Advisors Step Up Portfolio Risk Analysis to Calm Clients, Gather More Assets
Brokers are stepping up their use of risk-management tools for clients nervous about the coronavirus economy, according to software manufacturers, furthering their efforts to get a closer look at assets clients hold outside their firms.
“There was nearly a 30% increase of financial advisors running risk and stress testing analysis on client portfolios” from mid-February through mid-April, said Sudhir Nair, global head of the Aladdin product line, at a financial services conference on Wednesday.
Aladdin was initially created to help hedge funds and other asset managers run risk-performance scenarios, but BlackRock said it now has 16 retail wealth firms that have licensed the software.
Risk modeling is not only a useful portfolio management tool, but a key to asset gathering from prospects and existing clients, executives at Morgan Stanley and other firms have said.
Advisors who can convince clients to aggregate their investment assets for the purpose of a comprehensive portfolio analysis are in a stronger position to bring their held-away assets in-house.
At Riskalyze, a California-based firm whose clients include advisors at LPL Financial, Hightower Advisors and Mariner Wealth Advisors, use of the client-meeting feature in its core software has nearly tripled since the end of February, according to Riskalyze CEO Aaron Klein.
“Our coaches are completely booked up just helping advisors prepare for meetings” with prospects and clients, said Riskalyze CEO Aaron Klein on Thursday, as major U.S. indices were plummeting. “It’s a time of stress and anxiety, clients are fearful and they don’t want to make the wrong decision at the worst possible time….Helping clients see and understand the lack of alignment that they have with their portfolio can be a reason why they need to move forward with a new advisor.”
Retail investors tend to ignore risk when markets are calm or steadily moving upward, but the current environment is proving ripe for risk-consciousness and asset gathering, said Woo Fung Kwong, co-head of technology for the Aladdin Wealth product.
“We have seen greater adoption as advisors look for a clearer picture of risk to help their clients make more informed investment decisions,” he said in an e-mail.
The Securities and Exchange Commission’s new Regulation Best Interest rule that takes effect at the end of June also is helping to advance risk-management software usage, said Greg O’Gara, a senior analyst at Aite Group’s wealth management consultancy practice.
“The ability for advisors and reps to quantify changes in client portfolios on both a risk and cost basis is becoming extremely important in light of the new regulation,” he said. “Aladdin and Riskalyze clearly support these conversations and are well-positioned to add value.”
Brokers and advisors who leverage risk-analysis tools aimed at Reg BI compliance are likely to be in “a better position to gather assets, capture new clients and be able to better serve their existing client base,” O’Gara said.