Riskalyze, a risk management and trading software company founded in 2011, was built by small customers. Thousands of individual financial advisors, or members of small practices, subscribe to its services to help investors establish their “Risk Number” and use it to guide the creation and management of portfolios.
More advisors are becoming customers and they are increasingly using Riskalyze, too. Over the past 12 months, the company has added more than 10,000 new users, use of its meetings feature (a way for advisors to video conference with clients within Riskalyze) has nearly tripled, and use of its Check-In feature nearly doubled.
Some tailwinds are helping it. The number of independent RIAs, the primary users, continues to grow and there aren’t many direct Riskalyze competitors. The Covid-19 pandemic — which caused the fastest-ever bear market and sent the VIX, Wall Street’s fear gauge, to a record high — also moved advisors to seek better ways to manage risk and communicate with clients.
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But recently, Riskalyze has begun establishing enterprise relationships with large wealth managers. In January, it partnered with Cetera, a firm with over 8,000 affiliated advisors managing more than $80 billion. Last month, it announced an agreement with Atria, a holding company whose subsidiaries have 2,500 advisors.
On Thursday, Riskalyze announced an agreement with Hightower, one of the largest independent RIAs with 115 practices managing an aggregate of more than $80 billion. Justin Boatman, senior vice president of Marketing at Riskalyze, said in a statement the new relationship has “deep meaning” to Riskalyze because Hightower doesn’t partner indiscriminately.
Some Hightower offices were already longtime Riskalyze Risk Alignment users, but the enterprise agreement will give all HighTower advisors access to the Riskalyze trading platform and technology. “We’ve got a lot of demand from different Hightower offices to leverage the trading platform. And so, this was driven by their desire to meet that demand.” Riskalyze co-founder and CEO Aaron Klein told RIA Intel.
“That’s been a really big growth engine for us recently, and trading has grown tremendously over the last couple of years,” Klein said.
The trading platform doesn’t consider itself a turnkey asset management platform, or TAMP, but with $18 billion, it would be one of the largest. The size of Riskalyze’s trading platform was previously unreported.
Every large company has unique wants and needs but the agreements share some things in common. Working with a large organization’s investment management, business development, compliance, and other groups makes enterprise agreements complex and take a long time to establish.
“The old joke is, bringing in an enterprise on board is a little bit like trying to get a bill passed through Congress. It’s just a long, involved process, with a lot of different people at the table with a lot of different needs,” Klein said.
In 2018, Riskalyze also added Lori Hardwick, a former Envestnet and Pershing executive, to its board, a move that Klein also said helped it develop a strategy to serve enterprise clients. That same year, partly to foster enterprise relationships, Klein hired Drew DiMarino to be chief growth officer at Riskalyze. DiMarino, who previously led enterprise sales at eMoney, one of the most popular financial planning software, built a team and the effort is finally showing in the form of recent announcements. A dedicated team now works with wealth management firms that have more than 50 advisors.
On a per-advisor basis, Riskalyze makes less money in enterprise agreements. But a willingness to work with big companies and customize solutions can pay off in the form of a high volume of users. The scale also gives advisors better pricing for the technology they might be purchasing anyways.
Although, enterprise agreements are seen as an addition to the business, not a strategy to favor large wealth managers over smaller ones.
“We see that as a balance that we continue to pursue. I don’t see a day where we don’t serve individual advisors and I don’t see a day where we don’t serve enterprises. We’re going to continue to serve both of them and bring both of them on. I think that’s a really healthy thing for our business,” Klein said.
Riskalyze declined to share its total number of users but it expects that will continue to grow.
“There’s no question that the 2020 pandemic has been a huge inflection point for us because I really think that, at this point, not having a risk solution on your desk after 2020 is a little bit like not having a computer on your desk after 2000,” Klein said. “We see that in the engagement of advisors with the platform, and we continue to see opportunities to innovate there.”
Klein isn’t concerned about even the most high-profile companies, like BlackRock and Two Sigma, that have been outspoken about their effort to deliver risk management tools. Other tools are sophisticated, but they lack a good user experience that brings financial advisors and their clients together, he argues.
Investment risk and performance, and financial planning, are not bifurcated focus areas for advisors yet separate software tend to those needs, and/or exclude clients.
“That’s an old dichotomy, and we’re shifting to a world where we say we got to look at the whole integrated picture, and the way that we can really bring this all together between performance and plan is risk,” Klein said. “I think this is the new paradigm that advisors and clients are embracing, and I think that definitely works to our advantage right now.”
Wide acknowledgement of that by advisors hasn’t happened yet, but it’s coming, according to Abhay Puskoor, principal of Enterprise Technology and Services at FTV Capital, an investor that led a $20 million minority investment in Riskalyze in 2016.
The Riskalyze co-founders are “extraordinary entrepreneurs” and have “delivered very strong growth,” Puskoor told RIA Intel. But he anticipates that will continue.
More than 90% of advisors don’t use a specific risk solution and among those that do, Riskalyze has the largest market share, according to Klein. “We remind ourselves a lot here, we have to spend a lot of our time telling people that they have headaches, not just reminding them how great Advil is.”
A multitude of special-purpose acquisition companies, or SPACs, have been created in recent years, including some specifically targeting wealth management technology companies. But Riskalyze is not interested in becoming a publicly traded company by being acquired by one.
“It’s not something that we’re actively considering right now. I’ve been pitched a couple of times by several different FinTech-focused SPACs to consider a deal like that,” Klein said.
“I would say that it is the hot trend, and certainly something that we stay up on and read on, but I would say this, there’s just a lot of capital out there that wants to invest in great businesses. What you really have to do is focus more on making sure that you’re matching up the stage of the business with the kind of capital that you need.”
Klein says sheer size forces some companies to go public, or they are choosing SPACs as an alternative to raising private equity capital, and neither circumstance currently applies to Riskalyze. “Candidly, there’s so much capital out there in the private markets that it’s not hard for us to be able to work with our pick of private equity firms, frankly, that might want to be invested in Riskalyze.”
Auburn, Calif.-based Riskalyze has 170 employees.
Publicly traded companies are also more beholden to achieving consistent performance quarter over quarter, a negative to Klein, who said he spends much of his time thinking four or six quarters out.
“I don’t see us going public anytime soon. We’re going to stay very focused and think about long term opportunities. And I think that that will allow us to deliver the level of innovation that we think is so critical for the industry and for us as a company.”
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.