One LPL advisor in New York is using Riskalyze to determine which “separately managed account” product is the right fit for his clients and prospects. He uses the Cougar Global Investments SMAs on the LPL Model Wealth Portfolio platform. There are four SMA products: Cougar 6, Cougar 8, Cougar 10 and Cougar 12.
The advisor added each of the Cougar SMAs in as individual model portfolios, using the methodology on the Riskalyze Knowledge Base for adding SMAs using the Custom Investment button. He allocated 100% of each model portfolio to that respective SMA.
Two things stuck out at the advisor.
First, by looking at the real risk behind the four different Cougar funds, it turned out that Cougar 12 has slightly less risk than Cougar 10. That was a surprise to the advisor, who expected that the funds had a “stair step” of risk tolerance with their higher numbers. Investment objectives do not always equal true risk.
Second, it became much easier for the advisor to figure out which Cougar fund was closest to his clients. After capturing their Risk Number, Riskalyze points the advisor to the closest model.
Whether SMAs simply overweight and underweight sectors, or use a purely tactical strategy to try and achieve returns in any market, Riskalyze provides a simple way to quantify their risk and match clients to the product that most closely fits their risk tolerance.
The envelope just arrived on your desk. A prominent endowment fund just sent you a request for proposal. This is a huge opportunity to land a premiere client and could lead to a boatload of business from board members and associates of the organization.
So here’s the plan: let’s separate yourself from the competition by exhibiting your skills as a risk manager. Here are the steps to take:
- Request a face-to-face meeting with the endowment’s Investment Policy Committee (IPC).
- Walk the IPC through the Riskalyze risk questionnaire, with the help of a projector or large screen in a conference room.
- Ask the IPC to confirm the “comfort zone” presented at the end of the completed risk questionnaire. Retake the questionnaire if needed, after adjusting the devastation amount, until the committee comes to a consensus on the comfort zone.
- In your proposal, build a target portfolio using a mix of existing holdings and new investments as you see fit. Adjust the allocations until the portfolio’s Risk Number fits the IPC’s.
- Present a proposal to the IPC that is perfectly aligned with their risk tolerance and expectations. Demonstrate that you understand how best to manage their institutional risk while driving positive returns.
- Sign the paperwork and bring on this amazing new client!
By the way, don’t forget to shake hands with each IPC member after the meeting, and offer to do the same risk tolerance and portfolio review for them personally. That’s the power of multiplication at work.
Today, the Dow Jones Industrial Average changed out three of its 30 components — dropping Aloca, Bank of America and HP in exchange for Nike, Goldman Sachs and Visa.
There’s a lot of questions about this move — why did they really trade out one set of companies for the other? We created a mock portfolio with mostly cash, but allocated 15% to each of these stocks to find out.
With the original three stocks, the Risk Number was 85, and the portfolio had downside risk of –20% over the next six months.
The new three stocks bring a lot less risk to the Dow index. The Risk Number drops to 57, and there’s only –12% downside risk over the next six months.
So why did Dow Jones make these component changes?
Well, if the theory holds that they want the index to keep going up — they just reduced their risk of it dropping by quite a bit.
Today, we were pleased to issue this joint press release with one of our key independent broker-dealer partners, NEXT Financial in Houston.
HOUSTON—Independent broker-dealer NEXT Financial Group Inc. (NEXT), has partnered with Riskalyze to bring the benefits of advanced risk analysis to the firm’s more than 800 financial representatives.
Riskalyze, a technology company specializing in risk calculation analytics for financial advisors, was founded in 2011. The company’s patented Risk Number™ technology allows advisors to quantitatively capture a customer’s risk tolerance, align portfolios with their expectations and scientifically quantify the suitability of investments for customer tolerance.
"Our partnership with Riskalyze is yet another example of how we’re equipping our representatives to be leaders in the industry," said Barry Knight, president of NEXT. "Everything we do at NEXT empowers our advisors to be more effective at delivering the advice their customers need."
NEXT is one of the first major independent broker-dealer partners working with Riskalyze to equip their advisor network with this ground-breaking technology. With drag-and-drop portfolio integration between Riskalyze and NEXT’s custodial platform, the firm’s advisors can instantly realign portfolios to fit individual customer needs.
"We’re incredibly excited about the opportunity to work with the team at NEXT Financial," said Riskalyze CEO, Aaron Klein. "Their vision for the industry, for their advisors, and above all else, for their commitment to client service is refreshing and inspiring."
Riskalyze is the company that invented the Risk Number™, the first-ever quantitative way to capture client risk tolerance, align portfolios to client expectations, and quantify the suitability of investments. Riskalyze works with RIAs, hybrid advisors, independent broker-dealers, RIA networks, custodians, clearing firms and asset managers to align the world’s investments with investor risk tolerance.
NEXT Financial Group Inc., Member FINRA/SIPC, is a broker-dealer based in Houston, Texas, serving the needs of financial services representatives throughout the country. The company prides itself in helping business owners enjoy success and financial independence. The company was founded in 1999, and is currently led by President Barry Knight. More information about the company can be found online at www.nextfinancial.com. Securities and investment advisory services provided by NEXT Financial Group Inc. Member FINRA/SIPC. NEXT is located at 2500 Wilcrest Drive, Suite 620, Houston, Texas 77042, 1-877-876-6398.
One of our advisors shared the story of how she used Riskalyze to convince a “silver bug” to stop adding to his position in the precious metal. This client’s Risk Number was a 45, meaning that he could tolerate a 9% drop in his portfolio within a six month time period.
The advisor knew that adding more silver to the client’s portfolio would drastically change the risk in the portfolio, but the client kept saying that he knew it was “a sure thing.” So the advisor used the Six Month Probability Range and the Risk/Reward Heatmap to educate the client.
The client’s existing portfolio already carried a Risk Number of 48.
The advisor duplicated the portfolio and built a new target portfolio to show the client exactly what moving another 10% of his holdings into silver would do to the risk in the portfolio.
Sure enough, the portfolio’s Risk Number would escalate 10 points to a 58, and the downside risk would escalate from 9% to 12%, which was definitely outside of the client’s risk tolerance.
With the ability to visualize this additional risk, the client understood why even the upside of more silver wasn’t the right fit for his overall financial situation, and agreed to hold off on any changes for now.
Ultimately, clients will do what clients will do, but Riskalyze is empowering advisors to quantify and demonstrate the effects — helping clients to understand exactly why they’re making a recommendation or advising for or against a course of action.