A Framework to Drive “Forgetful” Behavior

Business Insider reports on a recent study by Fidelity Investments to find out what, if anything, set apart the highest performing accounts among their $4.6 trillion in managed assets.

According to Riskalyze advisory board member Barry Ritholtz, and his guest James O’Shaughnessy, what they found was fascinating and a bit hilarious: the highest performing accounts at Fidelity were those who forgot they had Fidelity accounts.

The phenomenon of human behavior working against investment performance is well documented: humans generally like to add to their investments when the price is high, and fear drives them to sell or yank their assets after the price drops “too much” for their risk tolerance.

That’s why Riskalyze is designed to help advisors invest their clients within the bounds of their risk tolerance. By reducing downside risk to an amount the client has agreed to withstand in a normal down market, the risk of premature selling drops dramatically, and the enhanced credibility the advisor earns can help to calm the client during abnormal markets.

It may be unlikely that you can get any of your clients to forget about their investments. But Riskalyze gives you a framework to get the same behavior from all of them — enabling you to deliver higher levels of actual performance than they’ve ever seen before.

Riskalyze Joins Orion Advisor Services at FUSE Collaborative Development Conference

We are thrilled to be joining Orion Advisor Services as they kick off the first annual FUSE Conference for financial services software developers. It’s no secret that radical innovations rarely happen in a vacuum, and we applaud Orions’ efforts to ignite the industry’s first collaborative development conference.  Here’s the press announcement. 


Firm Brings Industry’s Top Software Developers to Park City, Utah, to Create Innovative Software Solutions for Investment Advisors

OMAHA, NEB.—September 9, 2014Orion Advisor Services, LLC (“Orion”) announces it will host Fuse 2014, the inaugural edition of a new industry conference for financial services software companies. The weekend conference will bring together developers from the financial services sector’s leading software firms to create collaborative projects that will solve problems for investment advisors.

“Using technology to make life easier for advisors and their clients has always been a focus for Orion, and Fuse is another initiative to support that foundation,” said Eric Clarke, President and CEO of Orion. “We believe the event will help us build deeper relationships with our integration partners, while simultaneously collaborating on creative enhancements to the software that advisors use every day.”

Developers from more than 15 companies will stay at a mountain lodge in Park City, Utah, for two full days, where they will be able to concentrate completely on new innovations, with a focus on creating enhancements complementary to Orion’s open-sourced client portal. Participating companies include ActiFi, AdvisoryWorld, cleverDome Solutions, eMoney Advisor, Finance Logix, Gladstone Analytics, HiddenLevers, inStream Solutions, Laser App, MoneyGuidePro, Object Lateral, Redtail Technology, Riskalyze, Sagacious and Salentica.  

“Collaborative development conferences are very popular among startup companies, where a number of innovative apps and services have been built,” said Bill Winterberg, Founder of FPPad, a financial services technology consulting firm. “I’m excited that Orion has embraced the concept with its Fuse 2014 weekend, bringing the best developers together to tackle real-world challenges financial advisors face every day.”

Mr. Winterberg and Joel Bruckenstein, Publisher of Technology Tools for Today, will serve as event hosts and facilitate the conference’s activities. Judges who will determine the best solutions developed during the weekend include J.D. Bruce, CPA, PFS, President of Abacus Wealth Partners, Ryan Beach, President of CLS Investments, and Billy Oliverio, Vice President of Investment Advisory Services at United Planners Financial Services. Awards will be chosen based on the best contributions to the advisor community.

About Orion Advisor Services, LLC

Orion Advisor Services, LLC is the premier portfolio accounting service provider for advisors. The firm has unique insights into the advisory profession because it was founded for investment advisors by investment advisors in 1999. Orion frees advisors from back-office tedium so they can enjoy their business again by devoting their time and energy to better serving clients. Orion provides the integrated and fully customizable technology solutions that advisors need to grow their businesses over the long term. The firm’s technology solutions empower more than 450 advisory firms with total assets under administration in excess of $160 billion from more than 740,000 individual accounts.

For more information about Orion Advisor Services, LLC, visit www.orionadvisor.com or follow Orion at @orionadvisor

Introducing Compliance Cloud

Today, we’re excited to announce an entirely new product, targeted at the broker-dealers and corporate RIAs we work with: Riskalyze Compliance Cloud. Here’s the press announcement from this morning.

Riskalyze Launches Game Changing “Compliance Cloud” Big Data Platform
New Technology Will Spot Compliance Problems…Before Regulators Do

Auburn, California – Riskalyze, which was named one of the world’s ten most innovative companies in finance by Fast Company Magazine, today announced the launch of a revolutionary new big data platform called Compliance Cloud, designed to help large wealth management institutions sift through their data, spot issues before they become problems, and uphold their compliance obligations.

Compliance and supervision teams at broker-dealers and large registered investment advisory (RIA) firms can easily connect the existing account data feeds from their custodians, clearing firms or aggregation providers. Compliance Cloud recalculates the risk across millions of client holdings every night, indexes the results, and delivers a Google-like ability to search the accounts for potential problems.

Compliance Cloud helps these firms find accounts with inappropriate investments for their investment objective; with concentrated positions; with high-risk positions; with excessive cash; with periods of inactivity, and more. Searches can be sliced by client, advisor, balance, risk level and more. Case management and resolution workflow for compliance and supervision teams is built in.

“Our broker-dealer and RIA partners have a missile aimed at the heart of their operations: mounting audits, SEC demands for risk-based compliance assessment and FINRA’s effort to find enforcement targets with CARDS,” said Riskalyze CEO Aaron Klein. “Fortunately, with Compliance Cloud, the era of the ‘random account spot-check’ is officially over.”

While many broker-dealers and RIAs have successfully adapted to ever-tightening regulations, 2015’s deployment of FINRA’s Comprehensive Automated Risk Data System (“CARDS”) initiative will open a new era of scrutiny that broker-dealers must be prepared for. In addition, the SEC is telling firms of all stripes that they need a risk-based assessment of their accounts to uphold their obligations.

“Broker-dealers need to know what CARDS is going to tell FINRA next year, but they also need to change the outcome before CARDS goes live,” said Michael McDaniel, Chief Investment Officer at Riskalyze. “Compliance Cloud will prepare these firms to walk into next year’s FINRA and SEC audits with thousands of documented cases of proactive problem resolution.”

Riskalyze also announced Orion Advisor Services as the premier launch partner for Compliance Cloud. Large RIAs who use Orion can seamlessly implement the product with almost zero data feed setup work required. Orion will make Compliance Cloud available directly to its large RIA clients through its extensive nationwide sales team.

“At Orion, we know a thing or two about revolutionary technology that helps advisors enjoy their business again, and Compliance Cloud is a game-changing tool for the large RIA clients that we serve,” said Orion CEO Eric Clarke. “We’re pleased to make Compliance Cloud available as a seamless addition to the portfolio accounting systems that our advisors rely on.”

Compliance Cloud is available to qualified broker-dealer and RIA firms today, and Riskalyze is currently booking new implementations in October.

Riskalyze is the company that invented the Risk Number™ and was named as one of the world’s ten most innovative companies in finance by Fast Company Magazine. Riskalyze works with RIAs, hybrid advisors, independent broker-dealers, custodians, clearing firms and asset managers to align the world’s investments with investor risk tolerance. To learn more, visit Riskalyze.com or email sales@riskalyze.com.

And the Average Risk Number is…

In May 2012, Nobel Prize winner, father of Prospect Theory and behavioral finance guru Daniel Kahneman told a CFA Institute audience of industry experts that “the single most important function of a financial advisor is to find out how much loss an investor can tolerate.”

Believe it or not, we’ve analyzed the risk tolerance for over $14 billion in investments through our risk questionnaires. (We did eliminate all the outliers from that number — we’re fairly certain Warren Buffett hasn’t captured his Risk Number…yet.)

Looking at that data in totality, the average investor’s Risk Number is 53. That means the average investor is comfortable risking 11% of their portfolio’s value within a six month period, before they begin to act irrationally and make hasty, emotionally-charged investing decisions.

A risk number 53 matches the risk in a typical balanced portfolio with a 60% stock and 40% bond allocation. This means that the average investor may not be psychologically capable of having more than 60% of their portfolio in the stock market.

This should be concerning news to advisors who allocate portfolios using old fashioned rules of thumb, unquantifiable jargon such as “conservative” or “moderate,” or those who put each investor into a one-size-fits-all allocation. It should be equally concerning to advisors who are still using outdated, subjective and qualitative risk tolerance surveys.

Think for a moment about what makes your phone ring. When and why do clients start calling? After a 5% market drop? After a 10% correction? A 20% crash?

This has many implications for practicing advisors. Whether you’re a Riskalyze user or not, an advisor that recommends more than 60% equities to any investor should clearly be documenting an objective reason for doing so. It also suggests that any portfolio with a projected downside greater than 11% over a six-month period warrants a deeper risk/reward discussion with the investor.

High risk can equal high yield, but only if the investor has the stomach to stay invested that way for the long run. That’s why investing people within the bounds of their Risk Number is such a powerful way to harness human behavior and drive client success.

If we can help you with evaluating the risk alignment of your client base, don’t hesitate to let us know! Call 1-855-RISKALYZE or email advisors@riskalyze.com.

Model Portfolios —> Templates

To lay the groundwork for some upgrades we’re planning for the near future, we’re renaming “Model Portfolios” as “Templates” in Riskalyze, starting today.

Why, you ask?

Well, we’ve found at least three competing definitions of model portfolios used by the advisors and asset managers we work with. Many advisors think models are a “starting template” for building a client portfolio; others think models are an allocation you religiously rebalance clients into; and many asset managers use “model” as the word for their strategy or fund.

So for the sake of clarity, “Model Portfolios” and “Draft Models” are now simply “Templates” and “Drafts” in Riskalyze. You should see this change take effect across the system over the next few days.

If you have any questions, never hesitate to let us know!

© 2014 Riskalyze, Inc. All Rights Reserved. All trademarks are owned by their respective companies.