts of an advisor’s practice and that’s where we come to play.”

But Bergman suspects that the clients would in fact like a client-facing website and this was where he stressed big American mythological, historical metaphors.

Envestnet wants to change the RIA world the same way the train did when it was built across the country more than 100 years ago by providing the basic tracks for advisors to use for their robo efforts. A similar reluctance existed back then when people were satisfied enough with covered wagons, pony expresses and sending ships through the Straits of Magellan.

With $700 billion managed, advised or otherwise administered on its platform for three million investor accounts overseen by more than 40,000 advisors that are actively managing assets, Envestnet can’t get this one wrong, nor can its RIA software division, Tamarac.

The early signs, intra-Envestnet community, are that so-called digital- or robo-offerings can work, according to Bergman.

“If you look at the part of Envestnet’s business that supports that type of practice, it’s a handful of firms but it’s about $15 billion of assets and about 50,000 of accounts or so,” he says. “So there’s a fair number of business being done by advisors who have adopted this digital advice platform and are leveraging it to grow their business. But they’re the outliers. They are very few.”

Advisor Now

Life is less complicated and digital divide crossing is coming easier for Tamarac because of its elite client base of RIAs — several dozen of which manage more than $1 billion of assets and have long-time sophisticated entrepreneurs at the helm. See: Envestnet-Tamarac wins four more RIAs with an average of $5 billion of AUM by selling a vision.

“The interest is universal,” says Seattle-based Stuart DePina, group president Envestnet | Tamarac. “There’s a great level. The interest is universal. There is a great deal of interest.”

Stuart DePina: In our new world,
everything gets built on one chassis.

Advisor Now will be available both to Tamarac and Envestnet clients and will integrate both Upside’s platform with Finance Logix’s financial planning software, DePina says. Right now, Upside is available, but it is more of a stand-alone vehicle, robo-on-the-side than one that can sweep in an advisor’s entire practice, DePina explains.

“What Upside provides is work flows that are required so investors can navigate through the process and get what they can out of it. It’s got to be brought down to simplicity and that’s what they provide,” DePina says.

A giant streamlining obstacle is being hurdled, DePina says.

Handholding

“It’s hard to do this from our current construct because the advisor firm would have to run two systems and we’re running one system. It enables them to support those clients who wants hands held in a traditional sense and it enables them to leverage for individuals on the same platform,” DePina says. “At the end of the day, we’ve designed it with a lot of consultation.”

DePina wants Advisor Now effort to work for advisors who want to offer a robo sampling as much as for advisors whose only offering on the menu for clients is a robo effort.

“The primary difference here is: With the other platforms someone can be using Envestnet for traditional play and then have to plug into a robo such as Betterment [for automation]. In our new world, everything gets built on one chassis,” he says.

Financial Planning

Where Finance Logix fits into the picture is it has a ready-built financial planning software tool that can be integrated with Upside, DePina adds.

Bergman explains that Finance Logix gives the firm the excellent financial planning software it needed to really go to town with customization.

“For some deep integration, there’s certain advantages of owning the software,” he says. “We can develop it in ways we think can serve our clients better. We’re open architecture. We see some real advantages to owning the financial planning software and evolving it to the ways our client base wants.”