The FinTech Merger Boom

Fidelity
Fidelity’s acquisition of eMoney earlier this year makes strategic sense as well as financial sense. EMX—eMoney’s recently released next-generation platform—is receiving excellent reviews. With a lot of private equity money chasing too few targets in this space, the time was right for eMoney shareholders to cash in. Furthermore, the technological know-how and the financial might of Fidelity should allow eMoney to innovate, scale and release enhancements even faster in the future.

For Fidelity, eMoney offers a number of much-needed attributes. The user experience for both advisors and their clients is simple and elegant, yet powerful. Collaboration tools, industry-leading client and advisor portals, well-documented account aggregation capabilities and more make EMX a platform that can be combined with Fidelity’s existing technology assets such as Streetscape and WealthCentral to form the basis of Fidelity’s next-generation advisor and consumer platforms.

The eMoney purchase should greatly accelerate the building of Fidelity’s next-generation advisor platform. It should also be an asset should Fidelity choose to release some type of robo-advisor platform, or include robo-type attributes in its next-generation platform.

If there was one negative, it was the rapid exit of Edmond Walters from his role as CEO of eMoney. Walters is a visionary and an innovator. His passion and energy for eMoney will be sorely missed. The good news for Fidelity and eMoney is that Michael Durbin, who has taken the helm at eMoney, is a well-respected, highly capable executive who has been successful in all of his past endeavors. We’re optimistic that he will be equally successful at eMoney.

We expect that as EMX morphs into a Fidelity platform, it will follow many of the policies that WealthCentral, for example, currently follows. That means Fidelity will integrate selectively with those third-party vendors it sees as industry leaders. There is litttle reason to believe that it will welcome anywhere near the number of vendors that TD Ameritrade’s VEO platform does, nor is it likely that Fidelity will become more restrictive than it currently is. Ultimately, advisors should expect it will judiciously add select vendors to strengthen its competitive position.

In my opinion, this acquisition is primarily about the account aggregation and the portals initially, and in the longer term it is about the platform and other enterprise software endeavors. It enables Fidelity, on both the advisor side of the business and the retail side (should it so choose) to rapidly bring to market a platform capable of competing with the B2C robo-platforms. That should be good news for Fidelity and eMoney and for each one’s clients. It is also probably good news for the advisor community because it will keep the pressure on all custodians and third-party technology firms to continue innovating in order to stay competitive.

In the longer term, we suspect that Fidelity will find additional ways to wring value out of eMoney in other segments of its operations.

BlackRock
BlackRock’s recent acquisition of robo-advisor FutureAdvisor is an interesting one. It raises the question of whether this is a strategic decision or more of a hedging of BlackRock’s bets on the current distribution model. If it is strategic, will other firms similar to BlackRock attempt to follow suit, further increasing demand for digital platform technology?

We think the jury is still out on this one, but it has potential. To date, most of the digital offerings have used passive ETFs as their investment of choice, and BlackRock is a leading ETF firm. If digital platforms can potentially increase the demand for ETFs, and if BlackRock has a digital platform that it can make available at little or no cost to banks, insurers, RIAs and other financial intermediaries, might not that be an attractive potential growth area for BlackRock? We think so.

If digital platforms can be a profitable, low-cost distribution channel for BlackRock, can other product manufacturers be far behind? It is not difficult to envision a scenario where other product manufacturers of mutual funds, ETFs and the like create digital technology that features their products available to the general public through both direct and intermediary channels.
 
What’s Next?
With new development in the FinTech space happening almost daily, it is difficult to predict what the future holds in store, but a few things seem evident. First, the robo-advisor technologies, which most industry veterans dismissed initially, are having a much greater impact in the marketplace than almost anyone could have initially predicted.

Second, to date, most of the significant acquisitions we’ve witnessed to date appear to be rational and strategic in nature. This trend is likely to continue.
Third, the acquisition trend is likely to continue. There are still millions of retail clients out there, representing billions of dollars, who are still underserved through a direct channel or an advisor. They are still receiving paper statements through the mail, and they do not have access to a digital experience. With consumer expectations rising, the status quo is not sustainable. Financial services firms operating under a traditional model will have to adapt, by building or buying, or their survival will be threatened. It will be interesting to see how fast the industry can adapt to the new realities of the marketplace.