Aaron Klein, Riskalyze

Nov 02, 2018, 02:42 PM

A Dive Into The Startup Keeping Financial Advisors Accountable

Benzinga is rolling out the Fintech Focus podcast, a series of interviews with leaders in the fintech space.

Our fifth episode features Aaron Klein, founder and CEO of Riskalyze, the startup disrupting the way financial advisors relate to their clients.

Key quotes:

“When my co-founders and I decided to start the company it was around this realization that investing felt very broken for the average individual, that individual investors really struggle to understand how to think about risk, and their financial advisors were frankly equipped with really, really bad tools, and really bad—almost nonexistent—technology to help them figure that out, and to help them understand it and communicate it well with their clients.”

“You know, basically the 2 different approaches that financial advisors used is they either used old wives tales. A really popular one was investor agent bonds, right? So, if you're 20 years old you should have 20% in bonds, 80% in equities, and if you're 80 years old you should have 80% in bonds, 20% in equities. And the reality is is that people are individuals and they have different levels of tolerance for risk and you've got to take that into effect and not just stereotype people based on age. And then you're right, they also did it a lot based on feel, and I would put it this way, the industry used a lot of qualitative language, and you still see it out there from advisors who aren't using Riskalyze yet. They'll sit down with a client and they'll say, you know, after talking with them they'll say, ‘Well, you feel like a moderate investor to me.’ And the client sort of nods and says, ‘Okay, yeah. That sounds good. I feel moderate today.’ And they'd say, ‘Great. We're going to put you in the vanguard moderate portfolio.’  Well, we have no idea if the 3 people at this table, the advisor, vanguard, and the client mean the same thing by the word moderate right? So, it's as if you're building a house and instead of using feet and inches your contractor says, ‘Okay, so we're going to do a moderately conservative hallway leading to the moderately aggressive bedroom.’ And something tells me that they're not going to have the right amount of materials there at the job to get the job done. The house is not going to come together.”

“You know, we kind of invented this space 7 years ago, and so today, if you look at the advisors who are actually using some kind of risk alignment tool we've got, you know, we've got somewhere around 80% market share. So, we're pretty dominant from that perspective, but when you step back and you look at the fact that only a small percentage of the financial advisors in the United States and in the world are using quantified risk alignment to serve their clients, all of a sudden we've got like 4 or 5% market share. So, we look out there and go, you know, we feel like we're just getting started, just scratching the surface both on the advisors that we can serve and the innovation that we can deliver for them.”