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The top 10 wealthtech stories of 2021

ByRyan W. Neal
December 23, 2021 7:24 PM

Between a meme stock frenzy powered by digital brokerage apps, cryptocurrencies continuing their wild ride and a never-ending parade of mergers, acquisitions and fundraising deals, fintech kept making headlines in 2021.

As we move into the holiday season and take a well-deserved break before getting back to work in the new year, here’s a look back at some of the biggest stories that impacted financial advisor technology in 2022.

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SEC Chairman Gary Gensler
Bloomberg News

Regulators take aim at online brokerages and digital advice

When Gary Gensler was confirmed as chairman of the SEC during the wake of the so-called meme-stock trading frenzy, he pledged to target the gamification and marketing techniques employed by online brokerages like Robinhood. The SEC has since issued a request for public comment not only for digital brokers, but also for robo advisors and the client-facing technology used by financial advisors.

The regulator also stepped up enforcement actions against digital advice providers. SoFi paid $300,000 to settle conflict of interest charges with the SEC, and Charles Schwab set aside $200 million for an SEC probe into its robo advisor. Schwab’s robo is also facing a class action lawsuit from clients alleging it violated a fiduciary responsibility by over-allocating portfolios into cash.

The SEC isn’t the only regulatory body taking action. FINRA levied a record-setting $70 million penalty on Robinhood, which is also continuing to fight against Massachusetts’ state fiduciary rule.
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Bloomberg News

Direct indexing goes mainstream

This was the year direct indexing, a formerly esoteric investing strategy only accessible by the ultra wealthy, finally went mainstream. Throughout 2021, asset managers and custodians acquired technology to make direct indexing, which seeks to replicate the performance of an index fund by purchasing the underlying securities, available to a wider selection of investors. After Morgan Stanley acquired Eaton Vance (which owned direct indexing pioneer Parametric) in late 2020, BlackRock picked up Aperio, JPMorgan Chase bought Open Invest, Vanguard grabbed Just Invest and Franklin Templeton scooped up O’Shaughnessy Asset Management.

On the custodian front, BNY Mellon Pershing announced plans to acquire Optimal Asset Management to develop direct indexing functionality for independent advisors. Charles Schwab executives made direct indexing a core theme of the annual IMPACT conference and plans to introduce the service in 2022. Fidelity introduced support for fractional shares, which helps reduce the minimum investment required for direct indexing, to its custodial platform, but has not made specific plans to offer the strategy to advisors.
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Companies hoping to solve the crypto-for-advisors puzzle

As cryptocurrency continued to capture the imaginations and wallets of retail investors, financial advisors found themselves on the outside looking in. They could invest in crypto, but the infrastructure just didn’t exist for them to provide advice on the digital assets or incorporate them into their practices. 

Entrepreneurs are eager to fill the gap. In May, Tyrone Ross launched Onramp Invest, which aims to be a one-stop-shop for everything RIAs need to access and research crypto markets. Trading software like AdvisorPeak, which Addepar acquired in October, added on new functionality to trade cryptocurrencies and manage them alongside traditional assets, and MassMutual-owned fintech Flourish introduced a new service for advisors to open and manage bitcoin portfolios for clients. Still others, like Alto IRA, have platforms to let financial advisors add cryptocurrency into retirement plans.
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Riskalyze, Orion and Lori Hardwick

A simmering rivalry between Riskalyze and Orion Advisor Solutions boiled over in 2021 as the popular wealthtechs compete to be the central hub of advisors’ digital technology. Riskalyze had already expanded beyond client risk analytics and into trading and portfolio management, and in March Orion, which began in portfolio management before growing into a turnkey asset management platform, moved into the risk game with the acquisition of HiddenLevers. Riskalyze fired back with a marketing campaign attacking the methodologies used by HiddenLevers (as well as RiXtrema, another risk analytics fintech) and accusing the company’s executives of using racist language about the COVID-19 pandemic. In the fallout, Riskalyze chair Lori Hardwick, a wealthtech veteran whose appointment was highly publicized by Riskalyze in 2019, was forced to resign to avoid any conflicts of interest with her role at Genstar, the private equity firm that invests in Orion.

Both companies quickly moved on by announcing new products, acquisitions and hosting in-person conferences. Riskalyze found a new chair in Laurie Schultz after completing a major recapitalization deal with Hg Capital, and Hardwick has already found a new leadership role at the head of digital recordkeeper Vestwell’s board.
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Merrill Lynch pushes digital capabilities forward

After spending most of a decade attached to legacy systems that lagged behind the technology enjoyed by independent advisors, the banks and wirehouses are starting to catch up with next-generation systems of their own. Few were as active in 2021 as Bank of America Merrill Lynch. In the spring, Merrill overhauled client reports with interactive videos and launched fully digital account opening. In June, after 18 months of development, the firm introduced its new advisor workstation, part of a $3 billion investment in overhauling client engagement technology. The technology was praised as setting a new industry standard and showing how large firms could provide a tightly integrating technology ecosystem. Then in September, Merrill rolled out a new mobile app to help get its financial advisors back out into the field.

Merrill was also active with its client-facing technology. The firm cut account minimums on its robo advisor, Guided Investing, and its do-it-yourself trading app, Merrill Edge, earned high customer satisfaction marks.
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Bloomberg News

Popular wealthtechs sign large enterprise deals

Many of the most successful wealthtech companies began by growing with smaller RIAs, whose size and independence make it easier to be early adopters of new technology. But as those tech companies grow, many have pivoted to signing enterprise deals with large broker-dealers and wirehouses. One of the biggest deals of the year was Fidelity-owned eMoney Advisor partnering with Wells Fargo to deliver its full suite of financial planning software to the bank’s 13,000 financial advisors. Riskalyze was active in this area, highlighted by a deal to make its technology available across Cetera’s entire network of financial advisors, as was Orion, which landed a $3 billion client despite Riskalyze’s marketing campaign. And more recently, insurance-focused startup Bestow got a foothold in the wealth management industry by partnering with Equitable, a financial services company formerly owned by AXA Group.
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2021 Tech Survey shows a tech squeeze

Some RIAs have started to worry if their technology providers are too focused on these large deals at the expense of servicing the little guy. The largest wealth management firms are investing more than ever in technology and plan to increase budgets in the future, according to Financial Planning’s 2021 Technology Survey. On the other hand, the smallest firms are already hitting the limits of what they can spend on technology and could soon be feeling a squeeze to stay competitive. The Tech Survey also explored how the coronavirus pandemic impacted advisors’ technology budgets and other trends in how firms are thinking about their digital tools.
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New challengers emerge

Though the ongoing pandemic made it difficult for new startups to get in front of advisors, 2021 did see the emergence of some notable new players in the wealthtech arena. InvestCloud, the wealthtech software launched 11 years ago by CEO John Wise, used M&A to quickly grow from startup to a juggernaut that could even rival Envestnet. The firm completed a recapitalization deal in February that merged it with Tegra118, the wealth management business that spun out of Fiserv, and Finantix, a global investment bank. In May, InvestCloud acquired legacy financial planning software company Advicent, and in November, Wise showed how the company plans to tie everything together with its new InvestCloud X product.

This year also saw the emergence of the TIFIN group, a collective of small fintech companies led by CEO Vinay Nair. Before 2021, the company was best known for selling its tax automation software 55ip to J.P. Morgan Asset Management. This year, the company raised $22.3 million from J.P. Morgan, Morningstar and Broadridge, bringing its total fundraising to $49.7 million. TIFIN also signed a distribution deal with Broadridge and added Ark Investment Management’s Cathie Wood to its board of directors.
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Bloomberg News

Insurers, banks use fintech to expand financial advice

It seems everyone wants to be an advisor now, and some firms see fintech as an entry point. Throughout the year, insurance firms looked to expand their digital wealth management capabilities, such as State Farm tapping Intelliflo, a fintech developed by asset management firm Invesco, to boost agents’ abilities to offer financial planning and investment management. MassMutual brought to market its next-generation advisor software Advisor360 and acquired Flourish to provide independent RIAs with access to cash management and Bitcoin.

Insurers weren’t alone, as several banks also introduced digital advice to help keep assets from moving to third-party brokerages. Goldman Sachs released its long-awaited robo advisor Marcus Invest in February, making the investment bank’s first foray into managing money for the mass affluent.TD Bank launched a new robo, replacing the Essential Portfolios platform that went to Charles Schwab in the TD Ameritrade purchase, and Citizens Financial said it’s eyeing more wealth management acquisitions, with technology being a particularly attractive space.
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iCapital and UBS have a connection that dates back to 2017.

Alternatives take off

Record highs on the stock market and historically low interest rates have opened the door for an explosion in fintech companies offering financial advisorseasy access to alternative investments. One of the largest providers, iCapital Networks, closed a $440 million investment round that valued the company at $4 billion. Four other alternative investing platforms — YieldStreet, Rally, StarStock and Rocket Dollar — raised a cumulative $121 million in the spring.

Structured notes emerged as a trend, with iCapital acquiring Axio Financial; Halo Investing, a tech startup focused on the complex products, raising $100 million; and both Envestnet and Fidelity Institutional integrating their advisor dashboards with Simon Markets, a structured investment technology created by Goldman Sachs.
Ryan W. Neal
Technology Editor, Financial Planning
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