The findings in this blog post come from our annual survey of over 1,600 registered investment adviser ("RIA") firms that was conducted in the first quarter of 2020. This proprietary RIA in a Box study is paired with publicly accessible data provided by the Securities and Exchange Commission ("SEC"). The goal of our annual study is to understand different options that comprise each firm characteristic, and to determine whether specific characteristics impact the growth, size, or operational efficiency of an RIA firm. In this blog post, we will explore our survey results in response to risk tolerance software systems used by RIA firms.
Risk Tolerance Systems Adoption Rates
Portfolio risk tolerance tools are designed to help advisors evaluate the proper level of portfolio risk for an individual client. These tools generally assist with initial portfolio creation and ongoing monitoring of the portfolio to help ensure it remains suitable given a client’s current risk tolerance. Compared to more traditional RIA software categories, such as customer relationship management or portfolio management and reporting software, risk tolerance software has only more recently started to gain significant momentum with RIA firms.
Our annual technology survey data showed that 26% of surveyed RIA firms utilize risk tolerance software. While risk tolerance software adoption has increased slightly in recent years, it is still one of the least adopted types of RIA software:
RIA risk tolerance software does generally see increased adoption levels as the size of the firm as measured by assets under management ("AUM") increases. However, on average, a higher percentage of firms with between $5 to $25 million in AUM adopt risk tolerance software compared to firms with $100 million or more in AUM:
Top 3 Risk Tolerance Software Vendors
As has been the case in recent years, Riskalyze remains the dominant provider of risk tolerance software to RIA firms. Riskalyze continues to capture significant market share by simplifying the complexities of calculating client risk and into one Risk Number®. In addition to Riskalyze, Kwanti has continued to gain market share within the space along side long-standing FinaMetrica. We also continue to see new entrants within the space, touching different elements of risk tolerance and portfolio analytics, like Tolerisk and HiddenLevers.
As advisor interest continues to grow around risk tolerance solutions, advisors should keep abreast on how risk tolerance solutions can assist with meeting the firm’s regulatory compliance obligations to act as a fiduciary including its duty of care. At RIA in a Box, we have integrated with Riskalyze to establish a simple supervisory workflow in which the Chief Compliance Officer ("CCO") of an RIA firm is able to seamlessly track, manage, and document the client suitability and portfolio review process enabled by the two platforms.
This post is the final of five blog posts based on our 2020 survey focused on the core technology solutions available to investment advisory firms. Be sure to check out past post covering document storage, financial planning, portfolio management and reporting, and customer relationship management software.