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U.K. Fintech Unicorn Arrives in U.S., Partners With State Street

Originally from New Zealand, wealth management platform provider FNZ is taking a stake in State Street's wealth management business.

In a deal marking the entrance of a new wealth management-focused technology provider to the U.S. market, U.K.-headquartered FNZ is buying a majority stake in State Street’s Wealth Manager Services business, according to an announcement made by State Street Corporation. State Street will retain a minority interest in the division, which is expected to close before the end of the year. Terms were not disclosed.

Wealth management technology platform provider FNZ, which was founded in New Zealand, already services approximately 8,000 wealth management and financial advice firms in the U.K., Europe and Asia-Pacific regions, according to information provided by the firm. Upon closing of the deal, State Street’s custody business will have found a technology partner in FNZ. State Street will serve as subcustodian to the custody assets belonging to Wealth Manager Services clients.

FNZ didn’t mince words about the rationale for its move. “This is the first step in a long-term strategy to expand our platform into the North American market,” said Adrian Durham, CEO of the firm, in a statement. “In the U.S., we see similar long-term drivers in relation to cost, transparency, digitization and personalization in asset and wealth management as other markets in which we operate.” As of mid-2019, FNZ had £380 billion in assets under administration, is a service provider to Vanguard and controls as much as 60% of the U.K. platform market.

Of the custodians and technology providers already fiercely competing for advisors’ business, Pershing would be wise to take note of FNZ’s entrance, said Alois Pirker, research director at Aite Group’s wealth management division. That’s because the collaboration essentially means there’s a new tech provider-plus-custodian that’s looking for advisor business: FNZ is providing the tech, while State Street is providing the custodian expertise.

With larger custodians winning at the scale game, a combination the likes of what FNZ and State Street are providing advisors will be competitive in providing key processes demanded by wealth management firms, like reporting and the provision of TAMPs, said Pirker. Advisors might envision this deal to look something like Envestnet plus a custodian, or think about the deal in terms of what Fidelity has done with Wealthscape.

Indeed, in the U.K., FNZ has become a “powerhouse,” said Will Trout, head of wealth management at Celent. FNZ reached “unicorn” status last year. “FNZ’s success—in what is basically the equivalent of the TAMP market in the U.K.—could be extended easily into the U.S.,” he added.

Meanwhile, State Street is also continuing to grow its share of the U.S. wealth management market, Trout said. On the “high end,” State Street has market share it won with the purchase of Charles River Development. “It will be worth watching how FNZ brings its core capabilities to the U.S. market, here with a focus on the mass market/retail fund investor,” he explained. The target for FNZ will be “the lower-end RIA market, where the margins are fat, [plus] the mass affluent/retail market.”

Upon closing of the transaction, Lee Jones, currently senior vice president of State Street, will be named CEO.

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