After an early career in risk management and asset allocation roles, Min Zhang, the 32-year-old co-founder of Los Angeles-based Totum Wealth, realized that designing portfolios simply based on clients’ age and income was insufficient for their needs.
“Most people my age have no interest in dealing with a human being if they can just use their age and income as parameters to build a generic portfolio,” Zhang says.
That's why robo-advisors have grown in popularity, but clients are going to find that age and income are often not enough to build an adequate portoflio, Zhang says. "There are other factors ... that create other dimensions to risk tolerance, and most people aren’t considering them,” she says.
In response, Zhang started building the Totum wealth management platform. Released Thursday, the software analyzes factors like geography, industry of employment, health, family, balance sheet and progress toward retirement in client investment proposals.
Until recently, advisors have had few tools to show clients how changing their risk tolerance could impact their portfolios, Zhang says.
“We heard from an advisor whose clients wanted to go all cash during the August (2015) sell-off,” Zhang says. ”They were panicked, but she had little to convince them to stay the course. The tools advisors have today don’t really help advisors make a case for themselves. Incorporating a holistic, diagnostic approach allows advisors to up their game.”
Zhang previously served as director of investment risk management at Pacific Life and vice president in asset allocation product management at PIMCO. Zhang co-founded Totum Wealth in October 2015 with Mark Cone, former managing partner at Causeway Capital Management, a Los Angeles-based institutional asset management firm.
“If you’re a large global investor, your analytics give you a detailed idea of what type of risks you have embedded in your portfolio and what your asset liability structure looks like, but those tools don’t consider anything personalized to an individual,” Cone says. “We built a model that delves into your personal life to create a customized risk analysis.”
Clients, especially younger ones, are becoming more interested in holistic financial planning, Cone says. This growing interest coincides with the expanded availability of detailed geographic, demographic and economic data – sometimes called "big data." Yet most financial software, even the products marketed to advisors, continues to use more simplistic equations to figure out a client’s risk tolerance and ideal portfolio allocation.