Raj Udeshi invokes 'Theranos' fraud in testy exchanges over data collection with Envestnet's Bill Crager and Jud Bergman at Tiburon CEO Summit

Brooke's Note: As a journalist, in particular, I can see why some Tiburon CEO Summit attendees thought it was constructive that Raj Udeshi confronted Bill Crager on stage in a big way in New York last Tuesday. I can see why others were irked by Udeshi's actions. What is certain is  this was a very interesting, high-intensity clash on a topic of large and rising importance: Whose data is it anyway? The financial advice industry's databases contain some of the most valuable and closely-guarded consumer information out there. Sooner or later, hard lines will be drawn as to its use, whose sting could be far worse than an entrepreneur's words.

The usually tranquil Tiburon CEO Summit in New York City got rocking last Tuesday when the CEO of one of the smallest firms there took on an executive  at one of the larger -- spilling over into a testy hallway exchange to try to calm the waters--over the sensitive subject of collection and sale of data. 

Raj Udeshi called out Bill Crager and his firm, Envestnet, during a moderated panel discussion on the subject. Orion Advisor Services CEO Eric Clarke moderated the panel, which also included Lori Hardwick, founder of AI Labs and Clara Shih, founder and CEO of Hearsay Systems.

Envestnet first got publicly attached to the issue of data privacy last July in a Forbes article, when a columnist lumped in the Chicago outsourcer (and Yodlee owner) with data sellers like American Express and Mastercard.

'I would like to think that many people will be shocked to learn that companies they do business with -- like Mastercard, AmEx, and Envestnet-Yodlee -- are selling their transaction data in real-time," the article stated. 

Udeshi, the outspoken CEO and co-founder of HiddenLevers, played off the article for his comments. HiddenLevers recently made waves by winning a giant data analytics account from Focus Financial. See: HiddenLevers' Raj Udeshi takes victory lap after nabbing Focus Financial account: 'We dropped a bomb in BlackRock's backyard;' But it's just a battle not the war, analysts say

Crager, CEO of Envestnet Wealth Solutions, is the company's No. 2 man behind chairman and CEO Jud Bergman.

Though nobody attending the CEO Summit, which bars the media, was willing to speak on the record about the incident, a number of sources noted the pin-drop moment came when Udeshi  took the floor. 

They recalled him saying, "the industry is having its Theranos moment."  Udeshi made the comment amid insinuations that Envestnet may be taking its collection and sale of client financial data too far. 

Theranos closed its door in September. Founded by Elizabeth Holmes, it made big news after it was revealed it fraudulently claimed its tests required only about 1/100 to 1/1,000 of the amount of blood that would ordinarily be needed.

In the buttoned-down world of financial conferences, the friction caused by Udeshi rabble rousing stands out, says Timothy Welsh, president of Nexus Strategy of Larkspur, Calif.

"Nobody ever gets after anyone [at those events]," he says. "That is a dramatic moment. It's an AOC [Alexandria Ocasio-Cortez] confrontation in that staid, collegial atmosphere."

Sharing views

Udeshi declined to respond to two emails asking him for comment about what was said and Crager's subsequent comment to RIABiz, which is below.

Welsh adds that Udeshi has a track record of speaking up at various conferences on the circuit. Most famously, he took on President Donald Trump's counselor, Kellyanne Conway.

"You know you didn't win the election," he reportedly told her at the MarketCounsel Summit in Miami that immediately followed the election. See: MarketCounsel Summit weathers Trump mayhem as Scaramucci and Priebus bail and Kellyanne Conway makes a night flight to Miami

This time around, Charles "Chip" Roame, managing partner, Tiburon (Calif.) Strategic Advisors, had "no comment on the particulars."

"Generally, I think the lack of media allows for broad ranging conversation.  As long as it is respectful, I think sharing differing views is one of the best aspects of the Tiburon CEO Summits."

On stage, observers say that Crager mostly deflected Udeshi's contentious comments and spoke about Envestnet's service in more boilerplate terms. 

Where the Udeshi-Envestnet confrontation attracted more interest was following the event. Bergman and Udeshi engaged in what observers called a testy and prolonged exchange in a dark hallway of the Battery Park Ritz Carlton Hotel.

Crossing lines

Envestnet declined to be interviewed for this article but Crager, through an outside spokeswoman, issued a strong denial that his company crosses any data privacy lines.

“Envestnet doesn’t sell individual client data, Period. Full stop. To suggest otherwise is false and irresponsible,” he said in the prepared statement.

On its website, Envestnet describes its data inventory in this way:

"Unlike survey and traditional data sets, Envestnet | Yodlee Data Analytics for Retail Solution is powered by a data panel that can be segmented countless ways to reveal consumer spending patterns for a variety of market categories and services. Drawing from 16 million de-identified active consumers, the panel is consistent with the US population in terms of geographical location and income level."

An email went unreturned to Envestnet's spokeswoman, Brooke Worden, asking whether "de-identified" is the key word in harmonizing Crager's statement with the website verbiage.

Reached by email, Orion's Clarke said how firms sell, buy, use and secure data is best handled proactively.

"Data stewardship is certainly an interesting topic for our industry and one that we are all better off to sort through prior to the regulators making an example of a firm and further harming our industry’s reputation with the investing public," he said. 

Taking shots

More recently, Morningstar picked up on the Forbes findings and took a shot at Envestnet following the firm's purchase of Schwab PortfolioCenter. The posting was written by Dermot O’Mahony, head of software products.

In the posting, O'Mahony writes: 

"Independent RIAs have a clear obligation to understand how solution providers will use their stored data. Morningstar does not sell client data—to hedge funds or any other market participant—and we will always prioritize data security and the individual investor’s right to privacy. You will always know the company we keep.

O'Mahony continued:

"Our CEO, Kunal Kapoor recently advised at the T3 Advisor conference that RIAs should 'think closely about who (they) are partnering with. We have the opportunity to pick our partners. More than ever, we encourage advisors to not just learn about the services they use, but also to understand what’s behind it. Understand who you’re partnering with.'” 

The Chicago fund tracker, money manager, software and data firm sells a competitive performance reporting software product, Morningstar Office, used by about 4,000 RIAs and it sells data aggregation through its ByAllAccounts subsidiary. See: Why Morningstar's purchase of ByAllAccounts might be a bigger deal than its paltry $28-million price tag shows

Morningstar was one of several firms that joined the feeding frenzy to lure those 2,300 ex-Schwab PortfoloCenter firms that were up for grabs during the transition. See: Schwab PortfolioCenter sale to Envestnet signals open season on 2,300 RIAs in the deal; Orion bags six; 'Why didn't Tamarac call me?' some ask