On Monday, Envestnet publicly revealed that its loan portal, the Envestnet Credit Exchange, was up and running, while simultaneously naming the initial four lenders on the platform. It was a quieter launch compared with some of the firm's other rollouts, in part because the actual November ribbon cutting for broad market availability was not publicized. To run the portal, Envestnet is working with Advisor Credit Exchange (ACE), a firm that connects wealth managers and lenders, and the duo are providing the solution for advisors interested in providing credit options, or even prequalified loans, to their clients.
While publicly discussed as early as last April, the firm officially revealed that the first four lenders of secured and unsecured financing are TD Bank, LightStream (a division of SunTrust), Nationwide (in partnership with Supernova Lending LLC) and First Citizens Bank, with Nationwide also having a slot on the Envestnet Insurance Exchange. Envestnet is beginning its search for a second round of lenders this quarter. Starting at a minimum of $10,000, loans are available up to amounts of $25 million and more, according to the announcement.
Envestnet is not releasing official figures characterizing either the loan volume or the number of advisors who have used or interacted with the feature, but both John Yackel, who leads both the Insurance and Credit Exchange as Envestnet’s head of strategic initiatives, and Peter Stanton, CEO of ACE, characterized the launch as a watershed moment in their careers.
“It feels like it’s going to be one of the greatest things in the industry,” said Stanton, who has more than 30 years’ service in finance, including stints at Merrill Lynch, UBS and Goldman Sachs. Envestnet’s broad grasp of the industry, with more than 100,000 advisors and more than 500 RIAs using the firm’s tech and services, according to the firm, means that the first four lenders on the platform are getting their products in front of a large number of advisors.
Not to mention that loans are generally easier for advisors and end-clients to comprehend than insurance, said Stanton. “I don't think there's any advisor out there…[who] doesn't acknowledge that being able to provide a loan, being able to be in lending, isn't a valuable tool,” he added.
Indeed, there was plenty of interest at the Envestnet Advisor Summit for details on the feature, tempered by worries from advisors that the lenders on the platform might not provide the perfect formula for advisors and their clients. Envestnet was hypersensitive to those concerns, said Yackel. Feedback before the portal even launched indicated that advisors wanted lenders to be creative, flexible, provide a large number of loan choices and be transparent about the credit they were offering.
As an intermediary, Envestnet has a fine line to walk: It has to keep advisors happy, while not oversaturating its platform with any particular loan type, added Yackel. All the while, the firm is leveraging the data it has through its connections to custodians and other financial services firms, accessed with the permission of advisors and end-clients, to facilitate the prequalification of certain loans. While technology built by ACE performs some of the analysis, the ultimate decision of who is prequalified or not rests with lenders, which all have their own standards.
For those denied a loan, or who simply have questions, there are lending specialists specifically trained for working with advisors, said Stanton. “It’s not just technology,” he said. “When we think of [technology and human resources] together, it makes the process more efficient and the success rates higher. But there are always going to be those exceptions on the edges and we have the resources to deal with that.”
Since its limited launch at the Envestnet Alliance Meeting on October 29—and broad market launch a week later—the “majority” of lending carried out has been “traditional securities-backed lending,” said Yackel. Unsecured lending, for projects like home improvements, have also proven popular. “Advisors have very quickly picked up how to use unsecured lending within financial planning,” he said.
Advisors are also using the new feature as a selling point when recruiting new advisors. “We're in the midst now of working with some key strategic partners that are using this as a recruiting effort into some of the large corner offices that they, as an RIA firm, haven't been able to compete and get those advisors to move over,” said Yackel. Envestnet is also evaluating offering business-to-business financing, for advisors interested in buying out other advising practices. On the lending side, there are already firms interested in providing those types of loans, he said.
Yackel has lead the development of both Envestnet Insurance Exchange and Credit Exchange that went on throughout 2019. The insurance side he said has “a much broader list of product availability” and different licensing requirements, which requires more advisor support. In comparison, the credit side has a lower barrier to entry, from an education and licensing standpoint, and a “significantly faster” speed to market and quicker advisor adoption.
Overall, both solutions are intentionally leveraging technology, as well as Envestnet’s wide reach, to bring new products to advisors’ front steps. “It’s not something we’re just dabbling in,” said Yackel.
