Envestnet Inc., arguably the largest collector of financial information in the country, is betting its vast vast pool of big data can reshape how advisers serve their future clients.
The largest turnkey asset management platform doubled down on its vision to aggregate the 2 petabytes of consumer spending data it collects — roughly equivalent to 1 trillion pages of printed text or 40 million filing cabinets — to help recommend financial planning products to clients.
Its predictive analytics technology is already scanning and analyzing documents like client tax returns and insurance policies, and through its acquisition of Yodlee Inc. in 2015, Envestnet has assembled financial data from potentially millions of consumers from everyday purchases to paycheck deposits.
Called a data lake, this information ranges from what consumers are spending money on, what they’re earning, and how that incorporates into a client’s larger financial goals, according to Farouk Ferchichi, global group head of data at Envestnet.
“The seismic shifts taking place in the financial services industry are being driven by financial data and consumers’ rights to their financial data,” Ferchichi said.
The Chicago-based TAMP may have more data, in fact, than any other financial services firm in the wealth management industry. The data not only helped the company launch new features and products aimed at assisting financial advisers but also attracted the attention of lawmakers in 2020, who expressed concerns that the sale of such information could be infringing on consumers’ right to privacy.
“Building financial health is contingent upon having access to your financial data,” Ferchichi said. “We are a strong advocate for consumers having the right to choose how to manage their data.”
Some of the most recognizable names in financial services have already inked data-sharing deals. Recent partnerships with Citigroup Inc., JPMorgan Chase & Co. and Charles Schwab & Co. have further expanded Envestnet’s reach into the consumer banking and financial data sectors.
The firm now partners with 16 banks and institutions in North America alone, effectively connecting and sending financial information to the more than 1,400 third-party applications available through Envestnet Yodlee. The TAMP already provides services to more than 100,000 advisers, including over 500 registered investment advisers.
“Envestnet is sitting on a gold mine of data from financial planning to investment management, which is a huge opportunity to generate insights that no one else in the industry has,” said Alois Pirker, director of wealth management at Aite-Novarica. “That’s the new game in town.”
Yodlee is so precise, for example, it can access the exact water bills of 25,000 citizens in San Francisco down to the day, or how much Americans spent at McDonald’s last week, Yodlee’s former chief product officer Peter Hazlehurst told the Wall Street Journal around the time of the 2015 acquisition.
While Yodlee’s primary business is selling online personal finance tools to banks and other financial institutions, it also sells the data it collects from those apps to third-party data aggregators. Hedge funds and research firms eventually buy the information, according to the 2020 letter from lawmakers.
Investment firms have even used Yodlee’s data to make investments in competing companies, like specific theme parks owned by SeaWorld Entertainment Inc., for example, honing in on transactions including tickets sales, merchandise, food purchases and parking sales, according to the reporting.
“It’s all about data,” Pirker said. “It used to be all about the quality of the adviser on staff to help serve clients, but it’s becoming more and more about the quality of the data. It’s a major change.”
A January partnership with the wealth management fintech FP Alpha made that process even easier. The software reviews documents like tax returns, trusts and insurance policies, and takes only a few minutes to create a report across 16 different areas of an investor’s financial plan, including tax returns, wills and insurance policies.
“Envestnet is sitting on a gold mine of data.”
Alois Pirker, director of wealth management, Aite-Novarica
The platform’s artificial intelligence does the rest, scanning and analyzing that data to provide the best recommendations for clients.
“Advisers can then include these insights within a client’s comprehensive financial plan, allowing the adviser to illustrate the impact of the recommendations on the client’s overall objectives and financial picture,” said Rose Palazzo, group head of Envestnet MoneyGuide.
Those data sets can also be used to see how advisers stack up with their peers, benchmarking data about the overall health of their advisory businesses, including risk ratings, advisory fees and account performance, Ferchichi said.
While the technology is opening up new insights for advisers, it’s also raising red flags. One of Envestnet’s more notable data-sharing deals was with Wells Fargo & Co. in 2020 amid an inquiry by the Federal Trade Commission. Three members of Congress asked the regulator to investigate Envestnet Yodlee to determine if the way the data aggregation firm sells consumers’ personal financial data was breaking the law.
“Consumers generally have no idea of the risks to their privacy that Envestnet is imposing on them,” the lawmakers wrote in a 2020 letter to the FTC. “That is not sufficient protection for users.”
A proposed class-action lawsuit against Envestnet alleges one consumer synced her PNC Bank account to PayPal Holdings Inc. using a Yodlee-powered portal, but at no time was it disclosed that her account would be continuously assessed by Envestnet to extract and sell data, according to the complaint.
Envestnet has been proactive in the push to develop industrywide data-sharing legislation. The company is a founding member of Consumer Financial Data Rights, an industry group formed to advocate for consumer protections and open access to financial data. Other members include Betterment, Digit, Personal Capital, Ripple and Varo Money.
“Partnerships between data aggregators like Envestnet Yodlee and regulators and financial institutions around the world are critical to accelerating financial data access,” Ferchichi said.
The leading TAMP by assets, managing more than $1.2 trillion, said it employs proprietary and third-party technical controls — such as encryption — to protect data on its systems. Importantly, the data is anonymized so that no personal identifying information is ever sold or made public to third parties, according to the firm.
“It’s uncharted territory,” Pirker said. “It’s such a complex question, I won’t be surprised if we’re still talking about it 10 years from now.”
While the data privacy debate continues, wealth management firms will have to do more to fully unlock the potential that big data can have on client relationships. As a tech provider, Envestnet is forging a necessary new path forward for wealth management, Pirker said.
The digitization of the industry will require more sophisticated uses of big data to give clients access to real-time services that are appealing and relevant, he said.
“When do you stop the wheels is one question,” Pirker said. “But if you ask, is this benefitting clients? No question.”
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Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.