Riskalyze CEO Aaron Klein
Riskalyze CEO Aaron Klein

What Is Aaron Klein Building With Riskalyze?

Now with a robo, proprietary investment models and a marketplace for asset managers, the industry wonders what's next for the tech company.

In the six years since it launched, Riskalyze has become much more than a technology vendor offering a digital approach to risk assessment.

The Sacramento, Calif.-based company stepped into the robo advisor market in 2015 with Autopilot, a set of tools it built with CLS Investments to help advisors automate account opening processes. In 2016, Riskalyze worked with TD Ameritrade and Adhesion Wealth Advisor to launch a robo for unified managed accounts, introduced automated “Check-ins” for advisors and raised $20 million in funding.

Now Riskalyze is offering its own investment models based around risk scoring, a partner store where advisors can access strategies and research from asset managers and a next-generation Autopilot that advisors can use to build portfolios, assign them to client accounts, automatically generate trades across multiple custodians and rebalance existing portfolios.

Under chief executive officer Aaron Klein, Riskalyze formed partnerships and integrations with seemingly every wealthtech vendor and custodian technology platform one could name. Riskalyze now supports 20,000 advisors representing $380 billion assets, and Klein says the company has grown 74 times over the last three years. 

But if it's no longer just a risk-tolerance tool, then what exactly is it? 

Industry observer and co-founder of the XY Planning Network Michael Kitces wondered on Twitter if Riskalyze’s partner store is “the beginning of the end” for TAMPs.

However, Kitces said in an email to WealthManagement.com that he was skeptical Riskalyze's partner store will be that ultimate disruptor because of the 10 basis point to 15 basis point fee they charge for it. He said firms like TD, which announced a model marketplace through iRebal, are more likely to succeed in creating this kind of platform because they make money on the underlying custody. 

The real story, he says, is in the pricing model for the new Autopilot. Though Riskalyze is charging for access to its partner store, advisors can use the Autopilot robo for free if they exclusively use Riskalyze's proprietary Risk Number Models. Kitces said that though these are marketed as free for advisors, the models contain Riskalyze-sponsored ETFs with expense ratios of 0.50 percent to 0.77 percent. 

"I had to dig for awhile to find it, as the Autopilot website doesn't disclose the underlying ETFs are their own products, only that First Trust is responsible for creating the allocations (without pointing out that First Trust is using Riskalyze-sponsored ETFs to do it)," Kitces told WealthManagement.com. "Which means in the end, all Riskalyze is really doing is the same strategy as Schwab Intelligent Portfolios and Blackrock’s FutureAdvisor – they’re using model-management software to distribute their own proprietary investment products."

Kitces goes into more detail on his Nerds Eye View blog, where he argued that it actually might be cheaper to spend the fee for the partner store and choose models with lower expense ratios. He added that it looks like Riskalyze is trying to pivot from a wealthtech vendor into an ETF manufacturer.  

Klein disputed Kitces's assertion by pointing out that there are 150 funds in the Risk Number Model universe, and only six are ETFs Risklayze created with First Trust. He said its entirely possible for advisors to build models and avoid paying the platform fee without putting any assets into Riskalyze's ETFs. He also dismissed the comparison to BlackRock or Schwab as "apples to oranges." 

"If [advisors] prefer smart beta options with expense ratios in the 50-60s [sic], we can deliver that with partners covering the platform fee," Klein said in an email. "If they want the freedom to build portfolios with the entire universe of 85,000+ US stocks, ETFs and mutual funds (with a range of single, double and triple digit expense ratios), we can give them that choice as well."

Craig Iskowitz, the founder and CEO of fintech consultancy firm Ezra Group, went a step further, declaring Riskalyze actually is a TAMP now, competing with the likes of SEI, Assetmark and, potentially, even Envestnet.

“My advice to other technology vendors, wealth management platform providers and TAMPs would be to keep a close eye on Riskalyze," Iskowitz wrote on his blog. "I expect them to move quickly to expand their offerings and try to grab market share from everyone and anyone.”

Klein acknowledges that the new features in Riskalyze are a major step forward for the company, but disagrees that his company in any way competes with TAMPs. In his own blog post, he argued that the advisors Riskalyze targets with Autopilot 2.0 are not prospective customers of TAMPs. In an interview with WealthManagement.com, Klein added that it’s inaccurate to call Riskalyze a TAMP at all because it does not act as co-advisor nor execute trades on behalf of an advisor.

He says that the company is forging its own space in the industry with Autopilot 2.0, which he calls “the first automated account platform.” 

“There are always going to be advisors who want structure and support and other advisors who want freedom and control,” Klein said. “Advisors looking for structure and support will want to work with a TAMP, and they will be able to use Autopilot to access CLS, Morningstar and others."

“Conversely, if you’re an advisor who wants freedom and control, you do the trades yourself. That’s the advisor we’re serving with the next generation Autopilot.”

Tim Welsh, the founder of Nexus Strategy, another fintech consulting firm, agrees that Riskalyze has become an anomaly in the wealthtech landscape and praised Klein’s ability to expand the company's value beyond its initial niche. But Welsh wonders how far Riskalyze can go before other companies do see it as direct competition, and if it is risking diluting its branding by trying to do too many things. Welsh suggested (as did Iskowitz) that Klein might have to change the company name now that “risk” is just a piece of what it offers.

“That’s not a critique here from me, I just think the challenges that they are walking into are much broader and different than when they first started,” Welsh said. “Aaron has been an extremely successful executive and visionary, but the issues are much more complicated now. Will the playbook continue to work?”

At the recent TD Tech Summit, some wondered if Riskalyze is trying to be the central technology dashboard for advisors, like TD’s own Veo One or eMoney Advisor’s emX Select (which both support Riskalyze integrations). Welsh said he could see Riskalyze angling for greater control over the advisor desktop because it could allow the company to impact pricing.

Klein said that while he certainly aspires for Riskalyze to be at the front and center of engagements between advisors and client, he doesn’t envision trying to own the client dashboard. In fact, Klein is skeptical that advisors really want a single desktop experience; they really just want all of their technology to work together.

“I didn’t buy a Sonos speaker because it works with Spotify. I bought it because if I decide I don’t like Spotify, it works with 15 other [music streaming] apps,” Klein said. “If someone says they like the eMoney dashboard, that’s awesome. You can get everything from Riskalyze in there; it doesn’t impact our money, so you can’t quite call it competition.”

It will ultimately come down to advisors paying for technology. As Welsh put it, if advisors demand access to Riskalyze on their tech platforms, whether its TD’s or TAMP’s, it really doesn’t matter if Riskalyze competes with those platforms or not.

TAGS: Industry
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