Riskalyze continues to expand its list of features for advisors and has now “completed the trifecta,” according to CEO Aaron Klein. Its latest offering, an investment analysis tool called “Discovery,” was unveiled in November and makes use of a “quantitative engine” to match investments with clients, according to the firm. Discovery is designed to generate a client portfolio based on risk analytics by sorting investment characteristics against client characteristics.
Investments are sourced from a universe of exchange-traded funds, mutual funds and other securities that have an assigned Riskalyze risk metric, called a GPA. Investments are matched with end-investors, based on an individual investor’s personal risk tolerance score, or “Risk Number.”
Riskalyze GPA uses a single number to encapsulate the relationship between expected performance and expected downside risk in the coming six months of any given investment. Dividends and expense ratios, where applicable, are also factored into the figure.
Meanwhile, a client’s individual Risk Number is gleaned from a risk assessment provided by an advisor.
The move to launch Discovery comes as Riskalyze is increasingly competing with larger advisor tech providers like Orion, Morningstar and Envestnet. The most striking example of that competition was Riskalyze slamming the “predictive guesswork” employed by Orion’s HiddenLevers’ risk evaluation software earlier this year. Even as it dialed back its campaign, Riskalyze’s actions were indicative of it being in growth mode, as it recapitalized by selling a majority of the firm to private equity firm Hg Capital just months later.
Two years ago, Riskalyze CEO Aaron Klein stated that Riskalyze was “deepening what we do, not broadening what we do” by adding features like trading automation and marketing support.
But the differences between “broad” and “deep” are increasingly subjective, as Riskalyze now offers not just risk analytics, trading automation and marketing support, but has moved into crypto risk evaluation, examines tax implications of trades and provides its own light financial planning, along with integrations across a swath of other advisor tech ecosystems like CRM, financial planning and portfolio reporting.
Today, Klein is taking a different stance on breadth versus depth. “In a sense, Discovery is broadening our product base,” said Klein. “It expands us more firmly into investment research; but you can also argue it’s about deepening the impact of the same core product for advisors.”
“We started with a focus on client engagement via risk, and then built backward into portfolio analytics,” he said. “We’ve now completed the trifecta with investment research. That’s what is driving the ability for advisors and enterprises to consolidate spend and really save money on this critical technology.”
Building a “strategic anchor of portfolio construction” for Riskalyze is wise, said William Trout, director of wealth management at Javelin Strategy & Research. He’s reviewed the tool and said it fits with the actions Riskalyze is taking—if not the words Klein used to describe his company’s trajectory back in 2019.
“The mantra of the [wealthtech] business is now go big or die,” said Trout. “If you're just a niche solution, you're either trying to get sold or you're just going to get squeezed on margin.”
Riskalyze needs to continue to grow if it wants to be advisors’ go-to, Trout added, noting that the Discovery tool reminded him of some of Morningstar’s portfolio evaluation features.
By offering Discovery as an additional component for advisors to use, Klein is taking a short-term hit to revenue in exchange for making Riskalyze an overall more important piece of an advisor’s tech stack, he said.
Risk metric providers have had their share of the spotlight recently and Riskalyze isn’t the only firm offering risk metrics. Orion acquired risk analytics provider HiddenLevers in March and later Morningstar launched its own risk evaluation technology based on tech and services it purchased last year.
Riskalyze doesn’t necessarily need to be part of a larger platform, said Dennis Gallant, senior analyst at Aite-Novarica Group. “I don’t see any urgency for Riskalyze to be part of a larger organization,” he said. “If anything, the ability to integrate into other workflows is easier than it was even a few years ago.” Integration is a route Riskalyze has chosen with success.
Advisors still face costs, questions of service continuity and uncertainty around new capabilities when they switch tech vendors, he added. From a vendor standpoint, firms like Orion, InvestCloud and Envestnet still come with their fair share of question marks, as they work to integrate acquisitions they’ve made, sometimes years ago.
“We’re in the early days of these super platforms,” observed Gallant. “It’s easier said than done.”
Riskalyze also has fresh powder from its new owner, Hg. Klein expects Riskalyze to grow with a combination of in-house product expansion and acquisitions, “where we believe we can provide real value to advisors is by bringing them new products.”
As an example of a home-grown feature, Discovery “can…allow firms to augment their tech stacks by replacing legacy investment research tools,” said a Riskalyze spokesperson.
Despite a risk evaluation landscape that is consolidating, Riskalyze isn’t facing a dangerously competitive landscape—at least not yet, said Trout. “Riskalyze can call its shots,” he said. “They're in a very good competitive place and any move they make would be very considered and strategic.”