wealth definition

The ironic outcome of Riskalyze’s negative advertising attack on Orion’s risk subsidiary


The Auburn, Calif., firm still holds an ‘85% market share,’ says Aaron Klein, and he also doesn’t regret shining a spotlight on what he disparages as ‘unfruitful guesswork’

Riskalyze’s co-founder Aaron Klein proved he can stomach red-zone risk when he attacked Orion’s risk subsidiary, HiddenLevers, in May — and the attack is yielding rewards despite some backlash.

Aaron Klein
Aaron Klein: Riskalyze just set a record for the biggest quarter in the company’s history.

The Auburn, Calif., entrepreneur–who preaches “fearless” investing at every turn — grew his firm better than ever after it attacked HiddenLevers for allegedly “guessing” market risk during the pandemic and guessing wrong.

You may recall, Riskalyze launched a full-scale media blitz, May 11, unleashing a video, an audio file, a dedicated spoof website (Unhiddenlevers.com) and a press release headlined, “As the market leader on risk, we can’t stay silent.”

Orion CEO Eric Clarke said in an RIABiz interview he would protect his brand against scurrilous attacks, although no legal action ultimately was forthcoming.

To the contrary, both firms seem to have scored gains as a result of the controversy. See: Riskalyze blindsides Orion with full-scale attack on its new risk software unit, but Orion CEO Eric Clarke vows to take action if necessary to protect his brand 

“Riskalyze just set a record for the biggest quarter in the company’s history, in large part because our robust methodology served advisors so well during a period when predictive guesswork failed miserably,” he say, via email.

Klein adds that Riskalyze thrives with “85% market share of the advisors who have purchased a risk solution” and “tens of thousands” of advisor users. 

Clarke says the negative Riskalyze campaign “certainly helped accelerate our sales and prospect pipeline, ironically … and any media coverage has only helped to increase visibility of our new [risk] offering,”

“Orion continues to move forward … HiddenLevers pipeline and sales are on record pace right now … [and] we’re seeing increased interest from all types of advisors including new and existing risk tool users,” he adds.

Defending methodology 

The lack of a business hiccup for Riskalyze may — on a results basis — exonerate Klein for what industry rivals, analysts and media largely cite as questionable PR tactics. 

“The original intent was defending our methodology from HiddenLevers’ consistent attacks and creating clarity about the failures of ‘predictive guesswork,'” Klein says by email.

“Our only regret was naming names and getting pulled into the old drama, rather than letting the industry look at the different products and sort it out for themselves.

Klein ended up redacting mention of rival companies names from its critique and deleted the spoof site, unhiddenlevers.com, from the marketing effort. The site redirected to a critique of rival risk management software. 

“But that doesn’t change how flawed ‘predictive guesswork’ is, and that’s why the web site is still up,” he says. “The decision to adjust our campaign was ours, and ours alone.”

Cranking up pressure

Meanwhile, on July 1, Morningstar announced it now to supplies free risk-management software to 185,000 mostly IBD reps that use its Advisor Workstation and to RIAs that use Morningstar Office.

Helen Yang
Helen Yang: If the gratis product from a large player is perfect, it will indeed kill others.

The fact that the Chicago software and data provider is also making risk software available as a part of a “freemium” model may be consequential, said Tim Welsh, president of Larkspur, Calif., consultancy Nexus Strategy, via email.

“When a firm of Morningstar’s market share adds on a new technology component for free, it definitely cranks up the competitive pressures for everyone, and makes enterprise sales even more difficult,” he explains.

Orion, too, is making its risk software free to users of its portfolio accounting software.

But RIAs aren’t that price sensitive, thus Riskalyze remains firmly in the driver’s seat until rivals can establish trust in their products, says Helen Yang founder and CEO of Boston behavioral finance and risk management software vendor, Andes Wealth Technology, in an email.

“If the gratis product from a large player is perfect, it will indeed kill others … fortunately Morningstar’s risk product is not. In addition to flaws with its risk tolerance piece, Morningstar’s portfolio risk approach is also fundamentally flawed*,” she says.

Yang claims Morningstar’s new risk system has yet to bridge the gap between a psychometric questionnaire and helping advisors make portfolio management decisions.

She also disputes claims made in a Morningstar white paper that a balanced portfolio’s risk level did not fluctuate during the COVID-19 pandemic.

Tricky undertaking

Yet Riskalyze would be unwise to underestimate Morningstar, counsels Alois Pirker, research director for wealth management at Boston consultancy Aite Group, in an email.

Tim Welsh
Tim Welsh: Lori Hardwick’s departure could not come at a worse time.

“Larger platforms having risk capabilities tightly integrated at discounted pricing will generate considerable difficulties for Riskalyze to sell their standalone offering,” he explains.

“They will have to win new business with a premium offering … [but] BlackRock’s Aladdin is the heavyweight in the premium segment,” he says.

“Getting to the optimal positioning, [with a] level of premium offering at the right price, will be a tricky undertaking and crucial to get right.”

Macro-industry effects aside, Riskalyze lost its chairwoman, Lori Hardwick, as a result of its negative ad campaign against Orion.

Hardwick, who represents Genstar Capital on Orion’s board, severed ties with Riskalyze, Jun. 25. Hardwick’s ability to advance Riskalyze has run its course,  Klein asserts. 

“I can’t say enough good things about Lori Hardwick … [she] made so many great contributions to Riskalyze for three years.

[But she] would be the first to say that [although] she can open doors, it’s the product that wins the business. The doors are already opened, and we’re winning enterprise after enterprise,” Klein says.

Welsh disagrees and cautions that Orion’s aggressive PR behavior may not sit well with some enterprises, making Hardwick’s board absence noticeable.

It makes those influencers and door openers like Hardwick even more valuable, making Riskalyze’s loss of their board chair even more painful and it could not come at a worse time, he adds.

Composure counts

That said, both Orion and Morningstar are betting that risk software is still in its early innings, and that they can disrupt Riskalyze by bringing about a better approach based on richer data .

It sounds like a doubling down on a refrain that Klein and Riskalyze have heard for a decade as they popularized the simplification of pointy-hatted algorithms by distilling it to a risk number.

Scott Smith: “Integrated behavioral finance technology [is] a large evolutionary step over today’s relatively simple and static risk assessment

But this time could be different because of the way Orion is approaching “composure” — the behavior of the investor– says Scott Smith, director of advice relationships at Boston consultancy, Cerulli Associates, in an email.

“Integrated behavioral finance technology [is] a large evolutionary step over today’s relatively simple and static risk assessment,” he explains.

Riskalyze declined to comment on whether it intends to match Orion’s move to introduce composure. That said, Klein asserts that Riskalyze has behavioral finance in its bones.

“Behavioral finance is a critical part of risk; [it’s] the foundation we built the Risk Number on ten years ago,” he says.

Clarke sees a place for risk numbers but only if they are applied properly.

“Is a risk number 65 good, or bad, you don’t know; is it passing or failing? It’s all about context. Advisors should just know that they have more options,” he  says.

“We’re not philosophically opposed to risk numbers; we currently offer a traditional RTQ which provides various risk numbers,” he adds.

Crashing the market

Morningstar also has risk numbers that will gain emphasis in its new rollout.

Lori Hardwick
Lori Hardwick stepped down from the Riskalyze board Jun. 25.

Regardless of what competitors do or do not do, Klein says he remains utterly unperturbed that bigger better funded rivals have begun to compete with a firm he founded in 2011.

“We love seeing what was…


Read More:The ironic outcome of Riskalyze’s negative advertising attack on Orion’s risk subsidiary