At the request of financial advisors, Envestnet has added a “first of its kind” asset manager to its platform.
The TAMP and software company, used by over 4,700 wealth management firms and 100,000 financial advisors, said Tuesday it would begin offering customizable option overlay strategies by SpiderRock Advisors, a Chicago-based asset manager with $1.5 billion.
It is the first partnership between Envestnet and an asset manager providing scalable strategies like SpiderRock’s, although it intends to add more, Jean Heath, head of Asset Manager Network for Envestnet, told RIA Intel.
Equity market volatility and low interest rates have advisors rethinking client portfolios and vanilla allocations to stocks and bonds. The wealthiest families and institutions invest heavily in alternative investments. But more advisors are considering different securities, contracts, and real assets. (Although venture capital eludes most advisors and that might never change.)
“I think it will grow over time. There has been an increased demand from clients for options strategies,” and for SpiderRock specifically, Heath said.
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Dave Donnelly, a managing director at SpiderRock who leads the company’s business development, said some wealth managers were interested in their strategies but told him “we cannot do anything until you are on Envestnet,” he said. Some firms are so reliant on Envestnet — meaning they use so many of their services — that the required due diligence and effort needed to onboard a new asset manager absent from the platform is often not worth the benefits.
When Envestnet reached out to SpiderRock, it was a good day for the asset manager.
“That was music to our ears” when Envestnet sent a request for proposal last year, SpiderRock President and Chief Investment Officer Eric Metz told RIA Intel. After “a full bake off” with about a dozen firms, Envestnet chose SpiderRock to be the first early this year.
Getting on the platform will help the asset manager grow. SpiderRock, founded in 2016, has 17 employees and has already extended offers to new wholesalers in anticipation of the business coming its way.
Eight customizable SpiderRock strategies are now available through Envestnet’s custom SMA offering. They can be used to hedge concentrated stock positions and broadly diversified portfolios, or generate income using put and call writing. Advisors and institutions using Envestnet’s platform can choose which securities and strategies are available to their respective advisors.
The overlay strategies don’t require investors to open new accounts (there are no minimums), don’t disrupt the underlying investments, and can be integrated with through all the major custodians.
It is incumbent on financial advisors to make sure that overlaying an options strategy is the right thing for their clients. Ending up on Envestnet’s platform is a vote of on confidence in SpiderRock itself. “Their diligence process was very rigorous. I was very impressed with how deep they went on all the strategies,” said Donnelly, who previously founded and was president of the quantitative strategy firm Strategic Alpha.
“2020 has brought risk management to the forefront of all client conversations and portfolio construction. The timing of this initiative is extremely fortuitous as the capital market landscape is causing an unprecedented demand for options-based strategies and solutions. We are excited and honored to be working with Envestnet to bring our solutions to their clients,” Metz said in a statement.
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.