The Oranj closure has the wealth tech community evaluating what happened to a seemingly healthy wealthtech business that had announced new products launches just months ago — and if any other players might be interested in a potential purchase of the platform.
The Chicago-based fintech’s spokesperson confirmed Wednesday that Oranj is shuttering operations in 2021, leaving advisers just six weeks to switch clients to another wealth management company. The upcoming holiday season and an ongoing global pandemic will only complicate those transitions.
Oranj’s adviser will struggle to plug up the holes, according to Steve Zuschin, executive vice president of LifeYield. “Through no fault of their own, advisers who use Oranj will have to scramble for a new solution at a time in which it is vital to have forward-looking and integrated digital infrastructure,” he said.
The problem with Oranj’s business model may have been its reliance on offering free tech for advisers that put assets with certain asset managers, according to Financial Planning expert Michael Kitces. Oranj purchased TradeWarrior's rebalancing software specifically to support the model.
The caveat to converting an adviser tech software company into a distribution channel is that the company only generates revenue if it has adviser users who those ETFs products, according to Kitces.
In the case of Oranj, the reality is that asset managers were willing to "pay" for distribution.
“Oranj appears to have struggled to get traction with advisers to distribute to ... because even offering their software for free apparently wasn't enough to gain traction given how much of a hassle it is for advisers to switch their software in the first place,” Kitces said.
Asset management distribution, too, is a brutally competitive business, he added. “This is why the leading successes in model marketplaces have been those that already had a depth of adviser relationships, from iRebal to Riskalyze to the granddaddy of adviser tech asset management distribution Envestnet.”
Moreover, Oranj’s value proposition did not offer anything that differentiated their tech outside of giving it away for free, according to Jason Wenk, CEO and Founder of digital brokerage Altruist.
“Outside of their pricing, there wasn’t anything particularly unique,” Wenk said. “Nothing that they were doing was necessarily better than other solutions in the market.”
Still, a potential Oranj sale might make sense for asset managers looking to imitate the strategy Goldman Sachs employed with its purchase of United Capital, according to Alois Pirker, research director for Aite Group's Wealth Management practice.
A similar situation occurred with Motif Investing when Charles Schwab announced it would purchased the technology and intellectual property a month after its closing in April.
Goldman Sachs has already repositioned FinLife to function as a distribution channel for Goldman Sachs Asset Management, offering discounts on its technology software for RIAs that funnel a certain percentage of client assets into mutual funds or ETFs managed by GSAM.
Other asset managers might be interested in an Oranj sale in order to tap a similar revenue-sharing strategy. “I could very well see over the holidays that some [asset manager] will make a deal here with [Oranj CEO and Founder] David Lyons,” Pirker said.
There also could be something to gain for a TAMP to swoop if an Oranj sale is a possibility, according to Wenk. “I could see some interest from a TAMP to buy it if they’re paying millions of dollars in fees to another vendor they could, instead, spend a couple million dollars to purchase Oranj upfront and that’s good ROI.”
Yet, any firm potentially interested likely already has the tech capabilities, according to Wenk. “What would Orion or Envestnet do with technology they already have?”
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