After finally knocking down a wall at LPL, Envestnet takes a minority stake in Dynasty Financial, puts Bill Crager on the board and prepares for future upmarket

Envestnet's grand business plan took two leaps forward by making a pair of big, head-turning deals with Dynasty Financial Partners and a big Cold War rival--LPL Financial. 

The Chicago outsourcer bought a stake in Shirl Penney's St. Petersburg, Fla., firm and scored a board seat for Envestnet co-founder and interim CEO Bill Crager.

Envestnet also announced yesterday (Jan. 8) that it inked a long-sought partnership with LPL Financial -- the IBD and TAMP world's other mega-player in separately managed accounts. 

Envestnet had accumulated leverage to get its foot in the door by convincing 1,100 LPL advisors from 195 rep firms to sign up for MoneyGuide -- albeit through different integrations. 

"There are a significant number of LPL advisors using MoneyGuide, and we're looking forward to the opportunity to work with many more LPL advisors who can benefit from our deep integration with LPL’s ClientWorks platform," said Tony Leal, president of Envestnet MoneyGuide in a release and in press reports.

Wall Street is showing its appreciation, sending Envestnet shares to $73.63 today, an all-time high close, a market cap of $3.8 billion and a share price increase of more than 40% from its $52.36 close a year ago.

Each of the two deals deal advance Envestnet's mission of becoming the central piping, data hub and back office for the financial advisory business across channels and segments. But now its services can address the business nerve centers of practices and the platforms they sit on.

'New breed of advisor'

The Dynasty funding round included its "biggest investor," which it declined to specify. But Glick Family Office and Harvey Golub are known to be big Dynasty backers.

The deal also means Envestnet can quickly become a purveyor of growth capital, business management tools, marketing services and outsourced CFO services.

For it's part, Dynasty suddenly gets a mega-distributor of those products and services -- without losing autonomy.

"With the continued growth of service providers to independent advisors, strong firms are looking at alternatives to acquisition," says Brian Hamburger, CEO of MarketCounsel. "They’re considering meaningful partnership, leverage and scaling. That’s what’s going on here."

The deal will help Envestnet to help broker-dealers, who, in turn, can help their advisors build those kinds of practices without dislocation. 

"It is for advisors, but it is also very much for our enterprise clients," Crager says in an email.  "Broker-dealers and banks will become service providers and solution enablers for a new breed of advisor and with our partnership with Dynasty we will be able to offer support as these models emerge and evolve."

What Crager is saying, a source explains, is that Dynasty traditionally focused on busting upper-tier advisors out of banks and brokers then selling them a "corner-office" bundle of services for their RIA. Now those services will be sold à la carte to a broader audience.

"Our attention is on getting the Services Exchange launched," Crager says. "We are putting resources on it, as is Dynasty.  That’s what we did this for and are focused on."

Long overdue

Penney and Crager declined to describe the blueprint in detail, but Penney says that the advisor service exchange is an early iteration of a bigger collaboration of shared strengths that both sides hope to evolve.

Perhaps more surprising is that LPL and Envestnet -- two titans of IBD SMAs -- were finally able to find common cause and none too soon, says Joel Bruckenstein, T3 conference principal and software guru.

"It is long overdue," he says by email. "LPL is the largest B/D in the country. They have a diverse pool of advisors with differing needs. To not support the most popular financial planning software (according the T3/ Inside Information Survey, and before that, the FP Survey when I did it for 11 years in a row) seems to me to be a mistake. I’m glad they have finally corrected it, giving their advisors more choice."

LPL has long been a loyalist to eMoney but that, too, is now owned by an indirect LPL rival, Fidelity Investments. Envestnet bought MoneyGuidePro last March for $500 million. 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

Maintaining neutrality

The shifting IBD-rep business models toward planning and advice drove LPL to pry open its oyster shell-like software architecture.

"The demand for personalized advice continues to rise, making it more important that advisors have access to technology resources that can help them evolve their practices and increase value with clients," said Burt White, LPL Financial managing director, Investor & Investment Solutions.

"With the addition of MoneyGuide to ClientWorks Connected, advisors now have more choice in selecting a fully integrated financial planning solution."

Yet, as Envestnet collaborates with rivals and helps competitors to compete against each other, its challenge will be to keep its very Swiss-style neutrality. 

"Can Envestnet continue to compete and be Switzerland?" Bruckenstein asks. "I don’t know. Others have managed to do it over the years. If they remain open to other providers, it can work.

"But I think it is too early in the game to know for sure. That said, their track record over the years is excellent, so it is difficult to bet against them."

What is all but certain is how well Crager and Penney will work together, Hamburger says. See: Attack of the killer app: Dynasty targets the corner-office broker by combining Envestnet and Callan

"Envestnet was a 'Day 1' supporter of Dynasty," he says by email. "There’s always been a deep sense of trust and alignment between these firms.  I don’t think that the investment is the lead here; it’s about the partnership and the exchange.  The investment is similar to others that sit on their board." See: Dynasty Financial turns two, picks a new long-term goal and shows off $2 billion of SMA assets

Lead or not, Penney says Crager's presence on his board will bring much-welcomed "perspective."

"I personally feel Bill Crager is one of the most talented people in the industry and he has impeccable integrity."