Robo advisory services such as those from Weathfront, Nutmeg, Betterment and Charles Schwab are quickly gaining interest from investors due to their simplicity, low costs and performance. Aiming to provide greater results to automated services are another form of financial technology firms that customize portfolio advice on an individual basis. Rather than invest customer funds in a limited number of diversified index tracking funds, these products also integrate capital protection strategies to increase long-term performance.
Providing what it believes is Robo Advisory 2.0, is digital financial advisor Hedgeable. Speaking to Ben McLaughlin, he explained to Finance Magnates that the firm was launched in 2009 after the global financial crisis.
Catch 75% of the upside moves, but limit the downside
At the time, research showed that high net worth (HNW) clients with access to more sophisticated trading products didn’t lose nearly as much as retail account holders. McLaughlin described that the outperformance was due to HNW clients benefiting from capital preservation strategies that limited the downside of their accounts. As a result, Hedgeable was created with the goal to provide similar portfolio services to retail clients that would “catch 75% of the upside moves, but limit the downside.”
McLaughlin explained that in contrast to the 1.0 robo-advisory services, Hedgeable’s automated investing solution also monitors the market to make decisions on when to increase cash allotments to limit downside risk. Although focusing on ETFs, Hedgeable also allows portfolios to be built using single stocks, but limits this feature to equities with lots of liquidity.
In addition, although the platform focuses on traditional securities like stocks and bonds, their portfolio also integrates alternative assets such as gold, property and bitcoin. According to McLaughlin, a wider framework of asset types assists in diversifying portfolios to reduce downside risk.
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Another area where Hedgeable is aiming to distinguish themselves from other robo-advisors is that they offer their portfolio allocation technology as a licensed product. In this arrangement, financial advisors can use the platform to manage customer accounts. The result is that portfolios are controlled using Hedgeable’s software, but they aren’t the custodian of the funds.
For Hedgeable, these partnerships have become a growing part of their business. For financial advisors, Hedgeable’s technology allows them to market passive investment accounts to their existing customer bases, who may be drawn to the growing robo-advisory products.
While coming to the market as a direct to consumer offering about a year ago, according to Hedgeable, their technology has a longer track record having managed real funds since 2010.
Looking towards the future, McLaughlin stated that he believes the “industry will continue to evolve from passively investing products like Robo Advisory 1.0,” as it adds greater sophistication to portfolio creation. In regards to Hedgeable’s future, McLaughlin mentioned that they are looking into integrating non-publicly traded assets such as private placements into their portfolios in the future.