Hortz: Can you share with us the research and insights you uncovered that helped in building out your solution?
Shumbres: Totum spent a year researching risk tolerance before developing our product and there were numerous insights that helped shape Totum into the robust product it is today. Initially, we were going to score all risk metrics… risk capacity, risk appetite, constraints, probability, and more. Then we realized this would be too much for the investor to understand and for the advisor to explain to the client. As we continued our research, we found that risk capacity was the key component missing from other products on the market, yet was most pertinent to the client’s current life situation.
We also observed how giving a questionnaire only once further diluted its efficacy, especially if the questionnaire was based on the investor’s feelings about risk instead of facts that could impact their ability to take risk. Totum addresses this problem by sending an annual reminder to the advisor so they can reach out to their client and have them take the short questionnaire again. Not only does this ensure investments that are right for their client’s current life situation, it also strengthens the advisor/client relationship.
Hortz: Why do you feel your solution is, as you call it, an advisor’s insurance policy, and holds up to legal scrutiny better than other solutions?
Shumbres: We can fully document how we built in 60+ pages of quantitative risk models and are continuously adjusting our quantitative models based on new research and data to update and improve our scores. These models are managed by Steve Burns, PhD and his team of economic engineers who have 30 years of experience each in the financial industry. Its enhanced risk analysis based on facts, not just feelings.
When we brought our multiple scoring risk methodology to a number of SEC law firms to ask them how well our solution would hold up to legal scrutiny, they said, ‘Totum is the best we have seen in the industry and will help protect the advisor if they’re ever brought to arbitration.’ That’s a nice insurance policy!
Hortz: Are there any interesting applications or case studies that illustrate its competitive positioning with other similar tools?
Shumbres: As a fairly new risk tolerance tool to the market, our best case studies are advisors who convert to Totum Risk. So, let me have one of them answer that question for us. One recent quote from a Totum client said, ‘I LOVE the two different risk numbers (i.e. capacity vs. preference). This is a robust story and super meaningful for deepening the client conversation beyond what they initially say they are comfortable with.’
Hortz: Where is your R&D focused going forward? Any new technologies or applications coming down the pike we should be aware of?
Shumbres: We are constantly reviewing other technologies in the market to help improve Totum Risk and we believe the future of risk tolerance questionnaires will not be a questionnaire at all. Instead, risk scores will all be based on machine learning and AI (artificial intelligence). In the near future, an investor will be able to enter their name and phone number and automatically receive risk tolerance scores along with a narrative on how these scores were calculated.