It’s easy to lead an informed life today: we can track how many steps we take, compare reviews and prices on almost anything before buying, and know a lot about a person before meeting up. When it comes to managing our wealth, however, the metrics we need to answer critical questions are often hard to produce, even for financial advisors, stewards of trillions of dollars in household wealth.   In our prior careers, my co-founder Mark Cone and I worked extensively with the world’s largest and most sophisticated institutional investors including endowment, pension and sovereign wealth funds. We observed that the most successful ones have an extremely granular understanding of the risk they were taking. They have the resources to access in-depth risk metrics that allow these plans to target their requirements and mitigate specific risks. As a result, none of these plans looked alike. The best institutional plans customize their portfolio tailored to their individual needs, unlike individual investors whose assets are often invested into broad, preset portfolios.   Why don’t individuals invest like that?   The cost, access and resources required for such a thorough approach are simply prohibitive for individual investors and most independent wealth managers. For example, PIMCO’s solution study service is only available to its larger clients. Each study took several people to run, interpret, beautify and present. The proprietary analytics engine PIRANHA took legions of quants and engineers years to build, and is not accessible by clients directly. Clients are not charged for the one-time service, but they usually go with the proposed solution and as a result allocate assets into PIMCO’s strategies – an ingenious cross-sale. BlackRock’s Aladdin is even more powerful if you can afford the price tag of several million dollars per year. Most RIAs can only window-shop the Chanel and Bugatti of risk analytics. While advisors at larger firms have more resources, many still struggle daily with legacy tools that ask boilerplate risk tolerance questions clients can’t answer and produce bulky reports that don’t address clients’ key concerns. But advisors at these firms lack the authority to adopt newer technology. More broadly, older generations of risk software that are still in service are built on rigid architecture (hint: “mainframe”), modeled with assumptions of perfectly normal return distribution, and paid little regard to advisors’ user experience or clients’ individuality. Sallie Krawcheck’s quote concurs with our observation that most advisors tools do not enable them to take into account the correlation of risks inside and outside the portfolio.   With tools like these, how do advisors stay relevant and competitive in a time when trading and investment advice are essentially free and accessible for all? While robo-advisors cannot yet address the more complex aspects of investment needs and most clients still want the human touch, as a side effect of lowering the barrier to access investment advice, robo-advisors are providing a cheaper option for the “core portfolio”, often the lion-share of a client’s assets. I call this “Robo-nomics”: why would a client pay 1% or more for a managed account to a human advisor who only gives him a review once a year and can’t address his questions with compelling data, when he can pay almost nothing for a robo-advisor to get a similar allocation and performance? The value for the “human premium” appears unclear.   Advisors do understand Robo-nomics and are growingly concerned about how to attract a new generation of clients. According to the TD Ameritrade Institutional RIA Sentiment Survey released yesterday, the transfer of wealth from aging clients to the next generation of investors topped advisors’ concerns for the first time, followed by investors choosing to manage their own finances online. The quality and level of service that the new generation of clients demand is also higher, as the most successful digital businesses today have made them accustomed to flawless user interface and experience, on-demand service, and data-driven decisions. We created Totum to give the guardians of trillions better tools so they can maximize their human touch and improve service for clients today. We choose to help financial fiduciaries first as we see them as the most effective agents of change. Investors want to understand the risks in their lives, be involved in making informed decisions, and stay in control of where their money is going. Advisors can use Totum to tailor the portfolio to fit each client’s unique risks and mitigate these risks. Simplified for direct consumer self-serivce, robo-advisors lack these capabilities.   Totum applies the latest technology and architecture to empower a completely new way of thinking about risk – the comprehensive human capital factors (the Holistic Risk Context Module), as well as institutional-quality analytics (the Bespoke Portfolio Proposal Module) that delivers an interactive and engaging investment process for both the advisor and the client. The overall approach is diagnostic and consultative, creating an on-going solution rather than a one-sided, one-time pitch. We bring innovation to a proven engagement method that can be time-consuming to deploy without the right tools.   In the Holistic Risk Context module, we consider the risks associated with one’s health, family responsibilities, and job stability or career growth potential. We pull additional data from other sources to assess company and industry growth (FactSet) and the sector driver of GDP for each metropolitan area (Bureau of Economic Analysis). These insights illuminate the existing risk exposures in a client’s life that the advisor should be aware of when constructing the portfolio. Our input form isn’t longer than a typical client questionnaire, but we derive deeper and more intelligent insights from it, enabling easier and more thorough client discovery. The Risk Capacity (measured by the human capital factors) and Client Preference (goals and tolerance) create the context for how much risk a client can take vs how much she wants to take. Any gap between the two facilitates a dialogue on which range of risk may be suitable as a first step. Besides the primary dimension of equity vs non-equity risk, Totum also reminds the advisor of additional dimensions such as industry exposure from real estate and career. With this risk range and other risk dimensions in mind, the advisor can use the Bespoke Portfolio Proposal module to easily create a fully-customized portfolio using any stocks and funds appropriate for the client. Customizing from saved model portfolio is even easier. By adjusting the risk levels within and outside the initial suitable range, clients can be shown both the upside and downside with actual scenarios to determine if outcomes are acceptable. Our technology makes it possible to perform and visualize complex calculations on the fly, enabling the advisor to quickly produce well-supported answers to questions such as “shall I go all cash after a market crash?” and “what’s the impact on performance and maximum losses if we increase the risk level?” Advisors can engage their clients in making informed decisions to achieve better satisfaction, conversion and retention. As advisors save time from crunching numbers, they’ll also be able to serve more clients.   Up until the launch today, we have iterated and refined multiple versions of the product based on financial advisors’ feedback. Value to our customers and user experience are our top priorities. Guided by these principals, we chose our data partners carefully: Xignite, which allows Totum to efficiently access large amounts of exchange pricing and Factset/Morningstar fundamentals data to successfully deliver the real-time interactive user experience; and Yodlee, which will empower seamless aggregation of accounts and holdings to facilitate our holistic risk assessment and portfolio comparison. We have long lists of new features that we are excited to release this year. The current product is a standalone SaaS web application that any financial advisor can use right away.   We welcome you to try Totum for free for 90-days during our special launch promotion. We look forward to getting your feedback.]]>

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