Last year financial technology start-ups made their mark on the wealth management business. The first wave of this new breed was the robo-advisers, automated investment platforms with rock-bottom fees. Their success paved the way for fintech players that seek to reap higher profits by catering to the ultrawealthy, providing highly specialized services or even helping human wealth managers to confront the virtual-adviser threat.
One such newcomer is CircleBlack, launched in 2015 by John Michel, who previously headed BloombergBlack — an online wealth management experiment that Bloomberg scuttled three years ago — and held a senior post at Merrill Edge, Bank of America Merrill Lynch’s web-based advisory service.
Besides analyzing client assets held at different banks and brokerages as a single portfolio, New York–headquartered CircleBlack offers educational resources and peer-to-peer information sharing; it also plans to use proprietary data to let clients gauge their fellow investors’ sentiment. The firm supports high-net-worth, sophisticated individual investors and independent advisers, a structure that sets it apart from first-generation risk analytics providers and information exchanges like StockTwits, which tended to serve only institutions or Main Street.
“In the social media reality, advisers need to differentiate themselves,” CEO Michel says, noting that CircleBlack’s early individual adopters belong to a coveted group: young professionals with significant net worth. The firm’s average client is 43 and has about $660,000 in invested assets, he adds. “Self-directed, they are reaching a point of complexity in their life where they need more outside help.”
CircleBlack also bills itself as a meeting place where wealth advisers and service providers such as tax and estate planners can mingle with its affluent user base. Although its platform is still in beta mode, the firm says it has attracted a steady stream of users through word of mouth as it prepares for an initial financing round.
Another online business offering institutional-level services to the private wealth industry is Tradelegs, which allows managers and advisers without specialized knowledge of derivatives to design and implement options overlay strategies. Although New York–based Tradelegs has a history dating back to 2011, when its predecessor lauched, investments by Chicago Board Options Exchange parent CBOE Holdings in 2014 and last September boosted the firm’s development and helped it to gather clients with a total of more than $250 billion in assets under management.
“We empower wealth managers to create, understand and maintain strategies that are specific to their investment criteria, capital and risk constraints,” says co-founder and managing director Peter Hauser. “Wealth managers can use Tradelegs to drive alpha and improve their risk-adjusted returns.” Custom-tailoring options strategies for client portfolios is a way for advisers to stand out from the competition, Hauser contends.
One challenge for independent wealth managers is risk alignment. Having new clients fill out the standard multiple-choice form to gauge their appetite for risk has yielded mixed results at best. Grasping how much risk investors want to take on, and how they’ll react in a sudden market reversal such as January’s sharp equity sell-off, is no easy task. Aaron Klein, CEO of Sacramento, California–based Riskalyze, has set out to simplify the process. “Our goal is to help advisers to truly understand what their customers need, not just what they want,” says Klein, who co-founded the firm in 2011.
Central to Riskalyze’s platform is a mathematical score derived from questionnaires and follow-up interviews to give advisers a more quantitatively valid assessment of how well clients can withstand market volatility. Klein and his team hope the result will be better portfolios, but they also aim to help managers win new assets by shedding light on how a prospect’s current investments mesh with longer-term goals.
Online prospecting for clients is another headache. Generation X and Millennial investors find many products and services via the Internet, and both groups tend to trust online providers over the handshake personal service that traditional advisers offer. For registered investment advisers and multifamily offices used to marketing campaigns executed on the golf course, approaching these potential clients can be daunting.
Vestorly, a platform developed by tech start-up Torii, seeks to bridge this digital divide. Among other tools, Vestorly allows tracking of content shared by an adviser with clients as it’s passed to friends and acquaintances, creating a virtual referral network through social media and e-mail.
Since Vestorly launched in 2013, several major RIAs have adopted the service, including Newport Beach, California–based United Capital Advisors, which oversees some $9 billion. “Navigating social media while adhering to increasingly strict regulatory guidelines for marketing is a huge challenge for individual advisers,” says Torii CEO Justin Wisz, who worked at Fisher Investments, a top marketing machine for RIAs, before co-founding his New York–based firm in 2012: “We are focused on a simple-to-use solution that has been thoroughly vetted to help users avoid pitfalls.”
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