What You Need to Know
- The fast success and outsized growth of the IA segment attracted larger technology players and private equity investors eager to get in on the action.
- Is consolidation limiting innovation and shrinking the wealth management arena?
- History has taught that the more an industry consolidates, the more opportunities are created for innovators on the fringe.
A long time ago, in a galaxy far, far away, there lived a peaceful and harmonious group of independent software companies with a combined mission to make the lives of independent advisors and their clients better.
The general focus on trust and collaboration led them to open up their systems through APIs to facilitate data flows that created efficiencies, enabling advisors to thrive, and life was good for everyone.
But like most things in business, it didn’t last. The fast success and outsized growth of the independent advisor segment attracted larger technology players and private equity investors eager to get in on the action — and consolidation began. It accelerated as the first group of innovative, cloud-based portfolio management platforms were scooped up:
Envestnet bought Tamarac, Advent Software purchased Black Diamond, which was then consumed by SS&C, and Orion sold itself to private equity.
Next came financial planning systems, with Fidelity starting it by buying eMoney for $250 million, an unheard-of sum at the time. Envestnet then responded with mega-deals for Finance Logix and $500 million for MoneyGuidePro, while Orion picked up Advizr. AssetMark got in on the deal action with a large purchase of Voyant, which just left the mercy killing of NaviPlan by InvestCloud. And then InvestCloud was also consolidated by its PE backers with Finantix and Tegra118 to form a new fintech supermarket valued at $1 billion.
But we aren’t done with the deals just yet. While all of the above was going on, the popular CRM Junxure was bought by Wisdom Tree-owned AdvisorEngine, which was then sold to Franklin Templeton; SS&C picked off Salentica, Morningstar bought TRX, Orion acquired two TAMPs and Hidden Levers, Schwab unloaded Portfolio Center on Envestnet, robo advisors Jemstep and FutureAdvisor were acquired by big asset managers, and the list goes on.
Despite this runaway consolidation, a rebel alliance kept the collaborative spirit alive in the wealthtech community and these emerging technology goliaths at bay. That was TD Ameritrade, an advisor-technology-friendly custodian. TDA’s open architecture for integration via its Veo platform provided a safe ecosystem for small, independent technology players to operate and thrive with the thousands of TDA technology-forward advisors.
But consolidation struck again and TDA’s light was snuffed out by the Schwabitrade Death Star, creating a new era of angst in the independent advisor tech space.
Of course, the consolidators and their PE backers will argue that scale is needed to continue to invest in wealthtech — and there is merit to that argument with commissions and interest rates going to zero — but at what ultimate cost? Is consolidation limiting innovation and shrinking the wealth management arena so much that firms are starting to turn on one another due to competitive pressure or desperation to distinguish themselves?
A case in point is Riskalyze’s recent ill-fated “marketing campaign.”
In an unprecedented industry move, Riskalyze CEO Aaron Klein called out Orion-owned Hidden Levers and Rixtrema by name and declared that these firms provide “predictive guesswork” that unnecessarily flames investor fears, leading to “widely inaccurate” outcomes.
Through direct and bold communication, Riskalyze lashed out with an orchestrated campaign that included a dedicated website, “Unhiddenlevers.com,” inflammatory videos, and talking points for reporters and industry influencers.
At the same time, the short-lived campaign promoted Riskalyze’s approach as the preferred route for fiduciaries, and anyone serious about advising clients needed to stop using Orion’s Hidden Levers and Rixtrema immediately.
What could possibly go wrong? Well, just about everything.
Oops! Never Mind
Most notably, the thoughtful, high-road response from Orion and Rixtrema was quick and effective — so much so that it took less than 48 hours for Riskalyze to realize the strategic error it had made.
The firm walked back this communications disaster, took down the “unhiddenlevers.com” website and deleted all references to videos. These actions were followed by an even more public “mea culpa” due to all of the attention the attack campaign garnered, which was humbly delivered via a Twitter thread from Klein wishing he could take it all back and not name competitors directly.