In this blog post, we discuss the key findings on technology adoption and usage from our annual survey of over 1,800 registered investment adviser (“RIA”) firms, conducted in the first quarter of 2021. 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. Below, we explore our survey results for 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 as well as the 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 (“CRM”) 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 25% 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 show increased adoption levels as the size of the firm as measured by assets under management (“AUM”) increases. One of the most notable findings from our study is the increase in the adoption of risk tolerance software for firms with less than $5M AUM compared to previous years. Our 2020 study showed nearly 6% of firms with less than $5M AUM use risk tolerance software, compared to 10% of firms in the same AUM range in our 2021 study.
Top 3 Risk Tolerance Software Vendors
Consistent with the survey results from past 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 alongside new entrants within the space like HiddenLevers which was recently acquired by Orion Advisor Solutions. Long-standing risk tolerance software, Finametrica, was slightly behind HiddenLevers, but still is in the top 5 for most common risk software for RIA firms.
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 first of several blog posts to come based on our 2021 survey data, focused on the core technology solutions available to investment advisory firms. Be sure to stay tuned to learn more about favored technology solutions such as CRM and portfolio management software.