Back-office technology, on the other hand, has traditionally come from large, incumbent financial companies like custody and clearing firms, not fintech start-ups. Anderson believes that is going to change..
“We’re seeing this as another catalyst,” he said. “Not only do those large providers not provide truly innovative solutions for the back office, the tools they provide are also becoming much more legacy. They’re putting less emphasis—and fewer resources—into software solutions for the back office at a time when advisors are experiencing a growing need for those capabilities.”
At the same time, most advisors use multiple custodians and also have to maintain relationships with product manufacturers like alternative investment providers, fintechs and insurance providers. These relationships typically cannot be managed within one custodian’s back-office solutions, said Anderson.
It’s become an area of emphasis for private equity investors like FTV, said Anderson.
“We see a lot of excitement and a rapidly evolving technology landscape around the back office because, thus far, digitization is underserved in the back office,” he said.
FTV Capital, which has had 118 different portfolio companies since it was founded in 1998, recently sold and exited one of its back-office-focused holdings. InvestCloud, which builds a myriad of cloud-based software solutions for advisors, specialized in a customizable approach to integrating different back-office operations. It was sold to another private equity investor, Motive Capital, which promptly merged the company with Tegra118, the rebranded investment services provider spun off from Fiserv and Finantix, a private-banking fintech.
After it received an investment last summer, FTV Capital added back-office service provider Docupace to its portfolio. Docupace has expanded far beyond its roots as a cloud-based document management platform towards automating processes like client onboarding, advisor transitions, cybersecurity and compliance workflows.
“We work with great, innovative management teams—like those at InvestCloud or Docupace or Riskalyze—that understand how their end-markets are evolving, put their customers first and build great products to serve the customers’ changing needs,” said Anderson. “These teams are not scrambling to find a product that fits the market. They’re connecting their products with the customers’ pain points and growing in the right ways.”