You can find original article here WealthManagement. Subscribe to our free daily WealthManagement newsletters. Envestnet Hires Chief Overseeing Firm’s Cybersecurity Moves Rich Friedberg will be Envestnet’s newest Chief Information Security Officer (CISO), overseeing the firm’s cybersecurity protocols. Friedberg has more than 25 years of experience in cybersecurity in the financial services and national security fields. According to Envestnet Chief Executive Officer Chris Todd, security (including cybersecu ...

Core Insights - Northern Trust Asset Management (NTAM) has partnered with Envestnet to provide institutional-quality, tax-managed direct indexing solutions for ultra-high-net-worth (UHNW) clients [1][9] Group 1: Partnership Details - The collaboration allows financial advisors to access NTAM's direct indexing solution through the Envestnet platform, offering a diversified range of equity investment strategies [2][7] - The solution enables customization of portfolios by blending indices, applying quantitative factor tilts, and including client-specific exclusions to align with individual preferences [2][4] Group 2: Strategic Rationale - This partnership aligns with Northern Trust's strategy to enhance access to personalized, tax-efficient investment solutions for UHNW clients, who increasingly demand portfolio customization and active tax management [3][5] - Direct indexing is gaining traction in the wealth management industry, allowing for more precise portfolio tailoring compared to traditional mutual funds or ETFs [4] Group 3: Market Impact - The partnership is expected to expand Northern Trust's distribution of direct indexing capabilities, driving incremental asset growth without significant infrastructure investment [4][7] - Direct indexing typically carries higher fees and greater client retention compared to traditional passive products, which can improve revenue and margin durability for Northern Trust [4] Group 4: Industry Trends - The growing adoption of direct indexing and customized model portfolios is attracting attention from other financial firms, such as BlackRock and State Street, indicating a broader industry trend towards sophisticated, tax-smart solutions [5][6]

Core Viewpoint - Envestnet has been sanctioned by a Delaware federal court for destroying evidence that could support allegations made by FinancialApps in an ongoing lawsuit, allowing the case to proceed to trial [1][2]. Group 1: Legal Proceedings - Judge Jennifer L. Hall's decision allows FinancialApps' case against Envestnet and its former subsidiary Yodlee to move forward [1]. - The court appointed Chad S.C. Stover as a special master to investigate FinancialApps' allegations against Envestnet [2]. Group 2: Allegations and Evidence - FinancialApps alleges that Envestnet approached them in 2016 to license their product "Risk Insight," which assesses credit applicants for financial institutions [2]. - In 2019, FinancialApps suspected that Envestnet/Yodlee might steal their technology, leading to a cease-and-desist letter and a lawsuit claiming theft of trade secrets [3]. - FinancialApps claims that Envestnet lost or destroyed evidence that could substantiate their allegations shortly after filing their complaint [3]. Group 3: Data Management and Implications - Envestnet/Yodlee canceled their subscription to Papertrail, a logging app that could provide crucial data regarding access to Risk Insight functionality [4]. - The cancellation of the subscription led to automatic deletion of data, despite legal counsel advising retention of potentially relevant evidence [5]. - Stover's report indicated that there was no substitute for the Papertrail data, and a jury should be allowed to presume that the data would have been unfavorable for Envestnet [6].

Core Insights - Envestnet has launched professionally managed model portfolios featuring interval funds on its WealthTech platform to meet the increasing demand for alternative investments among high-net-worth (HNW) and ultra-high-net-worth (UHNW) clients [1][2] - The new offerings aim to provide seamless access to institutional-grade solutions for advisors, integrating semi-liquid and liquid strategies for easier allocation to alternatives [2][3] Product Offerings - The Franklin Templeton Multi-Manager HNW Portfolios include five risk-based options with a strategic 10% allocation to alternatives, designed to enhance income potential and simplify access to private markets [3] - BlackRock's Multi-Asset Income with Private Markets Models are structured as Fund Strategist Portfolios with a minimum investment of $25,000, blending public and private credit along with dividend-focused equities across three risk-based allocations [4] Operational Considerations - Envestnet has established operational protocols for advisors regarding Limited Trade Window (LTW) funds, emphasizing the importance of observing redemption windows and managing liquidation responsibilities [5][6] - The company highlights the necessity for wealth management firms to sign agreements with Envestnet to enable LTW fund capabilities, reflecting the growing trend of advisors allocating to alternative investments [5] Market Context - The shift towards alternative investments is driven by the shrinking public markets and the need for diversified portfolios, as noted by Envestnet's Co-CIO Dana D'Auria [2] - With over half of alternatives held by HNW and affluent investors, the demand for expanded capabilities and access on Envestnet's platform is critical for advisors [5]

Core Insights - CAIS, a New York City-based alternative investment platform, has expanded partnerships with Envestnet, Orion, and Vestmark to enhance the management of public and private assets for users [1][3] Group 1: Partnerships and Integrations - The new partnerships will allow users to manage the full lifecycle of alternative investments, reducing operational friction in onboarding, trade processing, fund administration, and custodial connectivity [4] - The integration with Envestnet will provide advisors a single platform to source, allocate, and oversee alternative investments, transforming portfolio management across asset classes [5] - Orion Wealth Management emphasizes that collaboration with CAIS will streamline the integration of public and private investments, enhancing efficiency and transparency for clients [5] - Vestmark's integration with CAIS aims to create a modern foundation for advisors to build diversified portfolios and operate more efficiently [5] Group 2: Industry Context and Trends - The announcement follows CAIS's earlier capability to integrate with third-party TAMPs and managed account platforms, indicating a trend towards expanding access to private markets [2][3] - The industry is witnessing a convergence of technology and alternative investments, which is redefining wealth management practices [5]

Market Overview - The Open Banking Solutions Market is projected to grow from USD 5.5 billion in 2023 to USD 11.7 billion by 2028, reflecting a Compound Annual Growth Rate (CAGR) of 16.0% during the forecast period [1] Market Drivers - Increasing consumer preference for mobile apps for banking transactions, which facilitate seamless fund transfers, bill payments, and account management [1] - The rise of web portals that serve as comprehensive platforms for digital banking, enhancing transparency and control for users [1] - Growing demand for cloud-based solutions among financial institutions, driven by compliance requirements and the need for better visibility for borrowers and lenders [5][8] Technology Trends - Mobile apps are becoming essential tools in the digital channel for open banking solutions, providing users with convenience and accessibility to manage finances on the go [4] - Cloud deployment is expected to record a higher CAGR, offering scalable and cost-effective infrastructure that enhances agility and operational efficiency for banks and fintech companies [8] Market Segmentation - The third-party providers (TPPs) segment is anticipated to hold a larger market share, acting as intermediaries between banks and customers, and leveraging standardized APIs for account information services and payment initiation [7] - TPPs include Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs), empowering consumers with greater control over their financial data [7] Competitive Landscape - Key players in the Open Banking Solutions Market include Plaid (US), Envestnet (US), Tink (Sweden), Finicity (US), Trustly (Sweden), MX Technologies (US), Worldline (France), Volt.io (UK), and Temenos (UK) [5]

Core Viewpoint - Envestnet plans to sell its subsidiary Yodlee to private equity firm STG, allowing Envestnet to focus on its core wealth management offerings [1][4]. Group 1: Transaction Details - The sale of Yodlee is expected to close in the third quarter, pending customary closing conditions [2]. - STG specializes in investing in innovative software, data, and analytics firms, and Yodlee will be integrated into STG's global technology portfolio [2]. Group 2: Strategic Implications - STG's managing director, Marc Bala, stated that the partnership will enhance Yodlee's investment in product innovation, customer success, and long-term growth [3]. - Yodlee aims to focus on technological innovation and improved solutions for the financial sector with STG's support [3]. Group 3: Envestnet's Focus - Envestnet's CEO, Chris Todd, indicated that the transaction will enable the company to concentrate on its core offerings, including its wealth management platform [4]. - Envestnet retains access to Yodlee's data aggregation technology, which is essential for financial advisors [5]. Group 4: Company Background - Envestnet became a private company in November after being acquired by Bain Capital affiliates in a deal valued at approximately $4.5 billion [5]. - The company reported $6.5 trillion in platform assets, over 20 million accounts, and services more than 111,000 financial advisors [6]. - Envestnet is enhancing its wealth management solutions by investing in tax intelligence, trading flexibility, client engagement, and advisor productivity [6]. Group 5: Historical Context - Envestnet acquired Yodlee in 2015 for a cash and stock transaction valued at about $660 million [7].

Core Insights - Zacks Premium provides tools for investors to enhance their stock market engagement and confidence, including daily updates, research reports, and stock screens [1][2] Zacks Style Scores - The Zacks Style Scores are indicators that rate stocks based on value, growth, and momentum methodologies, helping investors identify stocks likely to outperform in the next 30 days [3][4] - Stocks are rated from A to F, with A indicating the highest potential for outperformance [4] Categories of Style Scores - **Value Score**: Focuses on identifying undervalued stocks using ratios like P/E, PEG, and Price/Sales [5] - **Growth Score**: Evaluates a company's financial health and future outlook based on earnings, sales, and cash flow [6] - **Momentum Score**: Assesses trends in stock price and earnings estimates to identify optimal buying times [7] - **VGM Score**: Combines the three Style Scores to highlight stocks with attractive value, growth potential, and momentum [8] Zacks Rank - The Zacks Rank is a proprietary model that uses earnings estimate revisions to guide investors in building successful portfolios [9] - Stocks rated 1 (Strong Buy) have historically achieved an average annual return of +25.41%, significantly outperforming the S&P 500 [10] Stock Selection Strategy - To maximize returns, investors should target stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B [12] - Stocks with lower ranks but high Style Scores may still pose risks if they have downward-trending earnings forecasts [13] Company Spotlight: Envestnet (ENV) - Envestnet, founded in 1999, is a leading provider of wealth management and financial systems [15] - ENV holds a Zacks Rank of 2 (Buy) and has a VGM Score of A, with a Momentum Style Score of B [16] - ENV's shares have increased by 0.3% over the past four weeks, and its earnings estimate for fiscal 2024 has been revised upward [16][17]

Core Viewpoint - Envestnet, Inc. (ENV) reported mixed third-quarter 2024 results, with earnings exceeding estimates while revenues fell short [1][2]. Financial Performance - Earnings per share were 70 cents, beating the Zacks Consensus Estimate by 2.9% and reflecting a 25% year-over-year increase [2]. - Total revenues amounted to $345.9 million, missing the consensus estimate by 1.2% but showing a 9.2% year-over-year growth [2]. - Asset-based recurring revenues reached $225 million, accounting for 65% of total revenues, and increased by 16% year-over-year [4]. - Subscription-based recurring revenues were $115.4 million, remaining flat compared to the same quarter in 2023, contributing 36% to total revenues [4]. - Professional services and other non-recurring revenues declined by 30% year-over-year to $5.6 million [4]. - Adjusted EBITDA rose by 23% year-over-year to $80.5 million, with an adjusted EBITDA margin of 23.3%, up 270 basis points [5]. Cash Flow and Debt - Cash and cash equivalents stood at $193.4 million, up from $122 million in the previous quarter [6]. - Total debt at the end of Q3 2024 was $892.5 million, unchanged from the previous quarter [6]. - Operating activities generated $95.4 million in cash, with capital expenditures of $767 thousand and adjusted free cash flow of $76.2 million [6]. Stock Performance - ENV's shares have increased by 67.2% over the past year, outperforming the industry and the Zacks S&P 500 composite, which grew by 35.1% and 33%, respectively [3].

Financial Performance - Envestnet reported a non-cash impairment charge to goodwill of $96.3 million due to a strategic shift in the Envestnet Data & Analytics segment as of June 30, 2024[108]. - The company recognized a $19.5 million non-cash gain from the deconsolidation of a private company's assets and liabilities effective April 1, 2024[109]. - Envestnet's asset-based recurring revenue has been steadily increasing since the three months ended March 31, 2023, following a downturn in 2022[113]. - The company incurred $14.2 million in write-offs of net capitalized internally developed software costs during the nine months ended September 30, 2024[110]. - Envestnet has experienced losses from operations in every quarter since December 31, 2021, except for September 30, 2023, March 31, 2024, and September 30, 2024[112]. - Net income attributable to Envestnet, Inc. for the three months ended September 30, 2024 was a loss of $1,661 thousand, compared to a profit of $7,091 thousand in the same period last year, representing a decline of 123%[126]. - Net loss attributable to Envestnet, Inc. was $78.3 million for the nine months ended September 30, 2024, compared to a net loss of $55.6 million in the same period of 2023, representing a 41% increase in loss[1]. - The total income (loss) from operations for the nine months ended September 30, 2024, was $(59,833), compared to $(25,768) for the same period in 2023, reflecting a decline in profitability[227]. Revenue and Growth - Total revenue for the three months ended September 30, 2024, was $345.9 million, a 9% increase from $316.8 million in the same period of 2023[127]. - Total recurring revenue for Envestnet Wealth Solutions was $307,697 thousand for the three months ended September 30, 2024, a 12% increase from $274,901 thousand in the same period last year[126]. - Total recurring revenue for the nine months ended September 30, 2024, was $997.9 million, a 10% increase from $903.6 million in the same period of 2023[1]. - Total AUM/A reached $495,995 million as of September 30, 2024, up from $430,846 million at the end of December 2023, reflecting a growth of 15.1%[123]. - Subscription conversions for the three months ended September 30, 2024 totaled $76.2 billion, including $13.6 billion in new client conversions[122]. - Asset-based recurring revenue increased by $31.1 million, or 16%, reaching $225.0 million, primarily due to an increase in asset values[128]. - Total AUM/A reached $1,006,448 million as of September 30, 2024, up from $846,847 million at the end of December 2023, marking an 18.8% increase[123]. Operating Expenses - Total operating expenses increased by $22.7 million, or 7%, totaling $338.9 million, driven by higher general and administrative expenses[127]. - Employee compensation decreased by $9.8 million, or 9%, to $103.5 million, mainly due to reductions in severance and payroll-related expenses[135]. - General and administrative expenses rose by $13.3 million, or 27%, primarily due to merger-related costs and other charges[137]. - Total operating expenses increased by $125.2 million, or 13%, for the nine months ended September 30, 2024, compared to the same period in 2023[1]. - Employee compensation decreased by $33.4 million, or 10%, for the nine months ended September 30, 2024, primarily due to reductions in severance and salaries[150]. Strategic Initiatives - The merger with Bain Capital Private Equity is expected to close in the fourth quarter of 2024, with shareholders approving the merger on September 24, 2024[107]. - Envestnet's strategic initiatives aim to reshape the organization and reduce future operating expenses, despite negatively impacting short-term results[114]. - The company has changed its reportable segments as of October 1, 2023, to better reflect its operational structure[119]. Cash Flow and Liquidity - Free cash flow for the three months ended September 30, 2024, was $123.343 million, a significant improvement from a negative free cash flow of $(15.626) million in the same period of 2023[224]. - Net cash provided by operating activities for the three months ended September 30, 2024, was $186.409 million, compared to $73.766 million for the same period in 2023, indicating a substantial increase of 152.5%[224]. - The company plans to actively manage cash balances to ensure liquidity requirements are met for both short and long-term operations[231]. - As of September 30, 2024, the Company had total cash and cash equivalents of $193.4 million, with no amounts outstanding under the Revolving Credit Facility and $500.0 million available to borrow[234]. Impairment and Non-Cash Charges - Goodwill impairment increased by $96.3 million, or 100%, for the nine months ended September 30, 2024, due to a non-cash impairment charge recognized in the Envestnet Data & Analytics segment[154]. - The company reported a goodwill impairment of $96.269 million for the nine months ended September 30, 2024, with no such impairment reported for the same period in 2023[222]. - Non-cash compensation expenses for the nine months ended September 30, 2024, totaled $53,204, compared to $58,141 for the same period in 2023, showing a decrease of approximately 8.3%[227][228].