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Orion's Eric Clarke tests new strategy to combat Envestnet's Jud Bergman in a Game of Thrones style clash for keys to RIA and IBD kingdoms

NorthStar and sister firm FTJ FundChoice are rebranded Orion, which might as well be Eric Clarke, observers agree, as strategic shift follows Envestnet's MoneyGuidePro and PortfolioCenter acquisitions.

Tuesday, April 16, 2019 – 8:50 PM by Oisin Breen
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Eric Clarke: Our competitors have done a series of acquisitions, [whereas] Dean Cook and I have taken the time to thoughtfully bring our companies together ... we're not distracted by doing a dozen acquisitions.

Brooke's Note: Wealth technology analysts, for a while, were predicting that Facebook, Google, or especially Amazon, might come in and take over the financial-advice game. The possibilities! But a second group of analysts were quick to throw cold water on that idea. None of the money-minting FAANG firms would willingly invite in a financial regulator, the doubters said. Look at how tarnished the Wells Fargo brand got over a relatively small amount of shenanigans as measured in dollar terms. And, can you name a national retail financial brand without some layer of tarnish? So as we look at Eric Clarke putting FTJ FundChoice under the Orion brand -- and putting the Orion brand over CLS Investments, we see a level of brand risk not seen before. Orion means Eric Clarke. Clarke has earned tremendous goodwill in the industry. Is there commensurate reward to justify the risk? The short answer is 'yes.' Orion is making its play to for a greater share a whole new category of advisor outsourcer that sells software and investments in a grand bundle. But keeping a clean reputation in software is easier than financial advice -- a notorious minefield of potential conflicts-of-interest. But as CEO, Clarke can't soft pedal his growing competitive conflict with an energized Jud Bergman who tromped his Envestnet troops onto RIA turf with the purchase of MoneyGuidePro and the acquisition of Schwab PortfolioCenter. 

For years, Orion's Eric Clarke and Evestnet's Jud Bergman have danced around each other in a Game of Thrones battle for turf--Clark largely established in the land of RIAs and Bergman in the world of IBDs. But Envestnet's acquisition of Schwab PortfolioCenter and MoneyGuidePro may have crossed the line. 

The lightning-like strike effectively matched all of the RIA market share that Orion Advisor Services had tenaciously built over the past decade and firmly established Evestnet's foothold in Orion's RIA kingdom. 

Aaron Klein
Aaron Klein: Nobody has had any doubt for the last decade who was running [things].

It was only a matter of time the before Clarke struck back, and his counter-attack, as deconstructed by RIABiz, clearly targets Evestnet's IBD stronghold. The new strategy consolidates three separate units under Orion and allows it to offer a full slate of services under one brand--just like its rival.  See: Orion buys $10-billion TAMP to take on Envestnet and AssetMark head-on for mega-accounts.

The bet now is the brand can grow, without Orion losing the folksy authenticity many RIAs know and trust. Now it's in the game playing big to win.

It was a necessary move, says Orion CEO Clarke. "When we go out to an enterprise … now we can do that under a common brand, instead of having to present to them [with] yet another company name and company structure," he explains.

Effectively, NorthStar Financial Services Group, LLC, the parent company of Orion Advisor ServicesFTJ FundChoice, LLCCLS Investments, LLC, and Constellation Trust Co., announced Apr. 11 that it would be renamed Orion Advisor Solutions and unify its subsidiaries under the Orion brand identity. The latter two units will keep their brands.

"The initiative enables the company to deliver a more robust and connected advisor experience featuring best-in-class technology and investment flexibility," the company boasted in a news release

In other words, Orion is fully in the game of becoming a one-stop shop for broker-dealers that want to buy investments and technology in one place.

"Before, it seemed to the buyer like they were dealing with three different companies, now they're dealing with one," says Joel Bruckenstein, founder of the T3 Conferences and a keen industry observer.

"It makes a lot of sense organizationally ... [but] the moves by Envestnet may have accelerated the timetable," he adds. See: A perfect storm of factors -- including 'code' and 'annuities' -- made Jud Bergman pay Bob Curtis $500 million for MoneyGuidePro, plus $30 million to keep the MGP crew around a few more years.

The affable Clarke says he's up for the fight.

"We base our business strategy on the needs of our existing and prospective clients, not our competitors," he explains. "[But] in both the cases of PortfolioCenter and MoneyGuidePro, we think clients of those firms are Envestnet's to lose, and we have every intention of making a case for an alternative way of doing business."

"[That said] we want to continue to win the opportunity to do business with advisors using MoneyGuidePro," he adds.

Long overdue

The branding unification is "long overdue," says Jason Lahita, chief communications officer at Boston-based LPL office of supervisory jurisdiction, Integrated Financial Partners, via email.

Dean Cook
Dean Cook: 'Changing the name is one thing but were going a lot deeper than that.'

"[Integrated] would gladly take a pitch ... but when you start having to consider all the different brands, there's a psychological impediment to doing more business ... engaging with them [felt] more challenging."

Ultimately, these moves show that Orion is prepared to go to war when confronted with Evestnet's aggressive advance into RIA territory, says Peter Giza, chief product officer of Salt Lake City, Utah-based RIA software firm, AdvisorPeak. See: Eric Clarke makes seven big Orion hires that reflect the big check it wrote to Bain & Co. -- including a 'poach' from his brother, Todd.

"It's certainly not a coincidence," Giza says. "All these things happened too close together. Orion may be able to keep its apple pie and motherhood persona, but they can't remain that way [in battles]. You have to street fight against the competition. [Now] they're saying: We're going to put it under one brand. It's pretty bold."

Megan Carpenter
Megan Carpenter: [NorthStar] suffered brand dilution across all businesses because they could not centralize their efforts.

Giza says such boldness lies in making 'Orion' a regulated entity by bringing the SEC-registered TAMP, FTJ under its brand umbrella. FTJ manages $15 billion. The risk is that if the TAMP side doesn't keep the same quality as the software side, the Orion brand could be diluted.

Clarke is is threading the needle as usual, Lahita says. "He's the athlete who prefers not to talk trash, but rather to decimate his opponents on the field, and then shakes their hand after," he explains. "You'll not meet a nicer, more well-liked executive in the RIA community, [but] anyone who mistakes that for weakness is a fool."

"Eric doesn't pull punches and he doesn't mince words," Giza agrees. "He also knows technology. You can't say that about many CEOs in our business."

Despite the risk, the FTJ rebrand has another strength -- it clarifies to M&A targets what partner they're merging with. Orion is evaluating six TAMPs as acquisition targets to bolster FTJ, according to information obtained by WealthManagement.com.

Jason Lahita
Jason Lahita: 'When you start having to consider all the different brands, there is a psychological impediment to doing more business.'

Don't expect a buying spree, Clarke says. "Our competitors have done a series of acquisitions, [whereas] Dean Cook and I have taken the time to thoughtfully bring our companies together ... we're not distracted by doing a dozen acquisitions."

That said, he adds: "Dean and I spend a fair percentage of our time every day looking at opportunities... There's not a day that goes by that we're not actively looking."

Orion is also seeking to attract staff. Cook, the FTJ CEO, expects 40 new TAMP-side hires by August, bringing the FTJ's headcount to 220.

“These business are dramatically growing … [so] we need to continually add personnel … [and] next week for example we're going to release direct indexing [capabilities] … [and] tax optimization on [it]," he explains.

"Having the infrastructure in place to support these solutions is really where were spending our money," he adds.

Executing strategy

Omaha-based NorthStar, and the four firms it owns, will move under the brand of subsidiary Orion Advisor Services effective Sept. 2019. Then, it's up to Clarke to execute the strategy.

Kelly Waltrich
Kelly Waltrich: 'Sooner [rather] than later, you're going to get to see [Clarke's] amazing vision.'

He'll lead a 1,000-strong army, with over $787 billion in assets under its management and administration. Added to that is Orion's software expertise and the investment management capabilities of Hebron, Ky.-based TAMP, FTJ. Also in the mix are an Omaha pair of CLS, an asset manager and back-office outsourcer Constellation Trust Co.

Now, as a result of NorthStar's organizational merry-go-round, Orion Advisor Services will become Orion Advisor Technology; and FTJ will adopt the moniker of Orion Portfolio Solutions. CLS and Constellation will retain their own brands, albeit now under the Orion symbol, owing to the fact that they sell services to competitors.

For the time being at least, each company will remain independent, and under its current leadership. Cook joins Clarke in taking up a joint role at the rebranded NorthStar, as president.

Despite its Mohammed-to-the-mountain transformation, Clarke says the consolidation has been in the works for over a year and is not a direct response to Envestnet. 

Nor is Envestnet the only rival in the cross-hairs, he adds.  Of the big-three portfolio accounting firms, SS&C will be left as the sole member of the group with a hodge-podge of offerings. See: BlackRock buys Envestnet's love for $123 million to crack its 'open-architecture' platform and sets stage for another juicy Envestnet acquisition.

"We're [now] unified under a common brand, and competitors at SS&C have three or four," he says.

Windsor, Conn.-based software roll-up SS&C owns a number of RIA brands, including CRM vendor Salentica; and portfolio accounting software firms Black Diamond, and Advent, which in turn owns Axys and Portfolio Exchange.

SS&C also has an exclusive relationship with the West Palm Beach, Fla.-based TAMP SMArtX. See: The exclusive deal SMArtX cinched with Black Diamond is yielding Tiffany results.

Out front

It's the right move to make,  says Megan Carpenter, CEO of LA.-based financial PR firm, FiComm Partners, via email. It's in TA's best interests to put Clarke and Orion out in front, since he's already an industry leader, as well as a canny operator.

Roy Burns
Roy Burns: [Clarke’s] elevation to CEO of the combined enterprise – Orion Advisor Solutions – is a big promotion and reflects our confidence in his vision, leadership and capacity to grow.

"[NorthStar] suffered brand dilution across all [its] businesses, because they couldn't centralize their efforts ... The Orion brand will allow them to market more successfully and efficiently, which is certainly of interest to their private equity owner," she says.

The missing detail, however, is the fact that this is a huge promotion for Clarke, says Orion's chief marketing officer, Kelly Waltrich, who was previously head of communications at Radnor, Penn.-based financial planning software vendor eMoney Advisor.

"It’s such a big promotion and such a big thing ... sooner [rather] than later, you're going to get to see what amazing vision he has," she says. "For TA to make the decision to have him lead all the brands ... [and] the efforts to bring them all together to better compete ... that's such a big kudos."

Roy Burns, managing director at TA, concurs. "[Clarke's] elevation to CEO of the combined enterprise is a big promotion, and reflects our confidence in his vision, leadership, and capacity to grow in the role," he says, via email. 

Clarke's been through the crucible, given the "immense pressure" to grow that a private equity purchase like TA's implies, so this is a big win for him, and he's likely to thrive as a result, says Lahita. "He's an absolute rock ... [and] his fire burns from within."

 Orion is synonymous with Eric Clarke, because he embodies those qualities, says Aaron Klein, CEO Auburn, Calif.-based risk software vendor Riskalyze, via email.

Risky business?

When TA backed NorthStar last year by adding a TAMP to its business, ostensibly it was to vault the firm to Envestnet's level in the bidding for mega-accounts. But it also reflected the gnawing worry that after racing ahead as a software pioneer, Orion was losing ground -- with the loss of Edelman Financial Services a signature defeat.

Bill Crager
Clarke's promotion invites comparison to Bill Crager's appointment as head of Envestnet Wealth Solutions, and his new mission to sprinkle synergistic fairy-dust between portfolio management software and the TAMP business.

That said, both Orion and FTJ continued to grow in and of themselves -- last Aug., Orion supported $630 billion in assets, a figure that has now climbed 20% to in excess of $750 billion; whereas the $15 billion FTJ manages is an increase of 50% in 12 months. Indeed, since TA purchased NorthStar in 2015, its combined assets under management and administration have trebled.

Nevertheless, by shifting Clarke's focus, and potentially overextending it, TA could be risking their biggest brand.

No chance, says Clarke. "Not for a second."

Indeed, the fact that Clarke's not a micro-manager is one of the reasons he's got the top-job, says Burns. "It’s no secret that [Clarke] has done a tremendous job growing the Orion business to where it is today. But it’s how he’s done it that impresses me most."

"Orion stands up against any other comprehensive offering out there, including Envestnet and SS&C," he adds.

Although Orion's software goes toe-to-toe with Envestnet's and SS&C's Black Diamond, its TAMP remains a far smaller concern. The niggling doubt is that Clarke's cachet and software expertise might not be sufficient to bring "integrated" order to the myriad of second-tier service providers that sit alongside Orion.

The TAMPs owned by Envestnet and Concord, Calif.-based AssetMark -- both of which sell portfolio software -- are, for instance, significantly larger than FTJ. AssetMark manages some $44.8 billion; Envestnet's TAMP, PMC, manages upwards of $126.5 billion and administers a further $232.5 billion.

When it comes to technology, Orion's already the leading pack, whereas FTJ isn't, says Bruckenstein. "But the Orion TAMP is a capable competitor," he adds.

It's only going to get better, says Cook, who explains that FTJ will have early access to Orion's software, including a say in its development. "Changing the name is one thing but were going a lot deeper than that ...  its more about using the best technology, and being the best at using it."

“Prior to our acquisition by NorthStar [last year] … if there was a specific [Orion software] release in April it might not be till June that [FTJ] was ready to implement it, but now we're in the development cycle,” he adds.

Facts on the ground

FTJ and Orion's technology teams currently remain separate -- combining them may be on the cards in the longer-term -- but in some areas NorthStar firms are already doing more than just working together, perhaps most notably in marketing.

Joel Bruckenstein
Joel Bruckenstein says moves by Envestnet may have accelerated the timetable.

Since Jan. 1, Orion, FTJ, and CLS' marketing teams have been merging, according to Waltrich. As a result of recent growth, no lay-offs have been made in the 26-strong department.

But even here, given his fresh mission to take the whiteboard wonkery of a TAMP and software double-act and make it work, Clarke's latest act draws Envestnet parallels. See: Jud Bergman remakes Envestnet into two units and Bill Crager and Stuart DePina will head them as Anil Arora exits.

In Jan. 2019, Bergman recast his firm into two divisions: Envestnet Data & Analytics, and Envestnet Wealth Solutions; and moved president Bill Crager in to head the latter, ostensibly to cast some synergistic fairy dust over a division that includes PMC, and Envestnet's portfolio accounting software, Tamarac.

Now, four years after TA acquired NorthStar in a deal that saw the last of the big portfolio accounting firms trade its independence for a larger capital base, the private equity firm is hoping that Clarke will prove the perfect tinkerbell.

"It’s pretty clear that Orion did not get acquired [by TA Associates] a few years ago; they gained a majority investor who believes in Clarke's leadership ... [and] nobody has had any doubt for the last decade who was running [things]," says Klein. 


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See more related moves

Mentioned in this article:

Envestnet Inc
TAMP
Top Executive: Jud Bergman




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