July 2017 • Jerilyn Klein Bier
Necessity is often the mother of invention in financial services. Tolerisk, a risk management tool created by a financial advisor and used by approximately 75 RIA and hybrid firms, is no exception. When Mark Friedenthal left Wall Street to launch an RIA firm eight years ago, he knew he’d need to help his clients figure out the right amount of risk to take with their investments. But he was disappointed by what he saw as simplistic, one-dimensional personality profiles. “For me, being a math guy, being a cash flow guy, I just couldn’t believe that in 2009 advisors typically weren’t incorporating a client’s cash flows into advice as important as a risk directive,” says Friedenthal. He put together his own spreadsheet model, “the genesis of what became Tolerisk,” he says. The product allows him to do a two-dimensional risk assessment that combines a client’s personality profile and ability to take risk, based on cash flow. In late 2010, a colleague at his firm, Friedenthal Financial LLC in Voorhees, N.J., built the model into a desktop application and added graphics that clients found very helpful. In early 2012, “a light bulb went off,” that there was a wider industry need, says Friedenthal. That’s when he started down the path of creating Tolerisk, the company he now runs as CEO. Friedenthal’s wife helped him write risk willingness questions. “The running joke a few years back was, ‘What do you get when a Wall Street risk manager marries a behavioral psychologist?’” he says. “A really nerdy software product called Tolerisk.” The firm works with outside developers and is a separate entity from Friedenthal’s RIA firm. Tolerisk beta tested its product in July 2014 and launched it in December 2015. The latest version (4.7) has the original core, but its features, functionality, reporting and analytics have evolved dramatically, says Friedenthal. “We’ve been so fortunate to work with amazing advisors who’ve really shaped it,” he says, and they continue to provide new ideas. Last year, the product started incorporating mortality probabilities. Friedenthal’s biggest lesson learned was that the process of software development, testing and approval requires an “excruciating” level of detail and “meticulous” documentation. He declined to discuss development and marketing costs. Tolerisk’s web site lists half a dozen partners. These organizations, which aren’t compensated, receive referral codes that offer their advisor clients a discounted rate for Tolerisk’s product. Among them are Charles Schwab, which lists Tolerisk on its Schwab OpenView MarketSquare site, and RIA in a Box, a New York-based firm that helps advisors start RIA firms and performs ongoing compliance. “Matching risk tolerance on an ongoing and pretty granular level, as opposed to a lot of the generic stuff that exists out there, is very appealing,” says Will Bressman, CEO of RIA in a Box. “It’s an area that enhances the advisor relationship and enhances the overall compliance of a firm.” Tolerisk, “built by someone who has lived and breathed the RIA industry,” says Bressman, “has good alignment with our vision for how an RIA firm should operate.” (Friedenthal was a client of RIA in a Box.) Franklin Banfer, the president of Asset Planning Group LLC in Johnstown, Pa., began using Tolerisk during client reviews in early 2016. It has generated a lot of dialogue and “aha moments,” he says. The question becomes, he notes, “What am I more afraid of, running out of money at age 75 or taking a little more risk and watching balances go up and down.”
“For me, being a math guy, being a cash flow guy, I just couldn’t believe that in 2009 advisors typically weren’t incorporating a client’s cash flows into advice as important as a risk directive,” says Friedenthal. He put together his own spreadsheet model, “the genesis of what became Tolerisk,” he says. The product allows him to do a two-dimensional risk assessment that combines a client’s personality profile and ability to take risk, based on cash flow. In late 2010, a colleague at his firm, Friedenthal Financial LLC in Voorhees, N.J., built the model into a desktop application and added graphics that clients found very helpful. In early 2012, “a light bulb went off,” that there was a wider industry need, says Friedenthal. That’s when he started down the path of creating Tolerisk, the company he now runs as CEO. Friedenthal’s wife helped him write risk willingness questions. “The running joke a few years back was, ‘What do you get when a Wall Street risk manager marries a behavioral psychologist?’” he says. “A really nerdy software product called Tolerisk.” The firm works with outside developers and is a separate entity from Friedenthal’s RIA firm. Tolerisk beta tested its product in July 2014 and launched it in December 2015. The latest version (4.7) has the original core, but its features, functionality, reporting and analytics have evolved dramatically, says Friedenthal. “We’ve been so fortunate to work with amazing advisors who’ve really shaped it,” he says, and they continue to provide new ideas. Last year, the product started incorporating mortality probabilities. Friedenthal’s biggest lesson learned was that the process of software development, testing and approval requires an “excruciating” level of detail and “meticulous” documentation. He declined to discuss development and marketing costs. Tolerisk’s web site lists half a dozen partners. These organizations, which aren’t compensated, receive referral codes that offer their advisor clients a discounted rate for Tolerisk’s product. Among them are Charles Schwab, which lists Tolerisk on its Schwab OpenView MarketSquare site, and RIA in a Box, a New York-based firm that helps advisors start RIA firms and performs ongoing compliance. “Matching risk tolerance on an ongoing and pretty granular level, as opposed to a lot of the generic stuff that exists out there, is very appealing,” says Will Bressman, CEO of RIA in a Box. “It’s an area that enhances the advisor relationship and enhances the overall compliance of a firm.” Tolerisk, “built by someone who has lived and breathed the RIA industry,” says Bressman, “has good alignment with our vision for how an RIA firm should operate.” (Friedenthal was a client of RIA in a Box.) Franklin Banfer, the president of Asset Planning Group LLC in Johnstown, Pa., began using Tolerisk during client reviews in early 2016. It has generated a lot of dialogue and “aha moments,” he says. The question becomes, he notes, “What am I more afraid of, running out of money at age 75 or taking a little more risk and watching balances go up and down.”
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