Envestnet labors to fend off escalating revolt by major shareholder

January 6, 2023 5:37 PM

After closing 2022 with an open letter detailing its disappointment with the fintech firm's performance, one of Envestnet's largest shareholders is ratcheting up its bid to force change at the wealth management technology company, offering up four new candidates for its board of directors.

Lauren Taylor Wolfe, co-founder and managing partner of Impactive Capital

Activist investment management firm Impactive Capital named its candidates earlier this week along with restated grievances about the company first aired last fall, including "persistent underperformance, poor governance and lack of shareholder alignment," according to a news release. Impactive Capital owns approximately 7.5% of the outstanding common shares of Envestnet, making it one of the firm's largest shareholders.

The statement said that Impactive firmly believes in Envestnet's business and future potential. But the shareholder pointed out that over the past five years, Envestnet has underperformed the S&P 500 by 61% and delivered a total return of just 6%, compared to more than 113% by its peer group.

Impactive asserts that its moves are having a positive impact on Envestnet shares. "In the 32 trading days since Impactive made its' November 2022 letter to the board public, Envestnet's stock has returned 11%, almost double the company's cumulative return during the trailing five-year period, which Impactive contends underscores shareholders' profound dissatisfaction with the company's current direction and their desire for change," said the Impactive statement released this week.

But there's much more work to be done, the shareholder said. Impactive accused Envestnet of making decisions that resulted in "shareholder value destruction." Those decisions include dilutive capital allocation and a lack of focus on return on investment; poor operating performance; lack of shareholder alignment; and a lack of commitment to good governance. With the latter, Impactive said that Envestnet's current board had refused to engage with the shareholder in response to its request for a board seat.

"Over the past 18 months, during which Impactive has sought to productively engage with the board, we steadfastly expressed our view that Envestnet is a high-quality business with substantial opportunity for value creation, particularly given its dominant market position," Lauren Taylor Wolfe, co-founder and managing partner of Impactive, said in a statement. "Unfortunately, our efforts to collaborate privately were rebuffed, leaving us with no choice but to publicly express why change is required at Envestnet."

Envestnet officials said in an emailed statement that the current board is committed to acting in the best interests of the company and all shareholders.

"The board will present its recommendation regarding director nominees in the company's proxy materials. In the meantime, the company continues to focus on achieving its strategic goals and creating value for shareholders," the statement said.

Impactive nominated the following people to Envestnet's board: Taylor Wolfe; former UBS Group Global Wealth Management Co-President Thomas Naratil; Lane Holdings Chair Wendy E. Lane; and Michael J. Stanton, a former executive vice president and chief financial officer for Diligent Corporation.

In its November letter, Impactive said that this was the first time it felt compelled to make public its communications with Envestnet's board. Envestnet's stock has underperformed in the years since current board chair James Fox joined the board in 2015, Impactive said.

"We cannot emphasize enough how difficult it is for a software company with mostly fixed costs, greater than 95% revenue retention, and revenues linked to the market, to underperform the market by ~65% over five years," Impactive wrote in the letter.

Scroll down to get caught up on other recent fintech news you might have missed in our Wealthtech Weekly recap. And check out the previous edition here.

Onramp 'quietly' launches digital asset SMA solution for advisors

Onramp Invest

While reflecting on the "wild ride" that was 2022, cryptocurrency platform Onramp Invest announced the availability of a new separately managed account solution built to benefit advisors and asset managers.

In a Wednesday blog post, Onramp leaders said they had been quietly building the offering, which will give advisors digital-asset models and indices that "can't be found anywhere else."

"Now, even if advisors aren't sure how to approach digital assets, they can leverage the knowledge and strategies of the best in the business for their clients," Onramp said in the blog post. "If advisors would like to partner with a leading asset manager to help manage their clients' funds directly, we can help with that, too."

With the new solution, asset managers can manage accounts across clients, advisors and firms. They can also create, manage, assign and trade model strategies while with integrated reporting, analytics and dashboards to best understand and monitor their clients' performance.

iCapital Adds Board Member

Agnes Bundy Scanlan

iCapital

New York-based alternative investment platform iCapital has added a regulatory expert to its board of directors.

Agnes Bundy Scanlan, the president of The Cambridge Group, has been appointed to the iCapital board effective Jan. 1. Since May 2020, the 30-year industry veteran has served as president of The Cambridge Group, a regulatory risk management company that advises financial services and fintech firms.

Bundy Scanlan is a former chief regulatory and compliance officer and global chief privacy officer at TD Bank. She also serves on the boards of AppFolio, R1 RCM and Truist Financial. In 2021, she was recognized as one of Savoy's "Most Influential Black Corporate Directors."

Before joining The Cambridge Group, Bundy Scanlan worked as a senior advisor for consulting firm Treliant and northeast regional director at the Consumer Financial Protection Bureau. She has also held various executive roles at Bank of America and the former FleetBoston Financial. Earlier in her career, she was a lawyer for the Senate Banking Committee.

"I'm excited to join iCapital's board of directors," Bundy Scanlan said in a statement. "iCapital is a leader in making alternative investments more accessible to advisors and investors. I look forward to working with (CEO Lawrence Calcano) and iCapital to continue to deliver on this mission."

E-Trade from Morgan Stanley makes platform upgrades

Andrew Harrer/Bloomberg

E-Trade is starting the year by rolling out a suite of platform enhancements focused on expanded social media research analytics, improved push alerts, a scrolling trade options tool and more.

The Morgan Stanley owned E-Trade's investing and trading platforms upgrades now gives users the ability to easily scan for equities and ETFs that are creating buzz on social media. There is also more control over how updates are dished out through customized price movement and earnings push alerts in three categories.

E-Trade also now offers a tool called "Trade Tape" that allows traders to analyze trade activity and view a live scrolling record of options trading activity across all symbols.

"Amid volatile markets our clients seek the most sophisticated and powerful tools to manage their finances, and with these enhancements we aim to deliver just that," Chris Larkin, managing director of trading at E-TRADE from Morgan Stanley, said in a statement. "We listen closely to our clients and always aim to further raise the bar in order to offer an intuitive investing experience on all of our platforms."

The enhancements come after Morgan Stanley announced the elimination of mutual fund commissions and early redemption fees. Mutual funds are now part of E-TRADE's $0 online commission offering along with U.S.-listed stocks, ETFs and options trades.