Lucas Jackson/Reuters
BlackRock CEO Larry Fink said on Tuesday's earnings call that investment technology is drawing individual investors' money to the firm.
- Individual investors are moving their money to financial advisors, private bankers, and other money managers who use BlackRock technology, executives said on Tuesday's earnings call.
- Those advisors are also investing more client money in BlackRock products, though that's not the end goal for the tech platform, an executive told Business Insider.
- BlackRock's signature investment management platform, Aladdin, is used by over 200 institutional investors. In the last two years, the firm opened it up to wealth managers, including UBS, Morgan Stanley, and HSBC.
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Individual investors are so impressed by BlackRock's risk evaluation technology that they're moving their money to the financial advisors who use it, the firm's executives said on Tuesday's earnings call.
BlackRock has been selling Aladdin, its signature investment management platform, to institutional investors, insurance companies, and other asset owners for 20 years. It's a bright spot for the world's largest asset manager, driving revenue within technology up 11% year-on-year, according to first quarter earnings.
In recent years, the firm broadened the platform to wealth management companies so that financial advisors, private bankers, and other personal money managers could model portfolio risk for their clients. The first such client started using Aladdin Wealth two years ago.
Now, the firm works with nine wealth management companies globally, including Morgan Stanley, UBS, and HSBC, with 30,000 users total. Those companies' clients range from the ultra-wealthy to the "mass affluent," individuals with a net worth in the low- to mid-six figures.
See more: Here are the 3 ways Larry Fink is positioning BlackRock to outperform after a 'challenging' year
"Aladdin Wealth is helping the financial advisors have the tools to do their job better," Rob Kapito, the firm's president, said on Tuesday's earnings call. "It's helping us to be part of the infrastructure and the ecosystem to build out better tools and technology for our firms that unfortunately under-invested in technology. At this time, cost is very important - to be able to buy it a good price and have it maintained is, I think, just going to grow for the future."
Kapito and other executives said that individual investors with accounts at more than one firm liked the technology so much, they're consolidating their portfolios with financial advisors who use Aladdin Wealth.
"If you are one of the firms that can show your client the risk and reward of their portfolios and then improve it, that is a great advantage, and we are seeing a lot of money move for those who have Aladdin from people that don't have it," Kapito said.
That's a win for financial advisors, many of whom are struggling to add new clients and grow their businesses, according to a McKinsey report last year. The wealth management industry faces "continued stagnation in the number of new client relationships, with no improvement in penetration of 'next generation' assets," the report said.
'Not about numbers'
BlackRock isn't measuring success by assets on Aladdin Wealth, said Woo Fung Kwong, the head of the division. Instead, he's focused on adoption rate and expanding the platform's use cases.
"It's not about numbers; it's about creating a new business and engagement model for the future," he told Business Insider. "We're not looking at this as a quarter-by-quarter exercise. That's not how we judge success. We're looking at users and new use cases, and broadening that over time as more clients see the benefits."
That said, Aladdin Wealth could be helping boost BlackRock's assets under management.
Chief executive officer Larry Fink said on Tuesday's earnings call that among the Aladdin Wealth users who have been on the platform the longest, "there is evidence of increased flows to BlackRock." He cautioned, "we don't have enough statistics to really identify where it is. We don't have enough data with all the different users."
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Kwong said that the firm only has anecdotes about such flows right now.
"When BlackRock as an institution develops deeper relationships with financial advisors and we're helping them grow their practice, you can imagine there's additional benefits in how they feel about BlackRock," he said. "That's a benefit, but not necessarily the primary way we're looking at this technology, which is a fee for technology services."
Investing in wealth management
BlackRock has been bolstering its technology presence outside of the institutional space as it seeks to touch a wider pool of capital. Last month, for example, BlackRock said it would buy eFront, a Paris-based alternative-investment management platform, in a $1.3 billion cash deal. eFront will be used to complement Aladdin's capabilities.
In January, BlackRock participated in the latest funding round for consumer investing app Acorns, and in November, the firm said it would buy a minority stake in financial technology firm Envestnet for $123 million. About 92,000 financial advisers use Envestnet's wealth management platforms, which include portfolio management, reporting and other capabilities. There are about 300,000 financial advisers in the US.
Outside of company-level investments, the firm is also working with partners, like an alliance with Microsoft announced in December, to create technology-driven investment platforms. The companies are building a tool for retirement savings that will be offered through employers.
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