On March 1, 2019, Envestnet, announced that they were partnering with Fiduciary Exchange (a company which integrates “brokerage, insurance, and advisory ecosystems”) to launch their new Envestnet Insurance Exchange, thereby providing a platform for RIAs to purchase fee-based insurance and annuity products directly from carriers on behalf of their clients, instead of through a commission-based insurance agent.
In and of itself, this is good news for the RIA community; as insurance companies are starting to bring no-commission, fee-based insurance and annuity products to market, RIAs will have a marketplace to shop for them, saving clients the cost of the otherwise-applicable commission (since the RIA is already being paid directly by the client in the first place).
Except, given other recent Envestnet acquisitions and initiatives, their Insurance Exchange could end out being a much bigger deal than much of the industry currently appreciates. To the point that someday, Envestnet might even make their other software – including the recently acquired MoneyGuidePro – free to advisors, just to further expand their Envestnet Insurance Exchange (and other investment marketplaces).
In this episode of #OfficeHours with Michael Kitces, we discuss how comprehensive financial planning actually has its roots in product sales, the real opportunity Envestnet likely saw when it purchased MoneyGuidePro, and why integrating it with its Insurance Exchange could eventually make MoneyGuidePro free and become the most disruptive shift to hit Advisor FinTech in years.
Over 30 years ago, comprehensive financial planning originated as a means to an end, where a financial product salesperson would use a plan to help a prospect define their goals, and then show how various products (that the salesperson earned a commission to sell and implement) would allow the client to achieve those goals. And even though the landscape has changed dramatically since then, financial plans are still often a means to an end even for advisors who don’t sell “products,” per se, since they’re still trying to “sell” the need for clients to save and invest… with them.
Yet the strange mystery is why those increasingly popular financial planning tools haven’t actually illustrated what happens, in the planning software itself, when various different products are added into the plan. The software illustrates a need, but then it’s necessary to provide a separate product illustration, which is completely independent of the plan that was supposed to validate the need!
The gap between financial planning software projections and product-specific illustrations began to close a couple of years ago, though, when MoneyGuidePro rolled out a partnership with Covr that gave them the ability to illustrate life insurance products (and even apply for those products) all within the confines of MoneyGuidePro itself.
It’s not a big leap, then, to understand why Envestnet decided to pay a half-billion dollars last year for MoneyGuidePro… not because they were merely champing at the bit to get into the financial planning software business, but because Envestnet wanted a platform that was primed for deeper insurance and annuity integrations. And if that’s the case, and Envestnet can effectively leverage MoneyGuidePro to support its Insurance Exchange, the next question becomes… could Envestnet turn around and make the software that it paid a half-billion dollars for, free?
Which isn’t such a crazy proposition when we consider that, given the dollar volume of just variable annuities alone, Envestnet will only need to capture a minuscule slice of that market share in order generate the same revenue that all the RIAs and broker-dealers are paying annually in MoneyGuidePro subscription fees… even if Envestnet is “only” paid 25 basis points from the annuity companies on their platform. And if MoneyGuidePro is free, then it won’t take much convincing for advisors to make the switch away from other financial planning software providers, and potentially save themselves thousands of dollars a year… while further growing Envestnet’s Insurance Exchange opportunities.
Ultimately, the key point is to realize that the free-to-use software model has become the standard in recent years (think Facebook, Google, etc.), and is even gaining traction even within the financial services industry (think RIA custodian technology from Schwab, Fidelity, and TD Ameritrade). And in a world where most advisors are still writing checks each year for their various software tools, Envestnet’s acquisition of MoneyGuidePro and introduction of its Insurance Exchange could be enormously disruptive to the current FinTech landscape. Of course, it remains to be seen whether Envestnet’s Insurance Exchange really gains acceptance in the advisor community… but FinTech competitors, in particular, should be figuring out now how they’re going to respond if it does!