Innovation Strategies for 
Digital Assets & Wealth 
Management
Charles Shorter
James Taylor
Jessica Jones
Kevin Sanford
Nicholas Kobloth
1
A special thanks to the FinTech Consulting ALP team at the University of Maryland
and Envestnet. We expanded our knowledge and grew stronger as individuals, thought
leaders and as a collective team. It is a great feeling to contribute something unique to
the financial industry which provides perspective to relevant events today.
Additional gratitudes to all the team sponsors, family, spouses, friends, colleagues, pets
and case study experts who supported the ALP team members throughout the project.
Charles S.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 2
Table of Contents
Table of Contents 3
Introduction 6
Summary of Report 6
Approach 6
Research Segments 7
Project Tasks & Keywords 7
Project Assumptions 8
Marketable Objectives 8
About the Authors 8
Persona Research 10
Overview of Persona Research 10
Registered Investment Advisors 10
Size & Demographics 11
Reviewing The Role of Technology 12
Advisory Surveys 13
Integration & Distribution 14
Primary Interviews 15
General RIAs 17
Digital Asset RIAs 17
Crypto-native RIAs 17
RIA Research & Educators 18
Silicon Valley RIAs 18
Banking Participants 18
User Persona Findings 19
Financial Valuation 20
Overview of Financial Valuation 20
Market Structure & Market Participants 21
Competitive Landscape 22
Envestnet?s Financial Performance 24
Return on Invested Capital 25
Capital Structure | ROIC Tree 26
Scenario Modeling | Market Response to Crypto 27
Pricing Economics | Service Cost Ratio 28
Key Findings & Recommendations 30
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 3
Crypto & Wealth Management Ecosystem 31
Overview of Crypto & Wealth Management Ecosystem 31
The Role of Digital Transformation 31
Characteristics of a Digital Currency / Asset 32
Economics 33
Asset Class 34
Government | Regulation 35
Blockchain 36
Tokenization 36
Retail Investing 36
Use Cases & Industry Signals 37
Blockchain 37
Tokenization 37
Retail Investing 38
Economics 38
Regulation | Governance 39
Asset Class 39
Advanced Topics 40
Conclusion | Executive Guidance 43
Bibliography 45
Appendix 48
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 4
Disclosure:
Information provided about Envestnet herein is from publicly available sources.  Nothing herein is either
a legal interpretation or a statement of Envestnet policy.  Reference to any specific product or entity does
not constitute an endorsement or recommendation by Envestnet. The views expressed by the Authors are
their own and this Report on the topics herein do not imply an endorsement of the findings or any
particular product by Envestnet. To the extent this Report contains statements by Envestnet employees, the
views and opinions expressed are those of the employees and do not necessarily reflect the view of
Envestnet or any of its officials.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 5
Introduction
Summary of Report
Action Learning Projects (ALP) serve as a method of conducting real-world research to provide strategic
recommendations for a company/industry. Gathering insights in an unbiased format both as a learning
exercise and a final report the team will present data to the University of Maryland and other mediums.
Given the conservative nature of the Wealth Management industry we provide insight to Financial
Advisors and other wealth management industry participants to navigate today's regulated and
unregulated environments. As a Request for Comment (RFC) the team invites Wealth Management and
Financial Advisory professionals to participate in further research development as this is a continually
growing space. Additional content may be added to this report as discussions build on the potential values
and risks associated with the incorporation of cryptocurrencies and other digital assets for Registered
Independent Advisors (RIAs) within the current wealth environment.
The ALP University of Maryland team serves as an independent research body to the Wealth ecosystem.
The research attempts to present findings on cryptocurrency and digital assets with a less biased
perspective. We believe this information can be revealing and serve as a differentiator to Technology
Suppliers, Financial Advisors and Institutional Investors in the industry given the speculative nature of
digital assets.
Our research publication provides opportunities for industry participants to cite the ALP team as well as
make connections through conference and speakerships; while enabling firms that are slower to adopt
digital assets or abstain from comment to build understanding, facilitate discussion and build brand
eminence in a field that has been (more or less) non-reactive to the current events in the Digital Asset /
Crypto ecosystem.
Approach
The research presents the essentials of the Wealth Management industry from the perspective of
Registered Independent Advisor (RIA) firms that provide financial advice and planning for clients. The
core pillars of research separated into three parts consist of Persona/Users, Financial Valuation, and
Crypto & Wealth Ecosystems.
Over the course of research, the Action Learning Project team is charged with identifying key data points
and providing solutions to support the incorporation of Cryptocurrencies into ?traditional advisory
segments?. This research is built in conjunction with industry leader Envestnet which specializes in the
B2B FinTech, Wealth & Financial Advisory segments for independent advisors and high net worth
individuals.
As part of our original research this paper expands on two important topics related to the roles of
Technology and Digital Transformation in an attempt to demystify concepts that in-directly / directly
impact Wealth Managers. These topics relate to (1) exploring the commonalities of the competitive
landscape / market structure for RIA-related Services providing insight into the potential for network
effects and economies of scale and (2) evaluating the crypto & wealth ecosystem to provide a
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 6
comprehensive viewpoint from the perspective of a Wealth Manager given its potential effect on advisory
fee structures as more funds shift into digital assets.
Research Segments
Incorporating the expertise of the University of Maryland to form an Action Learning Project, the team
conducted research across the Wealth, FinTech & Financial Advisory industries which lead to a
Go-to-Market approach for the incorporation of crypto into advisor portfolios.
Using management consultancy techniques gained from the ALP course the team formed three work
streams to capture data points indicating rationale and feasibility of implementing a crypto-solution that
integrates RIAs with crypto brokerages. Each workstream was charged with synthesizing data to
determine the palatability of solutions through the use of user research, market risk methodologies,
scenario modeling and scholarly research; presented in three parts as detailed below:
1) Persona Research - Persona research addresses how technology providers such as Envestnet
should deal with managing customer engagement based on buying patterns, trends and
competitive insights; (and if applicable) how to sell crypto in the RIA space.
2) Valuation Analysis - Valuation deals with the fear of losing customers and/or assets under
management; and modeling market risk (or opportunity cost) from a Financial Statement to
advise on how much investment should be made towards a particular initiative / project such as
Crypto using Envestnet as a case study given public access to 10K Financial statements.
3) Crypto Ecosystem - Evaluating the relevant crypto thesis for Envestnet in order to assess the
influence of Crypto and whether there is a case for RIAs today, tomorrow and what that would
likely look like in the future for Wealth Management executives.
Project Tasks & Keywords
General tasks listed below were conducted by the teams where information is abstracted and shared
further in the research publication:
1. Part I: Persona/User Research
a. RIA industry analysis
b. Customer Segments / Types
c. Primary Interviews
d. Solution Stack for RIAs
e. Customer Discovery
f. Personifications
2. Part II: Valuation Analysis
a. Competitive & Market Landscape
b. Case Study / ENV 10K Financials
c. Project-based Investment Analysis
d. Scenario-based Financial Modeling for Crypto Risk
e. Additive Attributes of Network Effects & Pricing Economics
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 7
3. Part III: Crypto & Wealth Ecosystem
a. The Role of Digital Transformation in Wealth Management Industry
b. Digital Asset Characteristics of Blockchain Technologies
c. Key Mechanisms & Signals for Wealth Managers
d. Executive Guidance
Project Assumptions
1) RIAs Only - Based on team discussion and kick-off meeting; the team will focus / limit the crypto-thesis to
RIA-Only which covers the broader holdings market and may provide insight into personas. Case study will
evaluate and prioritize considerations for RIAs that fulfill the needs of HNW consumers.
2) Integrate Only - With many companies already in the market that service, custody and provide trust
services for crypto the time to market would not meet the needs of the customer to build the team decided to
limit the scope to ?Integrate Only? whereas to buy would need more consideration towards Envestnet
understanding of crypto for the core business.
Marketable Objectives
Our goal is to use these findings to collaborate with parties that wish to address similar segments of Financial
Advisory. The research presents an opportunity to express viewpoints from both ?traditional? and ?new?
advisors for which all entities are leaders in their own respective markets for which members of the team at the
University of Maryland serve as an independent research body to the Wealth ecosystem.
As a result we feel there are multiple avenues for reports, conferences and press that can be driven en masse.
Several options but not limited to (A) the production of independent pieces from the University of Maryland
and industry experts and/or (B) engagement with industry leading firms enabling the creation of opinion
pieces, marketing content, press, brand strategy and speakership.
About the Authors
The ALP team is composed of five individuals who are currently enrolled in the University of Maryland,
Smith School of Business. Each member took on the project with limited / no exposure to wealth management
with the goal of developing new and original thoughts on Digital Assets. Over the course of 14 weeks the team
built the case structure to help Envestnet (ALP sponsor / client) develop a business strategy focused on the
incorporation of crypto / digital-assets for Financial Advisors and High-Net-Worth individuals.
? Charles Shorter (Team Lead) - Charles is a former product lead at Envestnet utilizing the action
learning process as a part of his MBA dissertation at the University of Maryland. His main focus
areas include capability development and business line development for organizations in the
Corporate Banking, Capital Markets and FinTech industries. In his spare time, he enjoys reading
about technology, traveling and exploring wine cultures across the world.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 8
? James Taylor - James is a recent MBA graduate from the University of Maryland?s Smith School
of Business, where he also earned his undergraduate degree in Finance & Data Analytics. He
currently works at Morgan Stanley as an Automation Project Manager in the Corporate Finance
division. Working in the finance field for 6 years, he has focused his initiates on improving
efficiencies through improving outdated processes.
? Jessica Jones - Jessica provides strategic support to The Eastern Transportation Coalition, which
is housed under the Civil Engineering department at The University of Maryland. She has a
background in finance and administration in higher education. Jessica earned her MBA from The
Robert H. Smith School of Business at the University of Maryland.
? Kevin Sanford - Kevin currently works as a Senior Finance Associate at Virginal National Bank.
Building upon his undergraduate degree in Finance & Journalism from George Mason University
in 2017, he earned his MBA from the University of Maryland?s Smith School of Business in
2021. His professional areas of focus include financial & economic analysis/research, financial
technology, and business management.
? Nicholas Kobloth - Nick works as a Sr. financial consultant at Cooper University Hospital
expanding his accounting background and has earned an MBA from the University of Maryland
focusing on managing information and data analytics.
Additional Acknowledgements:
The team would like to acknowledge Blake Wood, ALP Envestnet Sponsor and the folks at Envestnet for
participating through the Action Learning Process to help build the case, share market insight, review
concepts and validate research further listed below. The ability to discuss and present potential values /
risks associated with Envestnet and RIAs within the current context of the wealth management industry
was invaluable. We hope that these findings lead to the incorporation of cryptocurrencies and digital
assets and at a minimum further the creative thought process.
- Blake Wood - SVP of Product Strategy
- Dani Fava, Kevin Hong, Aaron Adolphson (Case Development)
- David Filipe, Chris Shutler (Market Insights)
- Eric Jamison & Katherine Niendorf (Product & User Research)
- Marc Blouin, Chris Tarrach and Brad Beals (Financial Analysis)
- Seb Taveau (Storytelling & Leadership Advice)
- And more..
Last but not least, we?d like to extend a special thanks to Dr. Protiti Dastidar who served as our ALP
coach and instructor at the University of Maryland.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 9
Persona Research
Overview of Persona Research
We provide a brief introduction to Wealth Management as a bit of background using
Envestnet?s business model for Part I of III; to baseline an understanding of the RIA industry
before disclosing relevant assessments of crypto statistics and the role of technology enablement.
Understanding these attributes reveal the complexity and challenges RIAs face when attempting
to add crypto / digital assets to client portfolios.
Primary interviews are deep dives into personification and the basis of research. Drawing
from prior comparisons of alternative investment trends e.g, Women in Wealth, Wealth Transfer,
Environmental, Social & Governance (ESGs) and Millennial Investing; the personifications
focus exclusively on portfolio challenges related to crypto / digital assets. Financial Advisors and
Wealth Management executives will be able to view how specific persona groups address
portfolio planning challenges and develop viewpoints on industry practices. This information is
also helpful for technology enablers in the Wealth Management industry who rely on customer
behaviors to assess platform capabilities / integrations.
As firms make considerations for adding new sales channels these fundamentals are
critical to (a) build knowledge around profitability drivers and competitive landscape covered in
the Financial Valuation segment as Part II of III to (b) address the need for crypto education
through a consolidated framework which is discussed in the context of wealth management in the
Crypto & Wealth Ecosystem segment as Part III of III.
Registered Investment Advisors
Registered Investment Advisors (RIAs) are customer facing firms who provide wealth
management services. The criterion that sets RIAs apart from other wealth managers is the
oversight by the Securities and Exchange Commission, which enforces a fiduciary responsibility
to the client meaning RIAs are required, by law, to prioritize the clients? interest above all else.
Traditionally RIAs provide retirement services to their client portfolios. As these firms grow, it is
common for RIAs to change to a Family Fund-style approach which consists of managing
multiple accounts as a single investment firm. RIAs depend on technology integrations to
aggregate the accounts through SaaS-based tooling that is used to conduct Portfolio
Management, CRM, Trade Execution, Asset Management, Reporting, Compliance, and other
Financial Services. Many of these services are outsourced, which creates an opportunity for
companies, like Envestnet to provide B2B services to support RIAs? back offices.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 10
Size & Demographics
RIAs fall into one of three status levels: Elite, Emerging, and
Entry. The categorical lines are drawn based on factors such as
assets under management (AUM), revenue, headcount, number
of clients, etc. Elite RIAs make up roughly 53% of all RIAs, and
they service more High Net Worth Individuals (HNWIs) and
more institutional clients than Emerging and Entry RIAs
(BlackRock, 2017)
BlackRock states, ??the defining characteristic of Elite RIAs is
that they are organized and structured as wealth management
businesses that provide a range of financial planning and
investment management?not as large solo practices or a
confederation of practitioners? (BlackRock, 2017), which can
also be referred to as institutional participants. In essence, Elite
RIAs represent the one-stop-shop for financial planning needs including investing, retirement,
tax regulations, compliance, estate planning, education planning, business owner services, etc.
Elite RIAs main differentiation in client experience is in the organizational structure.
It is common for Elite RIAs to service clients with a team of advisors opposed to an individual
advisor. Doing so ensures the client builds rapport with the firm, not only the individual advisor.
In using team-based operating structures RIAs build brand recognition as the firm and can
maintain their availability to the client regardless of internal events. The third benefit of this
organizational structure is the enterprise value that comes from building process-driven
disciplines and technological practices. In understanding the components of the RIA suite, the
importance of technology and compliance cannot be understated. Elite RIAs outsource
technology and compliance above
other aspects of the business. This
practice allows these firms to
obtain the latest technologies
without disruption to in house
operations. Elite RIAs cite risk
management and portfolio
management as the most valuable
technological solutions which
incorporate data aggregation
through the use of Application
Programming Interfaces (APIs).
Overall technology is seen as a
tool to streamline workflows and
enable scalable solutions for an
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 11
increasing number of clients. Unlike Elite RIAs, Entry and Emerging RIAs have yet to capitalize
on technological developments to enhance their product suite to enrich the client experience. As
such, these firms tend to have less AUM and fewer HNWI coinciding with less revenue. The
goals for these groups is to outsource their technology needs to increase their offerings.
Drilling down further into concentrations, approximately 85% of generational wealth is held by
individuals 50 years of age or above. This means that firms are faced with new challenges as
population shifts in the coming years.
When considering the largest trends
for wealth in the future the onset of
Digital Assets represents just one of
the unique challenges presented to
wealth managers. Amongst these
products three market segments will
compose of the largest clients to RIAs;
two of which are differently
influenced which may be indicative of
a shift in generational wealth and investment trend.
Reviewing The Role of Technology
Envestnet is a technology resource provider to RIAs. As a FinTech entity, Envestnet partners
with brokers/wirehouses while also competing with the same large banks, broker dealers,
independent brokerages and other FinTechs including brands such as Orion, SS&C, JP Morgan
and Merrill Lynch.
We utilize Envestnet to describe the relationship between RIAs and exchanges within the
FinTech ecosystem (pictured right).  In the same essense in order to add crypto-products to it?s
RIA business line it
would also need to
utilize a crypto
custodian / exchange
in place of an
in-house connection.
Technology is one of the most critical components to an RIAs ability to grow and scale. They use
SaaS-based tools to conduct advisory tasks ranging from education, research and investment
which are showcased on the right.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 12
In reviewing the needs of RIAs
through primary interviews, RIAs
re-emphasized the need to address
risk and conduct portfolio
management which are not
addressed currently in the market for
crypto custody and price discovery
because these fundamentals differ
from traditional assets. Additionally
Crypto unlike other securities
requires infrastructure integrations
beyond the traditional brokerage
which due to RIAs reliance on
software enablers creates
opportunities for FinTech software
providers.
Thus when assessing time-to-market technology providers are generally better / equally
positioned (compared to wirehouses / banks) to replicate the components needed to conduct
research and analytics, practice management and investment modeling for crypto. For many
firms this consists of using a Crypto integration partner via APIs, building investment strategies,
connecting scenario planning tools and enabling RIAs through educational resources. These
findings and more are further discussed in the Primary Interviews section.
Advisory Surveys
The team evaluated a number of surveys to abstract details that are most relevant to Wealth
Managers. While the majority of existing research is still evolving, we took the best approach
possible to gain a brief understanding of the existing marketplace while showcasing statistical
representations which tend to focus on crypto-related advisory.
Since 2017, economic expansion, blockchain technology, and attractive investment features have
driven interest in cryptocurrency (Nead, n.d.). In the last year, more than 70% of advisors have
had clients inquire about cryptocurrency and more than 70% of advisors believe their clients are
investing in cryptocurrency outside of the advisory relationship. Yet only 6% of financial
advisors currently have an allocation to crypto-assets in client portfolios, which implies a gap
between client interests and advisor recommendations (BlackRock, 2017).
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 13
For the bitwise survey of 1000 advisors, 24% of advisors own crypto in their personal portfolio,
while less than 10% currently allocate crypto on their client?s behalf. This number has increased
by about 50% since 2019. That being said, 81% of advisors receive questions surrounding crypto
and 74% believe clients are investing in crypto outside of the advisory relationship. All of which
alludes to a gap between crypto interest and advisor?s execution (Hougan & Lydon, 2021).
The survey by Gemini echoes
what Bitwise found but on the
client side which may include
both advisors and retail
investors. Overall, there is
interest in crypto, but 63% of
respondents that are interested
in crypto cite they lack
education resources. Of
respondents who own crypto,
only 4% are early adopters
with their initial purchase
being more than 5 years ago.
This trend is indicative of how crypto is growing and becoming mainstream with 68% of
respondents purchasing in the last 2 years.
The average respondent heavily associates crypto with bitcoin. 95% of respondents have heard of
bitcoin and 84% own Bitcoin with the closest alt coin being Ethereum. While even fewer
respondents recognize other alt coins. This may be relevant later when thinking of crypto as a
currency versus a technology and how different coins are more/less adaptable (2021 State of U.S.
Crypto Report, 2021).
In evaluating advisory surveys there were several indications that there is a lack of knowledge
around the use of cryptocurrencies and its technologies. In the next section we deep dive further
into the motives of traditional RIAs to provide insight into why investment behaviors have not
changed for this segment of the Wealth Management industry.
Integration & Distribution
When considering integrations and distribution of digital assets, there are many solution
providers that can facilitate exchanges. The team analyzed and/or interviewed companies (listed
below) during the research process to understand the different strategies of early adopters based
on preliminary discussions. Our methodologies considered whether or not crypto-curious
participants represent the ?next generation? of wealth and advisory.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 14
While the majority of survey insights showcased in the prior analysis indicate there is more
interest in advisory participation; the team also found a significant number of surveys which
indicate challenges of compliance which relay an opposing message that advisors either (a) do
not intend to participate at all or (b) do not understand how to participate which presents an
opportunity for technology providers, educators and various exchanges/funds to play a larger role
in enabling trade execution, compliance and management of digital assets.
Interpretation of Integration & Distribution Strategies for Crypto Advisory
In further discussions we found that advisors and technology integrators that are considering
bringing digital assets to portfolios can obtain synergy by identifying partners that help bring a
balance to crypto-mindset in terms of culture, technology and investment style. RIAs often defer
execution and custody towards banking/bank-like partners which manage allocation, volatility
risk and educational resourcing. These attributes are discussed further in the Primary Interviews
section (next), however given there are no one-size-fits-all solutions. We bucketed the general
go-to-market strategy of crypto-currency advisory participants by ?resource types? to provide a
broader view of products and services that are currently available on the market.
Primary Interviews
Capturing feedback from primary interviews the team built upon prior industry research to
develop personifications. We utilized a consultative approach to analyze user motivations,
validate feedback and ask critical thinking questions to determine how RIA perceive / operate
within the context of the cryptocurrency ecosystem.
As such, primary market research from RIAs in various phases of crypto adoption can provide
valuable insights along the following themes:
1. Do large main street firms participate in crypto?
2. How do RIA counterparts fit within this model?
3. How do institutions/advisors purchase and allocate crypto?
4. How does due diligence and regulations come into play?
5. What are the profitability drivers?
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 15
Personifications involve provisional studies and user interviews to determine the types of
mindsets that exist in the market building characterizations of the traditional, digital, and
cross-over combinations of the wealth management industry. This exercise is helpful as it allows
companies to quickly build solutions and test with users during the product development phase.
Using this technique, we showcase interview feedback starting with Traditional RIAs and
conclude several industry examples.
Acknowledging the variety of challenges that come with identifying product-market-fit, target
audience, their pain points and the specific problems that need to be solved; this exercise does
not replace Market Sizing Estimates as
crypto is a new market for the Wealth
Management industry.
Based on this approach, we share several
persona groups to illustrate the
fundamental differences between RIAs
that range from traditional to digital
models in the asset management industry.
There are six focal RIA categories:
General RIAs, Digital Asset RIAs (with
traditional field experience),
Crypto-native RIAs (similar to customers
of Bitwise & Greyscale), RIA Research &
Educators, Silicon Valley RIAs
(High-Tech Adopters I), and Banking
Participants (High-Tech Adopters II).
Each personification built upon the prior
beginning with the traditional models and
extending into digital models where it best suits
the needs of the client experience. These
characterizations are created to help simplify
research as the team looked for opportunities to
gather best practices for industry participants
which include Educators, Researchers and
Banking Participants which serve as an
extension groups to the General RIA, Digital
Asset RIA & Crypto-Native RIAs.
General RIAs
The business model of traditional RIAs has
shifted over time from purely investment focused to a holistic client approach that includes
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 16
advising on debt, properties, charitable interest, and estate planning. Clients for this RIA model
typically initiate the conversation with a focus on long term financial planning and retirement.
Traditional RIAs utilize tried and true portfolios selected based on individual client needs, which
are often low risk profiles to ensure the client can achieve their retirement goals over time.
General RIAs tend to have a risk averse approach towards crypto due to the lack of available
education / research around the technology/currency. Due to the difficulty of building crypto
strategies into their current portfolios RIAs that rely on the traditional model approach are
inclined to avoid crypto. For this group of RIAs, education around the functionality of
blockchain technology and crypto is the first step to support the transition to include
cryptocurrency in client portfolios.
Digital Asset RIAs
Digital Asset RIAs have traditional field experience but have already begun expanding
into the digital space. With a traditional background, these RIAs advise on assets such as stocks,
bonds, and metals and incorporate digital assets into their client portfolios. Digital Asset RIAs
have done the work on the backend to understand blockchain technology and believe it will be
beneficial to the financial ecosystem. At the very least, this group understands the discretionary
nature of helping clients learn and consume alternative assets. While Digital Asset RIAs have
found ways to integrate cryptocurrency into client portfolios, there are challenges in building and
integrating solution suites that enable the introduction of new product lines, like crypto to the
wider advisory market. A single integrated suite allows for the streamlining of processes like risk
management, taxation, and reporting, which affords companies the opportunity to forge
economies of scale and expand growth potential. For this group of RIAs, the next step to support
widespread use of cryptocurrency is procuring the technology/app/capabilities which are similar
in nature to how Elite RIAs achieve scale and manage risk.
Crypto-native RIAs
Next as we transition from the Traditional to the Digital side of RIAs are Crypto-native
RIAs. Unlike the other two category groups, these RIAs take a digital/crypto first approach to
investing in the wealth ecosystem largely investing in trends such as NTF, Alt Coins, Lending,
and DeFi Assets. A key perspective among these RIAs is viewing crypto as a technology
opposed to a currency. Under this lens, crypto delivers more utility and therefore is expected to
revolutionize this space. Crypto-native RIAs encourage 1-5% crypto allocation to round out
portfolios. It is believed that anything below 1% is too little to have an influence while above 5%
creates too large of an impact on the overall portfolio, measured by the Sharpe ratio. A benefit to
incorporating crypto in a portfolio is the enhancement of diversification since it is a
non-correlated asset class. This allows for differentiated portfolio performance and therefore a
distinguished client experience. As such, through volatility harvesting, incorporating crypto
increases returns without increasing risk if the portfolio is rebalanced. For this group of RIAs,
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 17
the primary concern with crypto utilization is having the experience and ability to rebalance
portfolios to ensure ideal growth is achieved.
RIA Research & Educators
Within the framework of RIAs, it is also important to consider the viewpoint of those in
research and education across the RIA industry. These resources look at the industry holistically
to identify and address concerns. RIA Research & Educators are an important link to the RIA
business model and serve as an educational resource to help RIAs demonstrate compliance and
conduct research showcasing some level of due diligence while investing. Supporting RIAs in
the tech-assessment process RIA Researchers in the crypto-space tend to acknowledge the
significance of tech and infrastructure to recognize the full benefits of crypto expansion. In
addition they may provide advice to RIAs on new approaches to incorporate crypto generating
risk and investment frameworks to optimize returns, evaluate client risk tolerance and build a
portfolio. In discussion with RIA Research & Educators highlight gaps where clients of RIAs are
investing in crypto independent of their advisor which represents transactions that would
otherwise have support of an advisor when it comes to tax loss, harvesting, rebalancing, access to
ETFs, and other advantages that come with an advisor or managed service. In discussion this
appears to be a key concern as RIAs who have clients that are engaging with digital assets. Many
clients may take this bypass as an opportunity to funnel clients interest towards RIAs that are
better suited to manage crypto volatility along with the traditional suite of services.
Silicon Valley RIAs
Silicon Valley RIAs are in a league of their own wielding the ?start-up? mindset with
early knowledge of crypto technology and its cutting-edge potential. These RIAs are best suited
to identify investment trends driven by the tech industry and can focus on scalable and emerging
technologies much like the FANGs. Silicon Valley RIAs are more business oriented opposed to
the individual orientation of previously mentioned RIAs. These RIAs envision the future
applications of the multi-purpose architecture of blockchain and other protocols for an array of
industries. This enables Silicon Valley RIAs to monetize these assets in various stages of growth.
With venture capitalists having invested over $17 billion in blockchain in 2021, the sector is
clearly growing as the number of accredited investors and family funds are increasing
participation. For this group, longevity is the central focus of crypto interest and most are
investing through private placement structures.
Banking Participants
In addition to RIAs, banks are also entering the crypto space on behalf of high net worth
clients, RIAs or as a part of the trade desk. Private wealth / hedge funds have been allocating and
trading crypto assets. Client assets that exceed 2 million, companies such as Morgan Stanley
began offering it to clients (Mason, 2021). In interviews with compliance teams we were
informed that crypto has become increasingly part of the portfolios of these large funds. Since
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 18
these holdings are private forms of investment, they report to private investors in the same way
other assets are reported and because they are not registered securities it does not need to be
reported to the SEC. Banks currently participate in alternative assets, crypto not being any
different. Trade desk professionals actively trade crypto and are part of the bank short term
investment activity. As broker dealers they look for arbitrage opportunities and volatility trading
crypto provides possibility of returns. They also act as dealers looking to bring about new
investment products to their clients. The banks generate additional earnings and can increase the
basis points earned, greater than other less active positions.
User Persona Findings
Analyzing the attributes and needs of a variety of participants within the wealth
ecosystem there are several opportunities that may satisfy RIAs. While many RIAs prefer
historical performance, Crypto being a technology innovation that has existed for a decade
warrants review where firms should consider the short-term and long-term value propositions to
the RIAs and its client. As crypto is an emerging trend among others, technology enablers should
consider what is the right strategy to guide RIAs and how does crypto compare with other trends.
In discussion with digital-leaning RIAs, crypto can be part of a diversified investment decision
however for traditional-orientated models it can be treated equally among all other emerging
trends such as (1) ESG, (2) Millennial, (3) Investing (4) Women and Wealth Transfer, (5)
Globalization; all of which will play an important role in the years to come.
Considering the Go-To-Market approach, platform technology firms will also need to
consider what role they play with RIAs. Whether they are technology facilitators or technology
enablers for RIAs. As enablers, introducing new technologies/investments to market such as
crypto for RIA participants to access with in-depth knowledge and tools that are able to increase
returns. With insights into customer profiles and mindsets firms are able to determine market
segmentation and opportunity sizing to determine the correct product market fit. Our
recommendation places emphasis on offering education packages and managed services for
traditional RIAs as they decide what is best for their investment approach to manage risk for
clients. This realizes new opportunities for the RIAs and the platform without the need for
endorsement given many RIAs are collaborating with banking partners realizing the
crypto-opportunity or ensuring their clients do not bypass them.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 19
Financial Valuation
Overview of Financial Valuation
As Part II of III, corporate valuation deals with quantifying the enterprise value for a
particular business and it?s cash flows. Our analysis reviewed the potential loss of customers
and/or assets under management based on future business decisions. This section is applicable to
technology providers, banks and wealth management conglomerates that are seeking to build
internal rationale for supporting the digital asset industry as a part of their business line. By
modeling the revenue drivers, market risk, and opportunity cost from the financial statements
and market research, executives can advise on how much of a project-based investment should
be made towards a particular initiative, such as Cryptocurrency.
To understand potential motives / risk for adding digital assets to a product line in the
Wealth Management industry we investigated companies that provide service-based solutions to
RIAs. We build this knowledge by breaking down the Market Structure and it?s participants
before developing the competitive landscape. Wealth Management executives will benefit from
understanding the competitive viewpoints / synergies which we have distilled from the industry's
complex siloed structures to model different scenarios adapted from the valuation approach using
Envestnet as the case study.
We continue to build on the financial analysis as a means to better understand the role of
technology and how it applies to Envestnet?s RIA business line and similar companies given
there are shared competitive/profitability challenges. The first approach utilizes several data
points to estimate potential impact to stock price such as Return on Invested Capital for
project-based investments. We then take a look further into the capital structure to cross-validate.
In doing so we can gauge whether project-based investments affect RIAs ability to grow and
scale through the use of SaaS-based tooling which emphasize the need for advisors to address
risk, conduct portfolio management and produce reporting of gains/losses.
With the fundamentals in place we then conduct a further assessment of scenarios dealing
with the potential volatility of crypto to understand the potential impact to earnings per share.
The majority of this analysis takes in consideration Discounted Cash Flows which serve as an
anchor point towards finding a relative valuation associated with AUMs and potential pricing
strategies for both negative and positive outcomes using scenario analysis.
Lastly, given valuation limitations we conducted a relative comparison across the Wealth
management industry by identifying adjacent firms/organizations that also provide RIA services.
While not all firms can be considered equal in terms of services /products, we implement a
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 20
service cost ratio that as a framework uniquely enables the team to measure Economies of Scale
which may be indicative of each firms technology efficiency, pricing efficiencies, market capture
/ size and product depth. In taking note of the sheer size of the wealth industry we attempt to
break down the RIA servicers, which range from wirehouses, independent broker / dealer firms,
insurance firms, bank-based broker dealers and FinTechs to help further contextualize the
comparisons based on the total cost of servicing.
To reiterate the intent of the valuation analysis is not to advise on potential financial
investments but to explore the incentives in the existing marketplace and understand tech-driven
behaviors such as the incorporation of Digital Assets in the wealth management industry using
Envestnet?s financial statements as the candidate case study.
Market Structure & Market Participants
As the RIA market is not black & white, we begin the financial valuation with a brief
viewpoint on the market structure to define who are the market participants. These concepts are
critical to understand financial modeling scenarios that are later showcased as we utilize the
market structure to model against similar companies that provide services to RIAs.
The industry has a wide range of clients with specific needs, diverse investment
strategies, and different fee allowance thresholds. The majority of incumbents (non-banks) tend
to focus on expanding the size of it?s ?pie? given the nature of advisor firm exits. Wealth
Management executives and technology-enablement firms can also benefit from these financial
scenarios which link the personifications to the technology/digital-asset play in order to capture
more market share.
To showcase the competitive landscape we segment the wealth management industry by
wirehouses, independent broker-dealer firms, insurance firms, bank-based broker dealers and
fin-techs. Each of these operate differently and are further defined below:
1. Wirehouses are typically full-service broker-dealers and range in size from small
brokerages to large global institutions, like Merrill Lynch, Morgan Stanley, Wells Fargo
and UBS. As a full service organization, most wirehouses offer brokerage services,
research, investment advisory, financial planning, banking, custody as well as investment
banking on behalf of clients which may also include extending services to RIA firms.
2. Independent Broker Dealers (IBD) provide back-office, operations and business support
for financial advisors looking for a greater range of flexibility in how they offer their
services. Generally since an IBD does not offer the same kinds of additional services to
advisors such as LPL, Advisor Group, Cetera and Buckingham that also allows them to
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 21
pay out a high rate to advisors for their fees. Advisors that work and IBDs can get access
to research, platform services and banking products through third parties. The primary
players that come to mind are LPL Financial, Advisor Group, Cetera and Buckingham.
3. Insurance Firms primarily focus on insurance products however, there are many firms
that also provide wealth management services through their reps. These firms generally
look and feel very similar to a wirehouse since they have research resources and the
relationship between these large insurance firms, their reps and clients also resemble the
wires. The main difference is that the larger insurance firms will not have banking
services the same way the wirehouses. Northwestern mutual, prudential securities seem
to best represent this segment.
4. Bank-based Broker Dealers e.g, Retail Banks also offer wealth management services
through a registered rep that works in the office as opposed to a completely segregated
wealth management office. Examples include TD Wealth, PNC, Wells, Chase Private
Client, Key Bank
5. FinTechs within the RIA Segment are interchangeably referred to as WealthTechs,
Turnkey Asset Management Program (TAMPs) and other RIA Servicers.
a. FinTechs / WealthTechs enable wirehouse integrations through SaaS-based tools
which enable investment and portfolio management services to the wealth
ecosystem; with a predominant focus to the ?Independent Advisor Networks?
segment an internal-term coined by Envestnet. These advisor networks allow
RIAs to conduct business outside of an investment firm as an independent entity.
b. A TAMP allows independent financial advisors, typically fiduciaries, to outsource
the management of some or all of their clients' assets, where the use of software
and financial advisory consultants/ private-services allows non-traditional
investment advisors to participate. More recently, Certified Public Accountants
(CPA), law firms, and banks are also using TAMPs to enter the financial advice
marketplace.
Competitive Landscape
Within the context of RIA Services there are many varieties of firms that operate in the
world of wealth management. The main difference between Wall Street and other incumbents
that service RIAs is that banks tend to have a wirehouse whereas non-banks form integration
partnerships for trade execution and other services. The advent of FinTech introduces numerous
business models given the span of investment products and strategies. As a result there are many
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 22
iterations within these models however, with each configuration comes other advantages such as
product availability, investment strategies, size / influence, platform capability, pricing and/or
market insight.
Below is a competitive landscape that closely models similar companies and competitors
using Persona Research for both public and private entities. This can be leveraged to better
understand the market participants and can be taken a step further by incorporating competitive
advantage. In the next few sections, we will take a closer look at financial ratios to better
understand relative valuation of these identified companies and competitors in the RIA services
space. Figures reflected are listed as AUMs however, not all of these are likely to be managed
accounts as defined by Cerulli, a source the team discovered after the completion of the project.
Exhibit  VI
The market remains highly competitive with the introduction of digital technologies and
SaaS-based servicing models which make it possible for Wall Street / firm-based investment
advisors to set up their own independent shop. Advisor transfers are common in the field and can
have tremendous impact to the AUMs to the balance sheet. The industry has seen many
examples of advisor teams leaving major banks or wirehouses to start up their own RIA business
- bringing with them billions of AUM (Martin, 2021). Depending on the profitability model,
technology-enablers and FinTechs can seek to increase (or reduce attrition) their business by
servicing these advisors as they venture into the independent market.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 23
Envestnet?s Financial Performance
Envestnet (Ticker: ENV) generates the majority of its revenue through charging fees based on the
market value of assets managed on its platform by its clients, the financial advisors and through licensing
its technology. ENV generated around 55% of its total 2020 revenue from assets under management
(AUM) or assets under administration (AUA). The remainder of its revenue came from subscriptions for
its platforms and professional services (Bloomberg, 2021a)
According to the latest fiscal year 2020, ENV reported a net loss of $3.1 million (GAAP), which
is an 82% improvement compared to 2019?s net loss of $17.2 million. Over the course of the past five
years ENV has reported a net loss in four of the past five years (Appendix 1). It is believed by some that
the drivers for the net losses may be associated with past acquisitions such as Yodlee, a leading financial
data aggregation and analytics platform made by the firm in prior years. While these activities may have
increased the size of the firm, a deeper look into the timelines for forward earnings outlook as aligned to
the investment thesis is required to determine when such investments should generate returns and realize
value for shareholders.
Having eliminated the potential for a crypto-company acquisition from the project scope, we
redirect our focus to potential impact to cash flow on the basis of a crypto-product integration. Which
hasn?t restricted growth as the investments in operating working capital has increased steadily over the
past 5 years (Appendix 2). The company is still considered in its growth phase, as it seeks to increase it?s
primary revenue drivers and assets under management (AUM).
ENV?s platform AUM currently
resides at $253 billion (Appendix 3) and is
expected to grow dramatically over the
next few years (Bloomberg, 2021b).
Bloomberg expert analysts expect AUM to
steadily grow to $1.034 trillion by 2024
(Appendix 4). While the team found these
numbers to be on the higher-end of
potential estimates we did not dig further
as our main efforts were focused on
assessing collective risks associated with
the Envestnet business model and the
incorporation of crypto. With a
fundamental understanding of the
financials we dig further into the implication of these capital structures.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 24
Return on Invested Capital
Financial spread can be defined as the Return on Invested Capital (ROIC) minus the Weighted
Average Cost of Capital (WACC) and is a measure of risk, funding, and investment productivity. Below
you can see ENV?s ROIC of 3.46% relative to similarly publicly traded peers which average 6.11%
(weighted by market capitalization). This gives us an indication that the street is less likely to react to
small enhancements to the product suite that do not increase revenue. Similarly, a higher WACC of 9.77%
vs. 7.22% to publicly traded peers implies that funding is more expensive to obtain and investors are more
likely to respond negatively to changes in project investments that go beyond the company?s typical cash
flows (Damodaran, 2007).
Exhibit  VII
Positive spreads are indicative of competitive advantages in sales/project execution and capital
cost. In acknowledgement of ENV?s negative spread of -6.31% to become more efficient with
investments the firm can either focus on cutting low-ROIC projects or identifying higher-ROIC
opportunities such as evaluating the revenue potential for adding crypto to it?s product line (discussed in
the next sections).
The two major drivers of ROIC are Operating Margin (profitability) and Invested Capital relative
to Sales (efficiency). Increased expenditure in working capital (operational investment) makes financial
sense for a company with a positive spread. Thus, ideally ENV needs to see an increase in ROIC or a
decrease in WACC to consider an investment in a new platform asset class ? such as cryptocurrency.
Fortunately, many investors categorize ENV in the growth stage with a future expected positive spread.
While a negative spread and current reported net losses (GAAP) might prompt ENV to decrease
investments and focus on cutting negative-ROIC projects; we view ENV as a growth stage company
which makes strategic investments and product development necessary. This is supported when looking at
ENV?s ?Price to Earnings? ratio (P/E) of 82.87 (Bloomberg, 2021d). P/E is a commonly utilized ratio by
analysts and is a calculation of ENVs stock price relative to its ?Earning per Share? (EPS). P/E can be
used as an indicator of how much investors are willing to pay for a share of the company based on
predicted future earnings. ENV?s P/E ratio of 82.87 is high relative to its publicly traded peers (Appendix
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 25
8) and is a signal that investors are willing to pay a higher price today because of expected growth. This
claim supports the narrative that ENV?s current negative spread (ROIC-WACC) is expected to turn
positive if the correct actions are taken to increase AUM revenues.
Capital Structure | ROIC Tree
Details on ENV?s ROIC from 2016 to 2020 are explained further through capital structures using
comprehensive quantitative analysis and comparisons to continue building on value fundamentals.
A Return on Invested Capital (ROIC) Tree is a tool used to break down key components of a
company?s free cash flow, based on invested capital into the business (Exhibit VIII). A ROIC Tree was
constructed based on ENV?s financial statements from the 2020 financial statement (Bloomberg, 2021c).
The major drivers of ?End-of-Year ROIC? are ?Operating margin?, ?Invested Capital?, and ?Tax Rate?. The
relatively large ?Invested Capital / Sales? confirms ENV?s initiative to grow, regardless of current
profitability. The historic negative ?Operating Margin? is concerning at first, noting the End-of-Year ROIC
& Operating Margin, thus negative spread for 2015 acquisition of Yodlee - a deviation that isn?t expected
to persist in future years. The tax rate does not play a key role in this analysis given the net losses in prior
years. It can be inferred that ENV should focus primarily on increasing its ?Operating Margin? through the
introduction of positive-ROIC investments and higher margin products.
Exhibit  VIII
Similarly, a common ?Enterprise Value? analytical tool used to value a company is a Discounted
Cash Flow (DCF) model, which values the worth of the sum of future cash flows, discounted based on
risk. This model is helpful to quantify the volatility risk of free cash flow and helps investors price out the
stock price based on market value. Refer to Appendix 6 for the ?As-is? model that replicates ENV?s
current valuation in the market today ? resulting in a stock price of $74.94. It is worth noting that this
model assumes positive Free-Cash Flows for the foreseeable future. This model will be used next to
quantify the volatility risk of potential investments such as cryptocurrency.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 26
Scenario Modeling | Market Response to Crypto
Predictive valuation relative to crypto-products is based on future cash flows which are heavily
influenced by risk and volatility. A key metric of a public company?s volatility is its market ?Beta?. A beta
reflects a company?s systematic risk relative to the overall market ? in this case, we will use the S&P 500
index (SPX). A company?s beta is a factor to better understand if a company?s return is correlated with the
market and to what degree. ENV?s beta as of August 2021 was 1.17 which means ENV is slightly riskier
than the overall market, but in general, will parallel SPX returns. See Appendix 7 for a Bloomberg
screenshot of ENV?s returns in relation to SPX?s for the past 2 years. This risk measure provides comfort
that ENV will not undergo dramatic swings in stock price outside of the market norm.
Given the current volatility of most cryptocurrencies, it is essential to predict the impact of the
introduction of crypto as an asset class. The DCF model is a quantitative predictor of profitability and
growth and can easily be replicated for specific scenarios. Annual AUM revenue is a substantial factor of
ENV?s overall Enterprise Value, which is transformed into share price by dividing it by shares
outstanding. This is critical for revenue growth as AUM revenue can be increased through:
1. Increasing AUM through the acquisition of new clients or more investments per client
2. Increasing the annual Asset Management Fees changed on AUM, articulated in basis points (.01%)
Through the replication of 12 market based volatility scenarios, we can quantify the impact to
stock price based on the compounding effect of market value rise/drop of AUM using the DCF model. It
is important to understand these isolated DCF models only factor in the increase/decrease of the market
value of AUM based on cryptocurrency volatility and do not reflect actual investor thoughts. ENV?s
revenues do not fluctuate based on the underlying assets? price; rather, it is based on commission on the
overall AUMs.
The 12 models range from
AUM?s underlying asset allocation of
cryptocurrency from 0% to 10% - as
RIAs advise against clients investing
more than 10% of their overall
portfolio in this volatile asset class.
The cryptocurrency price movement
fluctuates from -40% to 40% which
is reasonable given current market
conditions.
The most disastrous
scenario, Model #10, shows an
isolated scenario where 10% of
ENV?s client?s portfolios are invested in cryptocurrency ? which drops 40% in the upcoming year. This
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 27
causes the AUM to drop from $263M to $252.48M which has a compounding effect on future free cash
flows. This results in a decrease in Enterprise Value of $35.1M and a decrease in the share price of $0.64.
While this valuation impact is undesirable, it is not catastrophic - given a business model based
on commissions. It's critical to understand that the decrease in market value of clients? AUMs have a
minimal impact on the overall revenue mechanics. Relative to other business decisions, the risk of the
introduction of cryptocurrency is minimal given the potential opportunity cost of forgone AUMs.
Alternatively, we can scenario model the potential beneficial side of introducing cryptocurrency
as a premium asset investment for RIAs - this is also an opportunity cost if ENV decides to forgo this
initiative. Cryptocurrency can be offered through partnership structures where the commission fee (in
basis points) can be shared with the client (RIA, broker dealer, etc.). We propose a 5-10 basis point
increase in asset management fee for adding additional servicing fees to allow RIAs to incorporate crypto
into their clients? assets class.
We can amend our DCF model scenarios to account for the potential increase in AUM (a new
market of crypto investors) and/or the increase in the asset management commission fee. This change will
have a substantial impact on the share price as these inputs directly factor in the AUM revenue structure.
For the new set of isolated
scenarios, ENV enjoys more material
and a beneficial impact, profitability
effects on the stock price. For
example, scenario #4 explains a
realistic scenario where AUMs
increase from $263B to $300B due to
new crypto investors seeking ENV?s
services. The annual blended asset
management fee increases 4.43bps
(0.0443%) as ENV can charge a
higher rate through the introduction
of a new asset class. This scenario of increased AUM revenues will compound over the years, leading to
an increase in the stock price of $2.09.
Some may challenge that these types of scenarios do not occur in isolation - rightly so. There are
other risks, costs, and challenges associated with a decision this complex. The takeaway, however, is that
cryptocurrency volatility plays a minimal impact on ENV's enterprise value relative to the opportunity
cost of introducing cryptocurrency as an assist class for RIAs allowing the company to grow.
Pricing Economics | Service Cost Ratio
In this analysis we wish to compare a Service to Cost Ratio, which demonstrates pricing
economics compared to scale (measured in AUM). While not all competing firms are of the same size,
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 28
this ratio allows us to select firms for comparison that provide asset management services for RIAs,
HNW, Family Offices, Hedge Funds, etc.
The below analyses provide a deeper insight into how RIA servicers perform amongst peers of
varying sizes (by AUM) and whether that may carry over into advantages such as capability, pricing,
and/or influence. It encompasses data on similar firms both publicly traded and privately owned.
The ?Service Cost Ratio? is a simple blended rate of the total ?Asset Management Fee? divided by
?Assets Under Management? - both pulled from each company's 10K financial statements and validated
via Bloomberg or a 3rd party source (Bloomberg, 2021c). While this ratio may not be entirely consistent
across competitors, it is a good representation of business model efficiency - in that, how much revenue
can the firm generate via its AUM. Refer to Appendix 9 for a more in-depth analysis of industry peers and
their financial characteristics. The below numbers are the blended commission in basis points (bps), i.e.
47 represents the firm generates, on average, 0.47% of its AUM in annual Asset Management Fees.
Exhibit  XI
After graphing relevant competitors with accessible ratios, it can be quickly inferred that ENV
and other fintech servicers are on the left side of Exhibit XI - portraying a lower average commission fee
relative to industry peers. These fintech servicers demonstrate signs of an economies of scale, in that, they
have less overhead than many of the larger wirehouses (JP Morgan Chase, Blackstone, Goldman Sachs,
etc.). Fintechs have the ability to provide lower cost services when compared to other market participants
which is attractive for RIAs and investors alike.
There are two opportunities for ENV to leverage this below-average service cost ratio to
potentially increase AUM revenues. Primarily, ENV can potentially increase its commission fee for
certain clients through the introduction of new, premium investment opportunities - such as
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 29
cryptocurrency. While not all RIAs are currently interested in this asset class, ENV will inevitably
introduce other enhancements that warrant an increased servicing cost to RIAs.
Secondly, ENV can utilize this below-average servicing cost to attract RIA clients from
competitors. The previously explored market structure informs us that ENV should focus on increasing
the size of the pie, rather than increasing its slice of that pie. Through these two recommendations, ENV
can potentially increase its return on investment capital, resulting in an increased bottom-line.
Key Findings & Recommendations
In conclusion, for ENV to improve its financial performance, it could focus on increasing AUM
revenue, as it accounts for 55% of the top line. ENV can increase its enterprise value through the
continued investment of positive-ROIC projects and initiatives. Investors are expecting growth through
continued or increased operating working capital long-term. Cutting non-ROIC projects can be beneficial
as well.
One potential means of accomplishing positive-ROIC projects would be the incorporation of
crypto assets. Cryptocurrency volatility plays a minimal role in stock valuation & has an opportunity cost
if it becomes a medium of exchange (digital fiat), store of value, and unit of account. Another alternative
would be to focus on enlarging Envestnet?s AUM, by expanding the overall RIA market and being
attractive as an early technology enabler. Similarly, given Envestnet?s economies of scale & servicing cost
ratio relative to competitors, Envestnet can increase the commission rate charged for certain clients and
have better margins.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 30
Crypto & Wealth Management Ecosystem
Overview of Crypto & Wealth Management Ecosystem
To conclude our research we build upon the prior segments to introduce the Crypto & Wealth
Management Ecosystem as Part III of III. This section is applicable to Wealth Managers and Registered
Investment Advisors (RIAs) that are seeking to build a better fundamental understanding of the digital
asset industry. By focusing our research on the needs and questions posed by wealth advisors, our analysis
provides a ground up framework specifically built to assist wealth advisors as they navigate the nuances
of cryptocurrencies and their effects on the existing financial ecosystem.
The traditional financial ecosystem is based upon a co-dependency between a currency/asset and
the payment system which comes in the form of a government or financial institution that serves as a
trusted mediator of custody/value. With the incorporation of Bitcoin and other cryptocurrencies we
explore digital assets from the context of a Wealth Manager to build on the exigency presented by Digital
Transformation and the implications of Digital Assets as it pertains to the wealth ecosystem.
Bitcoin was initially known as a peer-to-peer payment system operated on blockchain technology
cited by Satoshi Nakamoto in a 2008 proposal as ?... an electronic payment system based on
cryptographic proof instead of trust.? Since then, cryptocurrencies have materialized in various forms
which we review further to provide practical references for advisors.
In the analysis we will begin with the Role of Digital Transformation to lightly build context for
the role of crypto / blockchain within the Wealth Management, Payments and Banking industry. Asking
critical questions that are then relayed under a framework for Digital Currency characteristics and
subsequent use cases / industry examples. Given the variety of these examples, wealth management
executives & financial advisors may need to return to reference the framework analogously. In the final
section we have included an executive guideline that summarizes the team's views on digital asset
concepts today, tomorrow and in the future.
The Role of Digital Transformation
Traditional financial institutions are having to
adapt strategically and fundamentally (in some cases) in
order to maintain market share as the ease of technology
allows incumbents to scale quickly and efficiently. John
Marcante, Chief Investment Officer of Vanguard states that
?In today?s digital era, investors judge investment
providers not just against their financial peers, but against
technology leaders like Google, Apple, and Amazon.?
Marcante?s assertion reiterates how digitization is not only
disrupting the wealth and asset management industry but it
is altering how investors view the growth prospects of
companies beyond finance and banking.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 31
Given the speed at which technology adoption has occurred for the Wealth Management industry
it is fairly well acknowledged that the financial transactions that occur within the crypto-space represent
an unrealized value for Wealth Managers. When assessing the value chain within the scope of the RIA
these interactions would occur over three key actors; end consumers, registered investment advisors
(RIAs), and financial & technology institutions who service these RIAs (Exhibit XII).
Within the current model of Wealth Management, end-users? needs are tied to institutions which
have provided the opportunity for FinTechs/WealthTechs to drive digitization and innovation. This
disintermediation of financial institutions has caused a shift in focus towards consumer-centric products
and increasing accessibility through digital solutions. Dean Butler, Head of Retail Wealth of HSBC UK
opines that ?The digitization of the investment industry is happening. If you are not yet on board, you can
expect to start losing business as you?re unable to meet customers? ever-changing needs? (Cisco, 2017).
As the digitization of products, services and experiences becomes more common-place; this has
opened a new door for investments that are fundamentally not
tied to institutions. Wealth Managers have the difficult task of advising on new innovations such as digital
assets. When reviewing feedback of primary interviews during the personification segment we discovered
Wealth Managers believe this was due impart to (1) the complexity of the topic e.g, cryptocurrencies and
digital assets, (2) the nature of non-intermediary finance which is distinctly different from
dis-intermediary services which only serve as an enhancement to an existing service and (3) the
popularity / cult-like following that are driven by consumer curiosity.
Cryptocurrencies present opportunities both directly and indirectly across the value chain.
However, how RIAs and wealth managers capture that value remains unknown given the nature of work
has a natural inclination towards institutions and regulatory guidance; thus the opportunity to capture
value from crypto?s emergence hinges on individual investors who are already circumventing their
advisors in order to participate. Throughout this report we have encapsulated the shift from
?disintermediation? towards ?non-intermediary forms of finance? in order to help advisors deconstruct the
most frequent questions we experienced from Wealth Managers which are listed below:
- What are cryptocurrencies and how are they relevant?
- Are there specific mechanisms or utilities that affect us?
- Should the focus be on the utility / technological innovation or the actual asset itself?
- What macro-signals should we be looking for that exhibit sustainability?
- How should RIAs begin preparing?
- What educational resources should I rely upon?
Characteristics of a Digital Currency / Asset
When viewing the potential consequences
cryptocurrencies could bring to the existing wealth
management industry, it is imperative to see the
parallel effects that have already been caused on a
macro level through digitization and
consumerization. As technology adoption is
slower than other industries thus wealth managers
are missing out on potential opportunities across
the value chain.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 32
Approaching cryptocurrencies under the same lens as traditional assets which RIAs interact with
in today?s marketplace allows wealth advisors to see parallels as they associate with the characteristics of
cryptocurrencies while also allowing differentiating factors to easily stand out. While there are many
scholarly articles / publications explaining the explicit benefits the team takes a different approach,
building the necessary context to provide exigency for financial advisors and wealth management
executives.
To better understand these characteristics, cryptocurrencies should be broken down into easily
identifiable mechanisms upon which wealth advisors can explore and apply into their existing business
frameworks. A mechanism style breakdown provides an unbiased dissection of cryptocurrencies through
siloed analysis and allows for wealth advisors to transition from a stepped learning process to a cohesive
understanding of cryptocurrencies' role in their
offerings.
We introduce these characteristics by way of the Crypto Six Model (C6M) (Exhibit XV) which
intentionally builds upon foundational methods of both traditional finance and insights driving digital
innovation most relevant to Wealth Managers which are abstracted as (1) Economics (2) Asset Class (3)
Regulation | Government (4) Blockchain (5) Tokenization and (6) Retail Investing.
Exhibit  XV: The Crypto Six Model (C6M)
Using the C6M we define the six most relevant cryptocurrency mechanisms that are drivers of
value and risk in the wealth management industry. Through curated use case analysis we further isolate
which mechanisms are most relevant to wealth managers today based on personification research; which
indicates there are more immediate benefits to understanding right side mechanisms e.g, Economics,
Asset Class and Regulation | Governance. However, as Wealth Management leaders delve deeper they
will need to explore the other mechanisms as well.
Economics
Cryptocurrency has many fundamental characteristics of economics as it is considered in the
wealth ecosystem. We encourage advisors to consider which characteristics are of most value when
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 33
considering investment solutions for cryptocurrencies. The economic definitions this research paper uses
includes the Store of Value, Medium of Exchange, Network Effects, Switching Costs, and Unit of
Account.
- Store of Value Cryptocurrencies have proven over its short history that they provide a reliable
safe haven for storing value, despite the inherent volatility. However, the consensus of what
drives that value differentiates itself among individual cryptocurrencies and is still widely
debated.
- Medium of Exchange In order for the exchange of cryptocurrencies to function as a part of the
financial system it must represent (1) some standard of value and (2) parties involved must be
able to accept that standard. In modern economies, the medium of exchange is currency whereas
blockchain technology enables both digital transference of currency which incorporates both
acceptance and value standards (via blockchain / token) which comes as a digital-first benefit that
is built into the utility.
- Network Effects Cryptocurrencies have advanced the technical means as to which institutions
and individuals are able to transact. Much like digitization has transformed the peer to peer
payment system, the blockchain technology behind cryptocurrency has taken this advancement
one step further.  The adoption of cryptocurrencies in retail markets has fueled the value derived
from network effects. However, cryptocurrency is still in the adoption phase of the product life
cycle and the traditional financial ecosystem is much further behind [retail investors]. (Hairudin
et al., 2020)
- Switching Costs The costs of a society switching to a digital currency specifically crypto is
inherently tied to a technology that is still in the infancy stage. This is the distinguishing factor
that prompts high skepticism in the short term that Crypto is anything more than a complimentary
asset rather than a substitute currency. (Bouoiyour et al., 2019; Carrick, 2016).
- Unit of Account - Cryptocurrencies have proven that they can sustain investable value despite
voltage fluctuations in price. However, these frequent volatile episodes on the market present
significant challenges towards cryptocurrencies being seen as a strong unit of account for
currency purposes. Proof of this concept is derived from the creation of ?stablecoins? or
cryptocurrencies specifically pegged to government backed fiats.
Asset Class
Cryptocurrencies have presented the wealth management industry and overall larger financial
ecosystem with arguably the first investable instrument to be in an asset class of its own in the modern
era. There are many facets that go into the sustainability of an emergent asset class. It is imperative to
examine the core fundamentals of an asset class and distinguish significant differences that
cryptocurrencies have already exhibited in its infancy of a life cycle.
Income Attributes
Income facility or income attributes portrays the first differing characteristic for cryptocurrencies
as opposed to traditional assets. Despite the emergence in recent months of selective cryptocurrencies
earning interest akin to consumer checking accounts on certain centralized exchanges, cryptocurrencies
do not possess a value driver or liquid cash flow that other monetary assets possess - i.e. stocks and
dividends, bonds and coupons, cash and interest (Glaser et al., 2014). In addition, unlike traditional assets,
cryptocurrencies have proven extremely difficult for institutional and retail investors to financially
evaluate due to its lack of an anchor or application-based value ? i.e. gold/metals and jewelry,
oil/commodities and utility/usage (Schwartz et al., 2021).
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 34
Inflation Hedge
The above analysis exhibits how cryptocurrencies differ from existing asset classes, but it is also
important to analyze the utility it can provide to a portfolio when introducing external market factors.
Exhibit XIV sourced from Bloomberg depicts the price of Bitcoin to that of the US 10-year bond yield.
Bitcoin specifically has shown definitive signs that it is tightly correlated with ?reflation? (anticipation of
future inflation). The market?s bond yield reflects a parallel reaction shape to Bitcoin?s price. Charlie
Morris, CIO of
ByteTree Asset
Management,
iterates, ?Unlike
defensive stocks and
bonds, Bitcoin and
gold are both
inflation-sensitive,
but gold is happiest
when the world faces
a downward spiral.
In contrast, Bitcoin
prefers a stronger
economy, when the
yield is rising. This
is where we are
today.? The baseline
difference between
value generation is that Bitcoin?s value is driven by future exchange only, whereas gold?s value is also
driven by its intrinsic value (Ciaian et al., 2016).
Government | Regulation
The role of government represents another external factor to this analysis ? the impending
regulation and/or engagement from municipalities ensure one of two things. Future regulation will likely
provide guidance and standards improving crypto-currency as an asset / utility. Or alternatively, future
regulation will be seen as a detriment to publicly viewable blockchains.
As governments take steps to provide regulatory guidelines/framework on cryptocurrencies,
financial institutions, exchanges, and consumers need to remain vigilant on the potential impacts it could
impose. Our research indicates a few areas of which should be focus points for wealth advisors.
- Borderless Transactions Crypto bypasses national borders which poses a huge problem for
governments? revenue generation, fiscal and monetary policy, and government expenditures.
Governments are trying to determine and anticipate the effect cryptocurrencies may have on
seigniorage revenue, tax revenue, and other policy actions (Hairudin et al., 2020)
- Capital Gains/Taxation Crypto is currently treated as property in the eyes of the U.S.
government and is thus taxed as such (exposure to short- and long-term capital gains tax). The
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 35
Securities and Exchange Commission would be the authoritative body that could recategorize
crypto to be regulated as a security as opposed to property.
- Central Bank Digital Currency A decentralized currency would pose significant challenges to
central banks? operations globally. One possible alternative to crypto as a currency would be the
creation of a central bank backed digital currency, such as a digital U.S. dollar or digital Euro.
Blockchain
Blockchain or Distributed Ledger Technology is the underlying technological innovation upon
which crypto currencies are built on. The blockchain is a secure transaction ledger database that is shared
by all parties participating in an established, distributed network of computers. It records and stores every
transaction that occurs in the nodes, substantially eliminating the need for ?trusted? intermediaries (Arora
& Ramrakhani, n.d.). Blockchain technology improves upon the existing system by offering
decentralization, consensus monitoring, immutability, and transaction efficiency.
Over the last two decades the wealth management industry and RIAs have seen growth in high
net worth individuals and thus an increase in overall assets under management as outlined in Part II of this
report. However, overall advisors? profit margins have decreased during this same period. The driving
factor causing this is the increased demand for higher customer engagement fueled by an emergent
Fintech industry that has reduced margins on fees.
In order for wealth advisors to reverse the trend on diminishing returns, they should be looking to
the emerging blockchain technology for increased operational efficiency led by a reduction in transaction
costs. Blockchain technology provides a solution through innovation for wealth advisors through
increased value from the expansion of investment vehicles and a path forward towards more efficient
customer interactions and retention.
Tokenization
In the blockchain ecosystem, tokens are assets that allow information and value to be transferred,
stored, and verified in an efficient and secure manner. Tokenization is the process of converting
something of value into a digital token that?s usable on a blockchain application (Cryptopedia Staff,
2021).
Tokenization will expand the pool of tradable assets by digitizing previously illiquid or
unattainable assets for the average investor. Accessibility of these new assets democratizes the investment
space that has been dominated by HNWI?s. Tokenization allows for fractional ownership of new
non-equities and greater efficiency to traditional markets such as real estate investment.
Wealth advisors should make note of the relevancy by considering tokenization as a key
unlocking higher margin trading and assets in the future which could include collectibles, digital art
(NFTs), and intellectual property rights.
Retail Investing
A driving factor leading to the investigation of cryptocurrencies by wealth advisors is the
curiosity of retail investors. Individual retail investors have taken akin to the idea of cryptocurrencies for a
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 36
plethora of reasons, but wealth advisors should serve as an educator / line of defense for appropriate risk
management and investment advice.
Wealth advisors? efficiency to which they are able to understand and advise on cryptocurrencies
could directly impact their future revenue and capturing of market share. (Refer to Advanced Topics for
further analysis)
Use Cases & Industry Signals
The above analysis and convergence into the C6M prompts wealth managers to think critically
about the infusion between the crypto and wealth ecosystem. By reinforcing these mechanisms with
applicable use cases, wealth managers should not only be able to identify and define the influencing
factors of cryptocurrencies but be able to identify and understand key signals, market movements and
actionable examples that illustrate the current state of the merging ecosystems.
Blockchain
Fortune 500 Companies Seeking Blockchain Experts
Over the last year, many Fortune 500 companies (including Paypal, JPMorgan Chase, Apple,
Walmart and others) have rapidly increased their search for high end experts in blockchain technology, the
crypto ecosystem, and digital product management as they prepare for a future driven by blockchain
technology. A report from Indeed Hiring Lab indicates that crypto and blockchain related job postings
increased 115% as of Jul 16, 2021compared to 2020?s low (Konkel, 2021).
Exhibit  XVI
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 37
Tokenization
International Stock Exchange (SIX/SDX)
?Switzerland?s stock exchange ? owned and managed by SIX ? has announced that it is building a
fully integrated trading, settlement and custody infrastructure for digital assets. SIX is regulated as an
operator of Financial Market Infrastructure (FMI) by Swiss Authorities, FINMA and the Swiss National
Bank, and intends that the planned ?digital asset ecosystem? ? SIX Digital Exchange (?SDX?) ? will enjoy
the same standard of oversight and regulation? (SIX to Launch Full End-to-End and Fully Integrated
Digital Asset Trading, Settlement and Custody Service, 2018). SIX CEO Jos Dijsselhof commented: ?This
is the beginning of a new era for capital markets infrastructures. For us it is abundantly clear that much of
what is going on in the digital space is here to stay and will define the future of our industry. The financial
industry now needs to bridge the gap between traditional financial services and digital communities? (SIX
to Launch Full End-to-End and Fully Integrated Digital Asset Trading, Settlement and Custody Service,
2018).
Retail Investing
Emergence of Decentralized Exchanges and Retail Platforms
2021 saw the Initial Public Offerings of Robinhood - a retail investing platform, which has
climbed to a market capitalization of around $40 billion; and Coinbase - a decentralized crypto exchange,
which has a market capitalization of around $67 billion (Yahoo Finance, n.d.).
The introduction of decentralized exchanges such as Coinbase currently offer retail investors
with the ability to invest in crypto on their own. According to Coinbase?s Q2 2021 company filings, they
have 68 million verified users and $145 bn in trading volume from retail investors alone (Spot, 2021)
Economics
Crypto on Balance Sheet (Store of Value)
This year has seen the emergence of corporate utilization of cryptocurrencies for investment and
operations. From Tesla to Square, Fortune 500 companies have opened the door to adding certain
cryptocurrencies to their balance sheet. ?Global macroeconomic, monetary, and digital evolutions have
converged, requiring all forward-thinking corporations to consider alternative assets on their balance
sheet,? said MicroStrategy President and CFO Phong Le. ?The ecosystem and the regulatory environment
for digital assets, especially bitcoin, have matured to the point that this strategy is becoming approachable
and mainstream? (Deloitte, 2021a).
Companies are beginning to understand the benefits of adding an alternative asset to their
financial structure and are exploring ways to manage the risk involved. Among the benefits companies are
seeking to obtain are, access to new capital pools, exposure to technology that could fuel transactions in
the future, expansion of client/vendor relationships, and the potential of higher margins (Deloitte, 2021b).
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 38
FIS? Partnership with NYDIG & CEX.IO (Network Effects)
Fidelity National Information Services (FIS) has recently partnered with NYDIG in the United
States, enabling their banking clients access to Bitcoin services to offer to their retail clients. FIS
furthered their expansion by growing their relationship with UK-based crypto exchange firm, CEX.IO;
and will begin to incorporate debit card payments into the fold (Marek, 2021).
Institutional partnerships that reach multiple layers within the wealth management ecosystem can
significantly influence and increase the value of crypto through direct network effects across the various
digital platforms.
Regulation | Governance
U.S. FRB and Congress Indicate Future Action
U.S. Federal Reserve Chairman Jerome Powell has asserted bearish claims about cryptocurrencies
when it comes to a private vs public debate on digital currencies. Powell stated in July 2021, ?One of the
arguments that are offered in favor of a digital currency in particular, you wouldn?t need stablecoins
[crypto pegged to a real asset like the USD] you wouldn?t need cryptocurrencies if you had a digital US
currency.? Powell?s claims reiterate that the future outlook on cryptocurrencies as a substitute medium of
exchange are extremely low, however the proposition that cryptocurrencies would remain as an investable
asset class gain steam.  Even in this scenario the existing financial ecosystem must be prepared to operate
and incorporate future central bank digital currencies (Tellez, 2021).
In addition, tax guidance and regulations on capital gains, broker designations, and other taxable
transactions are prime targets of federal regulators and congressional intervention which poses a
significant hurdle for quick understanding and adoption among wealth management entities. An excerpt
of a recently proposed bill in the United States Congress obtained by The Block, states, "The bipartisan
infrastructure framework applies information reporting requirements to digital assets (including
cryptocurrency) to ensure they are properly reported to the IRS. The provision includes updating the
definition of broker to reflect the realities of how digital assets are acquired and traded. The provision
further makes clear that broker-to-broker reporting applies to all transfers of covered securities within the
meaning of section 6045(g)(3), including digital assets?? (McSweeney & Chaparro, 2021). However,
RIA?s should not necessarily see government regulation as an immediate negative. If you reframe
government regulation to  ?government recognition? the lens of sustainability for crypto in our existing
financial ecosystem becomes a lot clearer.
The US Federal Reserve is anticipated to publish a report on cryptocurrencies in Q4 2021.
Asset Class
Goldman Sachs files with SEC to create ETF
Goldman Sachs has officially filed the Securities and Exchange Commission their intent on
creating an exchange-traded fund that will be tied to blockchain technology, decentralized finance, and
digitization. Goldman Sachs? intention is for this EFT to be available to consumers across the wealth
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 39
industry. ?The Index is designed to deliver exposure to companies that are aligned with two key themes,
the implementation of Blockchain Technology and the Digitalization of Finance (the ?Themes?)," per the
filing (McSweeney, 2021).
Crypto?s Diversification of a Portfolio
The question serves to be answered; is crypto divergent enough from existing asset classes to be
considered as a new asset class and potential portfolio diversifier? Does the value of possible utilities
provide enough value to financial institutions and their clients to be considered in any capacities? Exhibit
XVII below illustrates a sampling of various allocations of Bitcoin to a traditional 60/40 portfolio (Nathan
et al., 2021).
Exhibit  XVII
Advanced Topics
Modern Portfolio Theory and Efficient Frontier Analysis
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 40
When presenting the unique characteristics of a potentially new asset class to a diversified
portfolio, there is the expectation that it should alter the return-to-volatility curve of any single basket of
Exhibit  XVIII
holdings.  This is a concept derived from Modern Portfolio Theory which suggests that a tweaking or
addition of weighted asset classes should result in an optimal return for any given risk level. An efficient
frontier analysis is one possible calculation that can be performed in order to determine the level and
confidence of differentiation of cryptocurrencies in a portfolio.  Exhibit XVIII is a detailed analysis
performed by Jonas Benner, a quantitative financial consultant from Bocconi University. The graph
illustrates the relationship that gold has to a traditional stock portfolio and compares it to those of
cryptocurrencies. As seen in the green cluster, gold?s traditionally negative correlation with stocks reduces
the risk of a portfolio with very little movement to expected return. However, the orange cluster portrays a
sizable increase in expected return but with a near parallel increase to volatility/risk. While gold generally
has a negative correlation to stocks, cryptocurrencies tend to have a positive correlation (Benner, 2020).
This poses an interesting question to wealth managers; if you were to be able to appropriately weight
cryptocurrencies into a diversified portfolio, could it increase the expected return to volatility ratio at a
rate greater than 1:1?
Exhibit XIX (from Benner) explores the most optimal portfolios in these categories (denoted by
blue stars) along Capital Market Lines. If you were to take a portfolio of stocks, gold, and
cryptocurrencies weighted appropriately, end consumers could realize the ?goldilocks zone? for
return-to-volatility of a diversified portfolio that we have yet to see in the modern investing era. (This
zone is denoted by an annotated red circle on the original graph).
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 41
Exhibit  XIX
Crypto?s Product Adoption Curve (Retail v Institution)
As discussed earlier, retail investors have been actively investing into the cryptocurrency space
independently through exchanges such as Coinbase, Binance, Robinhood, etc. The emergence of these
new digital platforms is the direct result of the significantly high demand of retail investors and
subsequent lack of (crypto trading) supply offered by traditional financial institutions within the existing
financial ecosystem.
Depicted below in Exhibit XX is an illustration of the perceived ?value-gap? that is currently
happening within the wealth management industry. Wealth managers are currently losing out on
significant revenue/clients because of the technological adoption gap of cryptocurrencies/blockchain by
these traditional financial institutions.
Exhibit  XX
Picture Name: Crypto Adoption Curve
Picture Description: Blue line indicates where the traditional financial institutions are today on the curve
in regards to platform (supply). Red line indicates where the retail investors are today on the curve in
regards to consumer (demand). Black dotted line indicates the perceived value gap that wealth managers
are losing because consumer assets under management are being held elsewhere.
Inflation Hedge +
Many analysts would assert that cryptocurrencies have yet to be tested by a fully organic
economic cycle and that any opinions of utility for cryptocurrencies in a portfolio are merely anecdotal
evidence that is not mature enough to be widely accepted. However, when looking at Exhibit XXI you
will see how the average price of Bitcoin, Litecoin, and Ethereum maintain a strong correlation to the 10
and 2-Year Treasury Yield. This shows us evidence that it is not just Bitcoin that has data points for being
an inflation hedge, but rather cryptocurrencies as a whole (asset class).
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 42
Exhibit  XXI
Conclusion | Executive Guidance
The digitization of the wealth management industry has fueled interconnectivity and
technological advancements that are revolutionizing the fundamental behaviors and interactions of
consumers, RIAs, and Fintechs/Wealthtechs. Executives need to consider where they are positioned now
and where they want to be positioned in the future. Cryptocurrency and blockchain technology provide
asset and utility innovation that will present wealth managers with a quandary on how to incorporate best
practices for themselves and their clients. Regardless of how cryptocurrency evolves, wealth managers
can achieve value creation for clients inherently upon the basis of being educated on the topic.
The adoption and implementation of cryptocurrency into the existing financial ecosystem is no
longer a question of ?if? but rather ?when? and ?how?. As executives seek guidance on their approach,
they should begin with the six crypto mechanisms as building blocks of the executive guidance outlined
below. The three fundamental guiding principles that will allow executives to formulate future success
are; Aggregate Economics, Industry-Led Innovation, and Governance Trends.
1. Aggregate Economics - As the digital economy expands, executives who are prepared to
evaluate the economic impacts will be better positioned to adapt to the nascent features changing
the existing financial ecosystem. As prescribed in the numerous methods introduced in this
section. Over time many of these theories may lead to new insights which are brought about by
participants in the field which leads us into the second guiding principle.
2. Industry-Led Innovation - When opting for potential solutions or desk research, forming
partnerships and outsourcing account management with tech-adept servicers is seen as favorable
given they are better equipped to tackle the ambiguities and risk that remain within the crypto
adoption lifecycle. The ability for technology to facilitate transactions in volumes should allow
for individual wealth managers and their technology providers the ability to retain confidentiality
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 43
of their clients while allowing outsources to share strategies that are suited to the clients
parameters.
3. Governance Trends - Lastly, wealth executives should closely follow government regulation to
understand the impacts that will arrive, but should not wait for an explicit ?go-no go? signal from
regulatory bodies to begin their education on cryptocurrency. Cryptocurrency and digital assets at
the bare minimum present an opportunity for value capture that the wealth industry has not seen
at this magnitude in a generation and as governance/policy shapes the future of payment utilities
it's likely that it will also require the adoption of technologies to enforce those new policies.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 44
Bibliography
2021 State of U.S. Crypto Report. (2021). https://www.gemini.com/state-of-us-crypto
Arora, A., & Ramrakhani, M. (n.d.). Blockchain in wealth management. Wipro.
https://www.wipro.com/consulting/blockchain-in-wealth-management/
Benner, J. (2020). Cryptocurrencies- The New Frontier. Towards Data Science.
https://towardsdatascience.com/cryptocurrencies-the-new-frontier-part-2-7218c6a489f9
BlackRock. (2017). 2017 Elite RIA Study.
Bloomberg L.P. (2021a). Company Description of Envestnet Inc. Retrieved July 15, 2021 from
Bloomberg terminal.
Bloomberg L.P. (2021b). Consensus Overview of Envestnet Inc. Retrieved July 15, 2021 from Bloomberg
terminal.
Bloomberg L.P. (2021c). Financial Statements of Envestnet Inc. Retrieved July 15, 2021 from Bloomberg
terminal.
Bloomberg L.P. (2021d). Relative Valuation of Envestnet Inc. Retrieved August 20, 2021 from Bloomberg
terminal.
Bouoiyour, J., Selmi, R., & Wohar, M. E. (2019). Bitcoin: competitor or complement to gold? Economics
Bulletin, 39(1), 186?191. https://ideas.repec.org/a/ebl/ecbull/eb-18-00781.html
Carrick, J. (2016). Bitcoin as a Complement to Emerging Market Currencies. Emerging Markets Finance
and Trade, 52(10), 2321?2334. https://doi.org/10.1080/1540496X.2016.1193002
Ciaian, P., Rajcaniova, M., & Kancs,  d?Artis. (2016). The economics of BitCoin price formation. Applied
Economics, 48(19), 1799?1815. https://doi.org/10.1080/00036846.2015.1109038
Cisco. (2017). Wealth and Asset Management 2022: The Path to Digital Leadership.
https://www.oracle.com/assets/wealth-report-summary-full-report-4010572.pdf
Cryptopedia Staff. (2021). What is Tokenization in Blockchain? Crytopedia.
https://www.gemini.com/cryptopedia/what-is-tokenization-definition-crypto-token
Damodaran, A. (2007). Return on Capital (ROC), Return on Invested Capital (ROIC) and Return on
Equity (ROE): Measurement and Implications. SSRN, 69.
https://doi.org/https://dx.doi.org/10.2139/ssrn.1105499
Deloitte. (2021a). Making change: Should bitcoin be on your balance sheet?
https://www2.deloitte.com/us/en/pages/finance/articles/cfo-insights-making-change-should-bitcoin-
be-on-your-balance-sheet.html
Deloitte. (2021b). The rise of using cryptocurrency in business.
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 45
https://www2.deloitte.com/us/en/pages/audit/articles/corporates-using-crypto.html
Glaser, F., Zimmermann, K., Haferkorn, M., & Weber, M. C. (2014). Bitcoin - Asset or Currency?
Revealing Users? Hidden Intentions. PSN: Exchange Rates & Currency (International).
Goodwin, K., (2009). Designing for the Digital Age
Hairudin, A., Mohamad, A., Sifat, I., & Yusof, Y. (2020). Cryptocurrencies: A Survey on Acceptance,
Governance and Market Dynamics. International Journey of Finance & Economics, 37.
Hougan, M., & Lydon, T. (2021). The Bitwise/ETF Trends 2021 Benchmark Survey of Financial Advisor
Attitudes Toward Cryptoassets.
https://static.bitwiseinvestments.com/Research/Bitwise-2021-Benchmark-Survey-Financial-Advisor
-Attitudes-Toward-Cryptoassets.pdf
Konkel, A. (2021). Job Seeker Interest Spikes in Crypto and Blockchain. Indeed Hiring Lab.
https://www.hiringlab.org/2021/08/03/job-seeker-interest-spikes-crypto-and-blockchain/
Marek, L. (2021). Payment giants FIS makes another crypto move, expanding in Europe. Payments Dive.
https://www.paymentsdive.com/news/fidelity-National-Information-Services-cryptocurrency-europe
-expansion/600653/
Martin, J. (2021). $1 Billion-AUM Brother-Sister Team Leaves J.P. Morgan to Launch RIA. AdvisorHub.
https://www.advisorhub.com/1-billion-aum-brother-sister-team-leaves-j-p-morgan-to-launch-ria/
Mason, E. (2021). Bitcoin About-Face: JPMorgan Opens Crypto Trading To All Clients. Forbes2.
https://www.forbes.com/sites/emilymason/2021/07/22/bitcoin-about-face-jpmorgan-opens-crypto-tra
ding-to-all-clients/?sh=3491a58c44a5
McSweeney, M. (2021). Goldman Sachs files with SEC to create a ?DeFi and Blockchain Equity ETF.?
The Block.
https://www.theblockcrypto.com/linked/112560/goldman-sachs-files-with-sec-to-create-a-defi-and-b
lockchain-equity-etf?utm_source=cryptopanic&utm_medium=rss
McSweeney, M., & Chaparro, F. (2021). White House says crypto tax enforcement will help pay for
bipartisan infrastructure deal. The Block.
https://www.theblockcrypto.com/linked/112877/white-house-says-crypto-tax-enforcement-will-help-
pay-for-bipartisan-infrastructure-deal?utm_source=newsletter&utm_medium=email&utm_campaign
=2021-07-31
Nathan, A., Galbraith, G. L., & Grimberg, J. (2021). Crypto: A New Asset Class?
https://www.goldmansachs.com/insights/pages/crypto-a-new-asset-class-f/report.pdf
Nead, N. (n.d.). Cryptocurrency: Growth Trends & Industry Performance. Investmentbank.Com.
https://investmentbank.com/crypto-growth/
Schwartz, J., Enders, T., Johnston, W., & Keller, S. (2021). Envestnet Advisor Summit. Bitcoin: A Digital
Monetary System. https://www.envestnet.com/advisorsummit/
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 46
SIX to Launch Full End-to-end and Fully Integrated Digital Asset Trading, Settlement and Custody
Service. (2018). SIX.
https://www.six-group.com/en/newsroom/media-releases/2018/20180706-six-digitalexchange.html
Spot. (2021). The Block. https://www.theblockcrypto.com/data/crypto-markets/spot
Tellez, A. (2021). Fed Chairman Suggests That Bitcoin Could Become Obsolete If U.S. Digital Currency
Existed. Forbes.
https://www.forbes.com/sites/anthonytellez/2021/07/14/fed-chairman-suggests-that-stablecoins-and-
cryptocurrencies-could-become-obsolete-if-us-digital-currency-existed/?sh=355c31f3357a
Yahoo Finance. (n.d.). https://finance.yahoo.com/
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 47
Appendix
1.    Envestnet?s Simplified Balance Sheet
2.    Envestnet?s Balance Sheet - Increase in Operating Working Capital
3.    Envestnet?s 2020 10K - Assets Under Management (AUM) & Assets Under Administration (AUA)
4.    Bloomberg Screenshot of Expert Analysts? Prediction of Envestnet?s AUM
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 48
5.    Envestnet?s Return on Invested Capital (ROIC) Tree Expanded
6.    Envestnet?s Discounted Cash Flow Model (As-is Model)
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 49
7.    Envestnet?s Historical Beta for the Past 2 Years ? Relative to SPX
8.     Envestnet?s P/E Ratio Relative to Competitors
9.     Relative Valuation of Envestnet?s Competitors
Copyright ? 2021 - Shorter, Taylor, Jones, Sanford, Kobloth 50