Envestnet Asset Management has grown rapidly in the past year as financial services companies look to adopt comprehensive, open architecture wealth management platforms, and it says banks are its "fastest-growing segment right now."
The Chicago wealth management company had increased its assets under management 48.3% as of April 30, from a year earlier, to $43 billion. Bill Crager, Envestnet's president, said in an interview last week that 15% of the 450 financial services companies that use Envestnet's platform for separately managed accounts, multimanager accounts, mutual funds, exchange-traded funds, stocks, unified managed accounts, and alternative investments are banks.
"But one of the challenges banks have faced," he said, "is that they have had a lot of proprietary solutions over the years, and this means that banks have been slower to adopt open architecture products."
In order to work successfully with banks, Mr. Crager said, a provider must create a flexible platform that can incorporate both a bank's proprietary products and open architecture offerings.
"There is no 'one-size-fits-all' in this business," he said. "Firms need to create a solution that won't completely disrupt things but rather can complement."
Mr. Crager said he expects Envestnet will reach $50 billion in assets under management by yearend, but the company may be in for an uphill battle. Analysts said many banks already have signed on with turnkey asset managers such as Placemark Investments Inc., which is based in Dallas and Wellesley, Mass., or FundQuest Inc., the Boston investment management unit of BNP Paribas SA. Last year Prudential's wealth management group, which offers a turnkey solution to banks, increased its assets under administration by 29%, to $70.2 billion.
Envestnet's breadth of products and services will enable it to stand out in a crowded field, Mr. Crager said.
"We can aggregate everything on a single platform, and that is very important," he said. "Other competitors have just their proprietary programs. They offer their own SMA's, and their own mutual funds, and they don't have the breadth of solutions that banks want."
W. Christopher Maxwell, a managing partner at Conestoga Capital Advisors LLC, a Rock Hall, Md., wealth management firm, said banks are readier to diversify the products on their shelves. Though the bulk of managed assets is still in proprietary products, banks are growing more comfortable using third-party advisers for "special asset classes," where advisers can apply their expertise.
"We are getting more and more banks and major advisers using us as a niche adviser on an open platform than they may have a year ago," Mr. Maxwell said.
Mr. Crager said "open architecture" has become the key phrase in financial services in recent years.
"It has been a challenge for some banks to act on open architecture, and it has been a challenge for some to implement this type of platform," he said. "There have been a lot of false starts, but it is what everyone needs in order to succeed."
Internal conflicts persist in banks, he said, between existing proprietary product manufacturers and the groups trying to institute an open architecture platform. "For true adoption to occur," he said, "everything needs to be available on a broader platform."
Some large banks have adopted platforms that incorporate their proprietary products on the same shelf as nonproprietary products, analysts said.
Bank of America Corp., for example, has adopted this type of platform for its Portfolio Strategies-Managed unified managed account platform, on which Parametric Portfolio Associates, a Seattle overlay manager, supplies overlay tax management. The platform offers more than 70 proprietary and nonproprietary portfolio options; its investment minimums start at $250,000.
Mr. Crager said he is confident that banks will continue to adopt Envestnet's platform. Seven of 10 prospective clients in the pipeline, he said, are banks.
"The percentage of banks making up our overall client base is growing," he said. "And that hasn't always been the case. A couple years ago, maybe one or two [of 10 prospects] were banks."
Burton Greenwald, a Philadelphia analyst at BJ Greenwald Associates, said industry trends and heavy compliance costs are making banks more comfortable with outsourcing. It "enables banks to deliver solutions in a much more cost-effective way," he said.
Envestnet is the largest independent investment platform for fee-based advisers. Besides Chicago, it has offices in Denver, Los Angeles, New York, Silicon Valley, and Trivandrum, India.
