Envestnet buys a company to gain an edge with Schwab RIAs

As a move to go deeper into the market of providing outsourced technology to advisors, Envestnet Inc. reported last week that it bought B-Ready Outsourcing Solutions Inc., a Landis, N.C.-based company that hosts Schwab Performance Technologies’ PortfolioCenter for companies that prefer to use it online.

Mike Apker, managing director, strategic development, Envestnet, says that this acquisition signals the direction that his Chicago-based company is headed in the advisory market.

“With B-Ready, Envestnet is stepping up its focus on outsourcing in the advisor market, particularly with advisors who custody at Schwab,” Apker says. “In the past, Envestnet supported primarily our own portfolio accounting system. But with our data aggregation and reporting services, we now reach out to the entire advisors’ practice.”

To gain traction in the RIA market, it never hurts to develop closer ties to the RIAs at the largest custodian – Schwab.

Hosting Schwab software is a cottage industry

There are several of these service bureaus that make a business in hosting the giant asset custodian’s portfolio management system – including Schwab itself, according to Lindsay Tiles, its spokeswoman. B-Ready has been working with RIAs for 10 years.

The move toward more comprehensive outsourcing by Envestnet comes about two and a half months [in late March] after the company registered with the SEC to attempt a $100-million initial public offering. See: 10 reasons why the Envestnet IPO filing is for real

The company’s CEO, Bill Crager, has said his company’s future growth lies with winning the business of RIAs. Traditionally, it has grown by attracting assets from IBD reps.

“There’s real business happening in the RIA market,” he said in a March interview. Envestnet’s growth comes from three big trends, Crager says. (1) Advisors moving toward providing advice on a fee basis 
(2) Salaried brokers moving assets to the independent environment 
(3) Advisors moving assets from stand-alone proprietary funds to outsourced and integrated ones.

To better pursue these avenues of growth, Envestnet is taking a more holistic approach to serving RIAs.

Clear shift away from the TAMP business model

“This marks a clear shift away from the TAMP business model of providing services only around certain investment solutions such as SMA or Mutual Fund Strategist access,” Apker says. “We want advisors to think of us as a full outsourcing partner.”

Some other outsourcing companies, including Fortigent and Adhesion Wealth Advisor Solutions, are finding success by operating in the RIA niche — and offering a wide array of services.

“I do think there is now some outsourcing happening among upscale RIAs,” said Charles “Chip” Roame, managing principal of Tiburon Strategic Advisors in an earlier interview. “[Envestnet] compete[s] with Fortigent in that space for high-asset accounts.”

Michael Stier, CEO of Adhesion, says that outsourcers are having to do a better job to satisfy the sophisticated needs of RIAs.

“RIAs now recognize quickly the difference between a truly integrated solution and one that is merely a collection of stuff ‘bolted on’,” he says. “The latter is just an outsourced version of what advisers previously had in-house.”