Cathie Anderson

Anderson: Auburn tech firm hopes new product will end random spot checks on investor accounts

The team at Auburn-based Riskalyze discovered that investment firms had identified a new use for their software, so they quickly made upgrades to capitalize on a new market.

Faithful readers will recall that Riskalyze created software for financial advisers that quantify how much risk clients wanted in their investment portfolios, assigning each one a risk number from 1 to 100, with 100 being those comfortable with very aggressive portfolios. As Riskalyze chief executive Aaron Klein visited with large advisory firms, however, he began to realize that their compliance departments were plugging client information into the software to run random spot checks to ensure that clients’ investments aligned with their risk tolerance.

Klein and his partners had planned to release another product, Compliance Cloud, to perform this task some day, but some day turned into Sept. 3 as they noticed more and more firms purchasing Riskalyze to manage the task.

“This one firm, which will remain nameless, they probably have about 800 advisers, probably manage about 80,000 accounts, and they’ve got eight people who are in charge of managing those 80,000 accounts,” Klein said. “They go through and randomly spot check the accounts for problems, but Compliance Cloud will allow them to actually crunch through the risk of all those accounts every night.”

The Compliance Cloud program indexes all the data into a searchable database, and each company can go through and find any customers whose risk tolerance doesn’t match up with their risk number, Klein explained. Riskalyze’s newest software will work, even if the company doesn’t have the original adviser program. Riskalyze charges $3,500 to $10,000 a month for its Compliance Cloud program. It’s adviser program costs $129 a month.

While the price difference might sound steep, Klein said that using random spot checks is a dangerous game and mistakes happen all the time. Compliance Cloud will easily pay for itself, he said, because it will help investment advisory firms avoid costly regulatory fines or restitution in civil lawsuits.