Read about why Riskalyze walked back its claims in RIA Intel's follow-up story.
Orion Advisor Solutions is defending a company it recently acquired after a competitor accused its analysis of being “wildly inaccurate” and leading wealth managers to make poor investment decisions for their clients.
On Tuesday, Riskalyze, a risk management and trading software company used by thousands of financial advisors, launched a public campaign against HiddenLevers and RiXtrema, software companies that also analyze the risks of investment portfolios. Riskalyze claimed the competitors used “predictive guesswork” that is “fundamentally flawed” and produced “wildly inaccurate” results. Both competitors refute the claims made by Riskalyze.
The Riskalyze campaign (that can also be found via the website domain: Unhiddenlevers.com) highlights webinars hosted by HiddenLevers last spring as the Covid-19 virus began rapidly spreading in the U.S. HiddenLevers shared risk models that showed steep falls of the S&P 500 in 2020 (the index produced a total return of 18.4% last year). The campaign also accused HiddenLevers of selectively choosing data to make it appear their risk models were more accurate than they were.
[Like this article? Subscribe to RIA Intel’s' thrice-weekly newsletter.]
“Even more disturbing? Despite being irresponsibly wrong in their analysis, they had the audacity to publish a white paper rewriting that history with cherry-picked timeframes claiming their prediction was a success,” the campaign’s website says.
Raj Udeshi and Praveen Ghanta co-founded HiddenLevers in 2009. But Riskalyze CEO Aaron Klein said its poor performance last year is what finally led him to speak out.
“We really believe that we can't stay silent and allow flawed methodology to put our profession at risk of violating its fiduciary responsibilities,” Klein told WealthManagement.com, which was the first to report on the campaign Tuesday.
Klein could not be reached Wednesday to comment further about the campaign.
Orion, a technology company whose portfolio management, reporting, and other services are used by 2,200 advisory firms, has progressively integrated its services with HiddenLevers over the years and acquired the company in March. Executives said the deal will enable HiddenLevers to hire more employees and continue to innovate. Meanwhile, HiddenLevers would help bolster some of Orion’s other services, including its business intelligence and compliance solutions.
“Regarding the portfolio stress-testing and risk assessment engine of HiddenLevers, we are laser-focused on moving the industry forward by democratizing and bringing the best of behavioral finance and risk assessment to advisors and their clients,” Orion CEO Eric Clarke told RIA Intel in a statement Wednesday.
“We see tremendous opportunities to connect the technology of HiddenLevers to every part of the advisor-client journey and help guide investors to better outcomes.”
Clarke also pointed to white papers supporting the accuracy of HiddenLevers’ risk model, including one published as recently as the summer of 2020 “backed by a staff of over a dozen and a half CFAs and two behavioral finance Ph.Ds, and a half dozen CFPs.” It is unclear if that is the same white paper Riskalyze references in its campaign.
Riskalyze says its “historical data model” to calculate a range of historical probabilities for a portfolio is superior to the models used by competitors. Clarke also rebutted that claim. “The multi-factor regression analysis model is the same risk model that several other brand name risk firms utilize as well,” he said in an email.
“Providing integrated risk capabilities into prospect conversations, financial plan goals, investment portfolios into a seamless workflow to help each investor achieve better outcomes is what this is all about. These tools drive better investor behavior, and at Orion, you are going to see more and more of our behavioral finance expertise ingrained into everything we are putting at independent advisors' fingertips,” Clarke said.
“These tools drive better investor behavior, and at Orion, you are going to see more and more of our behavioral finance expertise ingrained into everything we are putting at independent advisors' fingertips,” Clarke said.
“We’re confident about the HiddenLevers offering and we’re excited about what we’re building toward.”
In a blog post on its website Wednesday, RiXtrema said its “scientific credentials speak for themselves” and pointed to its methodology that was published in the Journal of Risk Model Validation. “That would mean that a critic has to provide quantitative evidence of bombastic claims such ‘wildly inaccurate’ etc. by, for example, disproving the results from the above academic paper. Otherwise, we have substantial published scientific evidence to call them to task for such dangerous and unsubstantiated claims.”
In a video, Riskalyze also highlighted a stress test HiddenLevers created to apply to portfolios called “Kung Flu,” which it spoke about in depth during a webinar.
“It quickly became apparent the term was being used as a racist dog whistle in a national political context. No advisors commented on the term,” Udeshi told WealthManagement.com. “We realized our error and changed the name of the scenario.”
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.