The Explosion Of Risk Tolerance Assessment Tools

The Explosion Of Risk Tolerance Assessment Tools

For years and years, “risk tolerance assessment tools” was a sleepy little segment of the advisory landscape, dominated primarily by simple risk tolerance questionnaires designed by broker-dealer compliance departments, and FinaMetrica competing against them with an alternative, more rigorously created questionnaire.

And then Riskalyze showed up 6 years ago, and turned “risk tolerance” measurement from just a questionnaire, into an entire FinTech experience. As a result, the company has experienced rapid growth, to more than 100 employees last year, and culminating in a whopping $20M Series A round last fall (which in turn is expected to fuel enough hiring to double their headcount again in 2017).

Of course, the reality is that Riskalyze (as with any solution) has its naysayers about whether it’s holistically assessing risk tolerance the “right” way, and the financial advisor landscape is so fragmented that even as a leader in its category (according to a recent 2017 Advisor Software Survey), it still has limited market share. At the conference, CEO Aaron Klein did note that Riskalyze now serves a whopping 17,000 financial advisors. But according to Cerulli, there are still over 310,000 financial advisors across all channels.

And as a result, Riskalyze has spawned… Riskalyze competitors. The latest entrants to the category, debuting in their first T3 Advisor conference appearance, included Tolerisk, and FinMason. Also in attendance (though not exhibiting) were the founders of Totum Wealth, and Pocket Risk. Though ironically, the category founder itself – FinaMetrica – was not present this year.

Aaron Klein Introducing Riskalyze Premier And New Autopilot FeaturesUltimately, it remains to be seen whether any of these new risk tolerance assessment “upstarts” can unseat Riskalyze (and FinaMetrica), which together have the overwhelming majority of market share (at least for those advisors who use anything beyond their compliance department’s own risk tolerance questionnaire). The good news for the newcomers is that overall, the advisor marketplace remains highly fragmented, due to both the delineation of channels (RIAs vs independent broker-dealers vs insurance broker-dealers vs banks, etc.), and the fact that most advisors are at least quasi-independents (as RIAs or under an independent broker-dealer), which leaves room for newcomers to gain a toehold. Yet on the other hand, both FinaMetrica and Riskalyze are using their leading market share (and the cash flow that generates) to continue to reinvest into new features, with FinaMetrica announcing a growing number of integrations in recent years, and Riskalyze launching an entire new “Premier” tier of its product, along with expansions to its Autopilot platform.

Nonetheless, the fundamental point remains: first there was FinaMetrica, then there was Riskalyze, and now “suddenly” within just a few years, there are half a dozen competitors in the world of risk tolerance software solutions, all seeking to beat Riskalyze’s incredible success story.

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