A prospective client recently telephoned Rob Hockett and asked if he could, through Hockett’s firm, invest $5 million in emerging market funds. To most advisors, such a scenario probably would sound enticing, but also prompt wariness.
It sure did for Hockett.
“The first question we asked was, ‘Does this follow our investment philosophy?’ and we also did some background checking on the individual,” says Hockett, president of Cambridge Wealth Counsel, which has $255 million in assets under management and offices in Utah and Georgia.
Hockett eventually concluded that the proposed relationship did not abide by his firm’s investment philosophy, and he didn’t want his firm to serve only as a pass-through for one-shot investments. But prior to that determination, Hockett also sought to engage in some due diligence to assess the potential risks of the prospective client.
One thing Hockett’s search revealed was that the prospective client had previous relationships with multiple investment advisory firms, perhaps signaling that he may be incapable of having a stable relationship with an advisory firm.
New technology, some was unveiled at the Finovate conference in London this past February, may help advisory firms, such as Hockett’s, marshal big data and machine-learning algorithms to conduct real-time risk assessments of potential clients.
Among the high-tech startups who presented at the conference were Risk Ident of Hamburg, Germany, and OutsideIQ of Toronto, Canada.
Both Risk Ident and OutsideIQ offer products that capitalize on machine-learning technologies that give computers the ability to learn without being explicitly programmed, and to teach their programming to grow and adapt when exposed to new data.
Piet Mahler, the business developer officer for Risk Ident, says his company’s new platform is flexible enough to manage risk for a gamut of transactions, from loans to client onboarding. He explains that the company’s focus has been in the European market and therefore focused on complying with European privacy regulations.
Joe Oswald, OutsideIQ’s COO, says the company’s newest product, DDIQ — first showcased at the London conference — specifically integrates with advisory firms’ existing systems for enrolling new clients. It identifies sources of risk in a matter of seconds.
THE 'OLD SCHOOL' WAY
Hockett, however, is not quite ready to make the switch from his previous practices to new tech.
“We like the old-school way,” he says. “We use Google.”
He researches the regulatory agencies’ reports about his prospects, who are typically licensed professionals, doctors, dentists and lawyers. Hockett follows that up with an interview, even if only over the phone, to pose direct and blunt questions to evaluate the risk of the potential client.
“We do a discovery meeting. I can do it in about an hour,” says Hockett.
Among the questions he poses: “What is it that prompts you to look for a wealth manager?” That query will typically bring forth any negative remarks the prospect wants to make about a former wealth planner, and those can be very telling, Hockett says.
What happened to the prospect who sought to invest $5 million with Hockett’s firm in emerging market funds? “We declined to work with this client,” he says. “There were so many red flags.”
- eMoney Picks Fidelity Insider as CEO
- Now It's Your Turn to Take on Big Data
- DoL Fiduciary Rule May Spur Product Innovation