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Can Envestnet TAMP down the competition in a growing segment?

By Dave Kovaleski - Jan 21, 2020 at 8:45AM

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The financial firm is a leader in the turnkey asset management program market and is poised to expand its market share.

Turnkey asset management programs, or TAMPs, are a burgeoning segment of the financial services industry that investors should get to know.

The industry is poised for growth, and the largest player in the business, Envestnet (ENV 1.22%), has been generating big returns for investors. The Chicago-based firm has roughly $182 billion in assets under management (AUM), making it by far the largest. The next closest competitors are SEI with $67.7 billion and AssetMark with around $57.9 billion. 

Envestnet offers a platform that allows independent financial advisors and wealth managers to automate and outsource certain back-office functions like billing, reporting, and account management, among others. It also offers portfolio rebalancing and management services, financial planning, and data and analytics, among other services through its subsidiary, Tamarac. 

A stock trader sits at his desk and looks at several computer monitors showing stock financial statistics

Turnkey Asset Management Programs automate processes for financial advisors. Image source: Getty Images.

In essence, it's a turnkey platform that allows advisors and wealth managers to save the time, money, and resources it would take them to build out this infrastructure and perform these essential tasks. That added value allows these wealth managers to spend more time advising their clients. The company currently serves about 100,000 financial advisors who oversee 12 million accounts.

There are a lot of reasons why this stock, up 41.5% in 2019, has been soaring. Here are a few.

The TAMP market is growing

The TAMP market sails into the new decade with some tailwinds due to the anticipated growth of the independent advisor channel. Assets managed by independent advisors (those not associated with a large brokerage firm like Charles Schwab), are anticipated to jump from $8.4 trillion in 2017 to $12.1 trillion in 2022. That represents a market share of overall advised assets of 48%, up from 42% in 2017.

While TAMPs are growing rapidly, they are still only used by about a quarter of advisors, so there is plenty of room for continued growth in this market.

Envestnet has taken advantage of these trends, nearly doubling the amount of advisor clients over the past three years. The company put up strong numbers in the third quarter, as revenue increased 18% year-over-year and EBITDA jumped 28%. About 96% of that revenue is recurring, with 53% percent from asset-based revenue and 43% from subscription-based revenue.

Envestnet expects fourth-quarter revenues to increase 16% and earnings to rise 14%. For the full year, the company projects that both revenue and earnings-per-share growth will rise about 11%, while EBITDA is expected to grow 22% for the year. Analysts project higher earnings-per-share growth in 2020, upwards of 18%, which is expected to be higher than the industry average. 

Expanding its capabilities and offerings

Envestnet has made some moves in recent months that should open up new growth opportunities.

Last fall, the company signed a deal with Equifax to use its aggregated data for a new "credit decisioning" product -- an AI-based solution to speed up the credit approval process. 

In January, the company announced a partnership with New York City-based Dynasty Financial Partners to launch the Advisor Services Exchange. The exchange, available through Envestnet's platforms, will provide advisors with access to Dynasty's network of advisory firms, which offer growth capital, business management tools, marketing services, and outsourced CFO services. Envestnet acquired a minority stake in the private firm.

It's part of the company's strategy to offer clients an integrated advice model that gives them a more holistic approach to advice.

"We are committed to driving continued revenue growth while using our scale and operating leverage to grow earnings faster over the long term. We'll be very intentional and very focused in the months ahead, as I believe the stage is set for the industry to enter its next transformational era," CEO Bill Crager said in the third-quarter earnings call.

Committed to "Jud's vision"

In October, the company was rocked by tragedy as chairman and co-founder Jud Bergman and his wife, Mary Miller-Bergman, who founded Hanover Hill Wealth Advisors, died in a car accident.

"Jud was not only a business partner -- he was a best friend. He and Mary meant so much to so many people," Crager said on the earnings call.

"These have been hard, dark days, but somewhere in the darkness there is light. Jud and Mary taught us this. It's not enough to endure, it is not enough to muddle through, it is more important to be driven by purpose, to have an impact, to make things better ... We are committed to following through on Jud's vision."

Bergman established the company in 1999 and built this market-leading firm. The original vision was to "empower financial advisors with the tools they needed to better serve their clients," said Crager, who co-founded the company with Bergman in 1999. Crager now leads the company as CEO and plans to carry through on the vision of providing an integrated advice platform. Investors should know that the company is in a great position to build on that success. 

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