While Envestnet Insurance Exchange is months into its launch of an insurance portal on the firm’s software, the firm's also running a pilot of its second portal-like feature: Envestnet Credit Exchange. Providing a credit exchange, where an advisor can intermediate the provision of loans for their client, is part of a larger strategy at the wealthtech firm. By combining different aspects of a financial advisor’s day-to-day, from financial planning to product portals to trading and rebalancing, Envestnet wants to be an advisor’s “operating system for financial wellness,” according to its CEO, Jud Bergman.
The credit exchange is designed to keep an advisor well-positioned as an intermediary if a client needs a loan from a lending institution. By amalgamating information about a client’s investment accounts, bank accounts and financial behavior, with the client’s permission, the service will speed up the process of obtaining credit, explained Envestnet executives.
Client information will be presented to lenders, with the end goal of providing the advisor with a variety of loan options (prequalified, in some cases) that they can present to the client. By defining the lanes of wealth management and banking, the feature is meant to increase client “stickiness” with the advisor by reducing the risk of declined credit, providing more competition for loans and, potentially, better lending terms and for minimizing the likelihood of a wealth management division of a lender getting the opportunity to pitch competing services to a client.
But the devil is in the details. When the product was presented to advisors earlier this year at the firm’s advisor summit, a panel of executives from Envestnet, Goldman Sachs and The Bancorp was greeted with enthusiasm, but also questions about how accommodating and creative the lending partners would be.
“I'd be interested to see how flexible [the credit exchange will be] or how they'll work with advisors in unique situations,” said Michael Duprey, EVP at Ategra Capital Management in Vienna, Va. He attended Envestnet’s presentation to advisors at the firm’s summit in May and has an idea of what advisors will be looking for in the exchange—because he’s helped clients obtain credit as part of the guidance he’s given, he said.
“Will it be kind of like a concierge service? Or will it be just kind of a standard solution?” he asked. “Not every single client is going to come in with a complex situation, I understand that. But with high-net-worth clientele, they don’t always fit into nice little neat boxes.”
Duprey’s been advising his clients on credit and debt solutions for about seven years, he said, and starts the process with financial planning. “The debt side of the client's balance sheet is just as important sometimes as their assets,” he noted. The service is included in the AUM-based fee charged to clients.
Advisors like Duprey are the Credit Exchange’s ideal users, said Bill Crager, co-founder of Envestnet and CEO of the firm’s Wealth Solutions division.
The exchange is meant for registered investment advisors and “wealth-oriented and investment-oriented” broker/dealer advisors who tend to work with HNW clients, Crager added. The first credit options on the portal will be consumer loans, like securities-based loans and those backed by real assets like art and real estate, according to an earlier announcement. Business and commercial loans are slated for introduction next year. As more types of loans are offered on the platform, Crager expects the base of advisors using the platform to expand, as well.
Although he’s interested in the new feature, Duprey isn’t without options when it comes to loans.
If a client has a situation that could be solved with a loan, Duprey first turns to small and midsized banks, as long as the scope of the loan warrants that approach, he said. It does involve some legwork, however.
In his experience, small- and medium-sized lenders, often local firms in northern Virginia, have a nimbler loan evaluation process and their relationship-centric approach is a better fit for advisors. But those relationships need to be groomed and can sometimes sour. Duprey stopped working with at least one institution, which he declined to name, after a merger at the bank resulted in roadblocks that dampened his interactions there.
Duprey doesn’t see a successful Credit Exchange as a threat to the banking relationships he’s established over the years, but he does see the advantages it could offer. “What would be convenient, or what I liked about the exchange, is now you kind of have options all in one place,” he said. Ideally, he hopes lenders on the Credit Exchange have a head start on knowing advisors’ unique needs. Instead of wasting valuable time shopping around and explaining the same credit needs to several different banks, Duprey envisions an exchange that brings lending rates, and perhaps even preapproval, directly to the advisor.
Flexibility and efficiency for advisors is paramount, said Peter Stanton, president and CEO of Advisor Credit Exchange, Envestnet’s partner in developing the portal. Lenders interested in being on the platform have to submit proposals that include quantitative factors, like the pricing and underwriting criteria they use, as well as “the effectiveness of their process, their knowledge, experience and ability of working with advisors in the past,” he explained. Envestnet is vetting lenders to ensure that “they know what it means to be sensitive, and be aware of, and be cognizant of, the relationship between the advisor and the client.”
Envestnet knows that advisor adoption depends on getting the product right from the beginning, and the prequalification component of the exchange is a big part of a successful launch, said Stanton. Because loan qualification can be so fraught for advisors, with the risk of a loan being rejected leading many advisors to not even delve into credit in the first place, Envestnet wants advisors to feel confident about the process. That sense of working with a known quantity is why so many advisors tend to approach local banks, said Stanton, and why they could be leery of approaching a larger institution.
“Through the experience we’re talking about here, they won’t lose that at all,” he said. Advisors will be front and center in the new exchange, he promised. “The experience will be very positive and that question around, ‘Hey, would I be better with a local lender?’ Will go away quickly.”
In fact, if Duprey ends up using the exchange, he may not see any of the local banks he’s used to working with in northern Virginia. While the details of the banks on the platform are under wraps, they have to be big enough to handle the volume of loans Envestnet expects to pass through the portal, explained Stanton. When the platform rolls out to the broad market, it should have four to six lenders ready to go.
The Credit Exchange will also be incorporating lessons learned from the launch of the Insurance Exchange. Some of the Credit Exchange’s training, marketing and sales support programs will be able to recycle the strategies used in the Insurance Exchange, as well as the information flow between Envestnet and the firms on the other side of the portal. The two portals have a “similar nature,” said Stanton.
The pilot group of about five enterprises has been put together, according to a company spokesperson, and they’re engaged in the portal and providing feedback. The first loans to be made available to advisors and their clients, in a broad market deployment, are scheduled for October, said a spokesperson.