Fintech Bytes: Crypto collapses, Envestnet eyes custody business, SEI adds UMAs

Boy, crypto sure had a tough week, huh?

The drama began brewing over the weekend when Changpeng Zhao, CEO of cryptocurrency exchange Binance, announced he would sell his holdings of FTT, the native token for rival exchange FTX. On Tuesday, Binance – the world’s largest crypto exchange – announced it would acquire FTX, the world’s second largest exchange, which sent many digital assets, including Bitcoin, plummeting by double digits.

The next day, Binance changed its mind and pulled out of the deal, which caused crypto markets to extend losses. FTX suddenly seemed destined for bankruptcy, which came Friday morning along with CEO Sam Bankman-Fried's resignation.

As my colleague Jeff Benjamin pointed out, the collapse of the world’s second largest cryptocurrency exchange in just a single week — not even Twitter under Elon Musk’s stewardship could burn down that quickly — is damaging many financial advisers’ confidence in digital assets, which was already on shaky ground after months of poor returns, scandals and other players getting wiped out.

It's a rough time for ForUsAll to launch a crypto 401(k) service, but I’d bet that all this action probably won’t do much to quell financial institutions’ plans to support cryptocurrencies. If anything, they might see the collapse of fintech startups as an opportunity to move in and take over the space. They’ve already seen how bitcoin offers a new way to get retail investors to hand over their money and aren’t likely to give that up just because some venture capital-backed competitors are dropping out.

However, the entire week has proven just how shaky a ground much of the crypto ecosystem is on. Early bitcoin proponents may have had dreams of building a digital monetary system that can evade central banks, regulators and police, put they’re quickly learning some rules and guardrails may be necessary.

Has the FTX drama at all changed your opinions on cryptocurrency or what you are telling clients? I’d love to hear from you, or any other thoughts, questions or comments you may have. Drop me an email or hit me up on Twitter.

Here are some of the other fintech headlines you may have missed this week.  

ENVESTNET PLANS TO ENTER CUSTODY BUSINESS

When discussing Envestnet's third-quarter earnings, CEO Bill Crager announced that the company has a new partnership with New Zealand-based fintech firm FNZ to get into the registered investment adviser custody business, as first reported by CityWire. Crager didn’t offer many details other than that Envestnet is aiming to launch the custodian in the second half of 2023 and sees an opportunity to develop cash management or lending opportunities.  

This is a huge development from the biggest player in outsourced asset management and adviser technology that I’m looking to dive into much deeper next week, but for now there are just a lot of questions. The first that I have is what this means for Envestnet’s existing custody and clearing relationships. Is this an opportunity to cut out a middleman and save some costs? Or does Envestnet see an opportunity to offer an alternative for any advisers dissatisfied with the Charles Schwab and TD Ameritrade merger?

SEI ADDS UMA CAPABILITIES FROM LIFEYIELD

SEI upgraded its Wealth Platform product with the ability to offer unified managed accounts through a partnership with fintech firm LifeYield. Private banks and trust companies in the U.S. can deploy a single investment model across multiple accounts within the same household, which the company says will help address investors’ increasing portfolio complexity.

LifeYield Jack Sharry has beat the drum on UMAs for a while now, arguing that they produce better after-tax returns and can bring in more net new assets for advisers and firms. They seem like a natural evolution of the separately managed account, but seem to have slow adoption among financial advisers. Perhaps more integrations like this one will start moving the needle.

CHOREO CHOOSES PONTERA

Private equity-backed RIA Choreo announced it has partnered with fintech company Pontera to help financial advisers manage clients’ held-away accounts. Pontera’s technology enables financial advisers to compliantly manage clients’ 401(k)s, 403(b)s and health savings accounts.

Choreo is fresh off its first RIA acquisition – California-based Enso Wealth Management with $1.8 billion in assets under management – and Pontera continues to strike deals to expand its reach within the industry. Both players are making moves and should be interesting to watch in 2023.