Jack Sharry: Thank you for joining us on WealthTech on Deck. Glad to have you back to hear from the folks on the cutting edge of creating strategies and capabilities around the confluence of digital and human advice. Today, we will talk with someone who has been changing the game for advisors, clients and firms in a very good way for a very long time. Aaron Klein is the CEO of Riskalyze, an innovator in helping advisors and clients understand and manage risk. Aaron, welcome. So glad you’ve made the time to join us on what I conduct.

Aaron Klein: Absolutely great to be here, Jack.

Jack Sharry: Let’s dive right in. It’s Aaron, you’ve been a pioneer on the topic of risk management, and so much more. And your story is well known, especially in the RIA world, but we have some folks who may not be familiar with your origin story. So let’s start with a little bit of background, how did you get started this business? And how do you wind up doing what you’re doing?

Aaron Klein: Well, gosh, I first started working at the age of 12, in the afternoons after school for my dad, and he knew nothing about child labor laws, nor minimum wage laws. You know, but it seems to have worked out, okay, I learned a lot from him, I learned about the grit that it takes to be an entrepreneur, you know, and start a business, I learned a lot from him about that business is really personal that like if you take care of your clients, they’ll take great care of you, you know, because he was in a very commoditized business wholesale distribution of like automatic gate security equipment. And so, you know, 18% gross margins like commoditized product, everybody had what you had. So, you know, relationships were everything. And he really taught me that, and that stuck with me. And so, you know, I was doing a few interesting things around the internet, some of them were working, and some of them didn’t work out. And then when one of them didn’t work out, I took a job. And I was running product for a division of an options brokerage firm. And, you know, it was during that period of time, I was talking to a buddy of mine, who was a financial advisor. And I said, Mike, it is crazy how the average individual thinks about the concept of risk. And he said, If you think that’s crazy, you should see how many of us financial advisors think about it, like we have not had the tools in our profession to really understand who our clients are as people, and then figure out how to align that with the risk in their portfolios, you know, and we kind of double clicked on that idea. And it became clear that the industry has just been so reliant on these qualitative terms, like conservative and moderate and aggressive. And, you know, there’s a reason why like the architects and the contractors building like our office building here, don’t say things like, don’t forget, he wants to conservatively moderate hallway leading to his moderately aggressive conference room, like they use inches in the blueprint, right? So and so we were like, We need to put the feet and inches into this process for financial advisors. And that’s how the Risk Number was really born.

Jack Sharry: So how long have you, just the your sense of timing, when did that occur?

Aaron Klein: About 10 years ago, and it was maybe a little bit longer that we were like thinking about the idea and realizing that that’s what needed to happen. And so, you know, it was March of 2011, that we actually launched out and started the company. And it was just three of us the beginning. So Mike was still an advisor, you know, kind of wasn’t in a position to join the company and be a part of the company, he and I would talk all the time, he couldn’t take an active role, outside business activity and everything else, you know. And so it was me. And it was the guy who became our first CTO and the guy who became our first product engineer. And the three of us went to work on building the product, we worked for about two years, had lots of successes, lots of failures, had to really change our strategy along the way, but ultimately ended up getting to build the financial advisor product that we really, really wanted to build that we thought wasn’t coming in until like 2015. But we ended up building it earlier, because nothing else was really working in our strategy. And so the financial advisor product is what really took off in 2013.

Jack Sharry: And so ‘m assuming to talk a little bit about this as you would you’ve tested that on advisors, you’ve said, what do you think of this? And does this work? Talk a little bit about that.

Aaron Klein: That’s part of why we had to bob and weave with the strategy a little bit is in 2011, we were like, you know, great financial advisors are not going to road test brand new risk technology on their clients, right? Their clients are the most precious thing that they have. And the second most precious thing that they have are the prospects that they work with, right? So. So like, they’re just not going to road test brand new risk technology on the most precious things that they have in their business. And so we said, Okay, what we’re going to do, here’s the original strategy, we’re like, we’re going to release like a very basic version of this as a free website. And we’re going to attract the $25,000 E-trade guys. And we’re going to validate the technology that way, and then we’re going to license it to like E trade or one of the other big retail brokerage firms. We’re going to take the money from that and we’re going to build the financial advisor product that we really, really want to build. And so that was As the strategy for how you’re going to get the company off the ground, and you know, 2012, I like to call it our year of successful failure, because the successful part was we rolled out that website, we got a bunch of PR, New York Times, Barron’s, NPR, we had users come in and build $2 billion worth of portfolios on that product. And you know, $27,000, average account size, they loved it, they’re doing their risk number, they’re like plugging in their portfolio, figuring out how to get it aligned. And so we could tell that they loved it, and that it was working. But we for the life of us could not get that licensing deal with one of the retail brokers, right. And so we had about three months of money left in the bank, and I said, Hey, guys, if we’re gonna go down, let’s go down swinging. Like, let’s rebuild the product for financial advisors and see if we can’t get the $2 billion, and validation to be enough to bring great financial advisors aboard. And, you know, lo and behold, it took off like a rocket when it came out of beta in March of 2013. And here we are 10 years later, I guess that’s eight years since then, later, but 10 years into this company. And we get to serve 10s of 1000s of financial advisors across the country. And we’ve delivered over 5 million risk numbers to their clients. So it’s really incredible.

Jack Sharry: Wow. So talk, if you had a little bit about that three months of cash left, you roll the dice, you’re saying we’re gonna go for it. The numbers are enormous in terms of the advisors, you you’ve appealed to that use your capabilities, but talk about how you went for it and how that occurred. How’d that takeoff in the way that it did?

Aaron Klein: First, we had to go build the product, right. And so we worked, we’d already spent like, you know, I don’t know, a year and a half on the underlying technology. So at least that was working really well. But we had to like rebuild the product for advisors. And we had a pretty rough product ready in about three or four weeks. That was back in the day when we could do something like that in three or four weeks right now that you get customers. It gets a little bit more complicated, but But you go and there was a conference in October called Stocktober fest, Howard Lindzon, okay, put on Stocktober fest out on Coronado Island down near San Diego in Southern California. And Josh Brown, the reformed broker, right, he read holds wealth management today was on CNBC every other day, right? And he is going to be at Stocktober fest. So I’m here to admit, I stalked Josh Brown, like I basically that’s kind of a cold email, or two, and I’m like, are seven? And I said I’d say no, I think it only took two. But Josh, you know, hey, you know, we’ve been building this thing. And I think it’s really cool. And I think maybe be interesting to you. Like, can I get five minutes of your time to show it to you? It’s Oktoberfest and he replies back? And he’s like, sure, sure. Definitely, like, find me at the conference. And we’ll talk about it. Then I fly down to this conference. And I am here for one thing, I have to show Riskalyze to Josh Brown, right? And so I’m semi like stalking him across the conference like tournament, and finally he just is like, how am I going to get this guy says Leave me alone. Like, I’ll go look at his thing. We walked into, like, the next room sat down, and I opened it up and I like took him through it. It just kind of hit for him. He just looked at he’s like, Oh my gosh, we can totally use this in our business as advisors. And I want to be your first customer and I want to help you in any way that I can. The conference was being held in like a movie theater that was closed. And and so like, he walks back out. And he’s like, he’s like, this guy’s product is amazing. And the guy the other guy is like, sir, I just sell popcorn here. Like, I don’t know what you’re talking about. Yeah. So Josh was a true believer, he joined our advisory board that was really helpful at the beginning. And you know, our investors stood behind us. And then we just started working at getting it out into the marketplace, you know, and I think about some of what we did in 2013 to help the company take flight. You know, I attended my first T three conference in 2013. Right, got to be there. And we became a sponsor in 2014. So that was kind of cool. Joel Bruckenstein very welcoming of somebody new into the industry, at least into the advisor space, I went to the Pershing conference in 2013, met one of my really good friends. And now a guy on my board, Brian McLaughlin, who also is the CEO of Redtail, right. We ended up getting together a couple weeks later after we got back from Florida and decided to build a great integration between Riskalyze and Redtail. And that really helped to put us on the map in a bunch of ways. So I love whenever I get the chance. And I feel like I don’t get enough a chance. I just love like all the entrepreneurs and the new things that are happening in the FinTech space. And I love doing whatever I can, with the limited time that I’ve got to like try to give back to some of those entrepreneurs because I feel like so many people were generous to me, when we were coming up and trying to figure this out in the early days.

Aaron Klein: I did not know a lot of that story. So I think I knew the Josh Brown part. That’s obviously a signal event. But talk a little bit about where you are today. You recently did a recapitalisation. So you’re heading in a new direction, talking about that transition, want to get into where you want to go, but let’s just talk about how’s the transition going? How’s the business going? You’re a leader clearly in the whole risk space. I’ve noticed you’ve got a few other folks that have joined you in that regard. Doc Little bit about where you are now. And where you see going in the short term. We’ll talk about long term in a moment.

Jack Sharry: Yeah, absolutely. Well, you know, one of the things that when you’re doing a startup, you are just focused on staying alive, you know. And then once you get past the startup stage, and you start building a business, then you start thinking about the capital strategy for that business, and how you’re going to make sure that you can invest in its growth. And think about delivering a really good return for the investors who entrusted you with their capital, to help you build the thing in the first place. And so, in 2016, we had a firm called FTV Capital invest in us and help us drive a lot of growth between 2016 and 2021. And they were super helpful in that regard. They were really happy as an investor, they were prepared to stay, you know, we were one of the last investments out of their fund for so at some point, you know, all these different growth equity funds have to book a return for their fund. And so typically, they’re going to want to figure out a way that they can exit and find a new investor to help you take you to the next level. FTV was super happy, they’re like, hey, we’ll happily you know, stay seven years, eight years, whatever works. But at the same time, I had all these early angel investors who had invested in 2011. And they were kind of telling me, they’re like, Aaron, I was 75 years old, when I invested, it kinda looks like we’ve built a really successful company here. I’m gonna throw in a five, when do I get defense? No, that’s money, you know? And I mean, I just love all those people that trusted us, entrusted us with their capital, you know, and I’m so grateful to them. And so we said, in early 2021, April 2021, timeframe, yeah, we’re gonna figure out a way to get some liquidity for you here in 2021. So we started thinking about that, you know, looking at the fact that we were approaching your five with FTV. And I’m like, I don’t really want to do this two times. So I started thinking about like, could we find one partner who would be a great long term partner who wanted to buy into our vision of like, how we needed to change, you know, both the profession, and how we needed to impact investors as a whole? Because that’s the mission our company has been on Jack since day one. How do we empower the world to invest fearlessly? How do we suck fear out of decision making and inject data into decision making, that’s what we’ve been about since day one, what we were really trying to find was a great partner who wanted to invest in that vision, and push it forward to the future, because I felt like we were in the third inning of a baseball game. Ultimately, after a lot of discussions, HG was, so the HG is a software and services investor. They’re one of the largest in the world, they are the largest in Europe. And they managed, like $37 billion of assets. So they’re really kind of the largest investor that kind of invests in companies like ours. And I just love the culture of the firm. I love the alignment that they had with us on vision, they didn’t come in to us with a direction that they wanted us to take, they came into us and said, we love the direction you’re on, and we want to invest in it. And we want to help push it forward. And we’re prepared not just to partner with you, Aaron to buy out all your early investors and like set up the company for the future. But we’re prepared to be there with more capital as you need it, whether that’s for organic growth and investing in R & D, or whether that’s for acquisitions you might want to do, or whatever it is, we want to help be a part of building a big, scalable, wealth tech business in the US. And we think Riskalyze is the way to do that. And so I just feel like it’s a partnership made in heaven. And it’s been a great relationship. So far. What I also love about HG is they have a very unique ability to invest out of successive funds. So you know, it’s a possibility we could go public. He has portfolio companies that they’ve partnered with for 1517 years, that’s one of the big things we were looking for is we’ve got a long-term mindset. And we wanted a partner with a long-term mindset. And really excited about that. So we’re off to the races with them. And if the next 58 months or anything, like the first two months were will probably, you know, go to a successive font of theirs and just keep working with them for 10 years. And then beyond from there.

Jack Sharry: That sort of brings us up to date. Let’s talk about the future. Sure, you’ve probably heard this word every day for the past many, but ecosystem that there’s lots of different elements, there’s tech stacks, while the buzzwords, risk is a component, cost tax, there’s all sorts of elements that are all part of an ecosystem or tech stack. And where do you see Riskalyze going? Clearly, risk is fundamental to any kind of portfolio. And it also by the way, another term you’re hearing more and more seems to be table stakes at this point is household level management, not just individual account management, how do you manage and coordinate all the accounts in a household? So talk a little bit about where do you see the future going? And how does Riskalyze fit into that future?

Aaron Klein: Yeah, absolutely. So I mean, it’s kind of interesting, if you look at where we started, because we really started if you think about a lot of people go, Oh, you’re a risk solution. And we are like That’s true. But we started from the standpoint of like, how can we help advisors better engage with clients at the front end of their process. And we just happen to believe that risk was the right way to engage with clients that it was the right lens to use to help clients understand what they were doing and make better decisions that were fearless decisions instead of fearful decisions. And if you engage clients that way, it ultimately would set your advisory business up for success. That’s really kind of where we started. So we started, you know, one could argue in client engagement. And then we kind of built our way backwards towards portfolio analytics, deep portfolio, statistical analysis. And a lot of the tools inherent in that. And you know, with what we’ve just rolled out with discovery is that next generation Google like experience for finding ETFs and mutual funds, you don’t even know exactly what funds are out there. But you’re trying to find a particular solution for a client’s portfolio or for maybe your core portfolio allocation. And discovery is just that amazing experience that transforms, you know, kind of the hierarchical way that a lot of the old-style screener tools work kind of Yahoo style, into the Google style natural language search, make it an incredibly powerful search engine for funds and investment solutions in your portfolio. So we’ve kind of built our way backwards into investment research, as well. So now we’re sitting there in a place with investment research, portfolio analytics, client engagement through risk trading compliance capabilities. Today, we see ourselves as you know, the risk centric wealth management platform, but specifically focused on the advisor desktop. And that’s one of the things that I really believe in is that we could go potentially, and compete down in what I would call the platform space, or kind of the OS layer of an advisors practice, okay, but there’s a lot of really good players there. And suffice it to say, like, a lot of advisors love their Orion, or they love their Black Diamond, or they love, you know, their Tamarac, or whatever set of tools they use, or they might be at a broker dealer, and their platform is Envestnet or their platform that they use is asset marker, you know, I can think of others, right? I don’t mean to leave anybody out. But like if you get the message. And so we kind of look at what we are building as a bit of an advisor desktop platform, that we want to make sure we really believe in a multi-platform vision, we want to make sure it’s really easy for advisors to engage with clients and leverage those tools and then implement those solutions that they’ve selected for clients directly on to the different platforms that they might be on.

Jack Sharry: Do you see your future as being an element, a component of capability that an Orion or Envestment or Black Diamond might use? Or are you looking to compete with those folks, or both?

Aaron Klein: Well, I’ll just say that the way that I look at it is that it’s going to be a multi-platform world. I absolutely believe that there are a multitude of advisors that we serve today that have built their business, their client engagement for their business around risk lies. And they’ve built how they deliver investment solutions to their clients on Envestnet, or on Orion, or on Black Diamond or any of these other platforms. And we are deeply committed to serving those customers in that way. And that’s where I really believe the power of integration, one of the things that I see is I see some of these technology solutions, and they decide they want to be a platform themselves. And then they try to use the advisor desktop technology to basically try to leverage their way into success with the back-end platform. And I don’t have any plans in that regard. The Press asked me like literally every month or so when are we becoming a tamp. And I laugh and I say I have no secret plan to become a tamp at some date in the future, right. But nonetheless, what is clear to me is that we’re not going to try to leverage one part of our business to push another, we believe in a multi-platform world. And so it’s incumbent upon us, I think, is FinTech providers. And I know you believe much the same way that we’ve got to use integration, to create great user experiences for advisors, it is not up to the advisor to try to weave all this stuff together they need to use we’ve got to build the right integrations, to allow them to have great user experiences and great workflow while still getting the benefit of best of breed tools.

Jack Sharry: You know, my colleague, Steve Zuschin, he and I’ve talked a good bit about this, because integration is one thing, but coordination is another. And I know that’s what our company LifeYield is about. We’re about coordination, we are Intel Inside, we’re never going to be a platform, have no designs or interest. And we do tax and we do it. Well, that’s all we do. We coordinate with people like yourselves Riskalyze, we coordinate with BlackRock’s Aladdin, we’re agnostic on the topic. We think risk is fundamental. But we don’t do that. And we want to coordinate that. So if you’re going to make a risk move, you’re going to have a tax consequence as an example. So our view is that I’d love to get your thoughts on this. Our view is that the future multi-platform multi everything, it’s going to be room for everybody in my view, not everybody.

Aaron Klein: But you know, those that are single no rising tide, it lifts a lot of boats.

Jack Sharry: Yeah, but the game at hand, the challenge at hand is coordination. So what say you about that?

Aaron Klein: Yeah, no, I think that’s right. And I think that’s a great way of articulating a jack. And it gets, I would say, one of the challenges that our profession has is that we have kind of stuck the label integration on everything, including things that are like, yeah, that’s not really integration, that single sign on, like, that’s interesting. But that’s not integration. And integration that reaches the level of coordination is integration that can actually weave together workflows in a common sense way. And that’s part of what we see, we have delivered some technology that really helps advisors be lead at making great decisions for their clients. In a particular context, I don’t really think you know, if two years from now, advisors are doing as much retyping of those decisions into their implementation platform, then you know, we in that platform are not doing our job like I think we should, right. And we’ve been investing in that Orion is one of our stronger integration partners with that, for example, you can write a proposal and Riskalyze. And basically, we’ll implement that model across, you can sync the models in from Orion and it will implement that model across into Orion. It’s a great integration. And we need to do more of that style of coordinated integration, that can drive seamless workflows for advisors, and really allow them to use best of breed solutions that actually deliver a superior overall experience. You know, I’ve always said if we tried to do everything, I don’t know about anybody else. But if we tried to do everything, we’d be mediocre at everything, we wouldn’t be particularly good at any one thing. So we really believe in focus and not trying to boil the ocean.

Jack Sharry: When I’m asked Where do I see the world going, I do talk the good bit about coordination and that the, the levers of improved outcomes, that’s ultimately what investors are looking from us as FinTech providers, as well as from advisors, in terms of the advice they offer is the levers for improve outcome are cost risk and tax. So if you can improve outcome by managing the risk as you all do so well, and really, you’ve helped advisors and clients do the right thing more often because of what you’re doing. And of course, tax is the single biggest cost. So it seems to me as we go forward coordination effort, whether it’s called financial planning, or debt aggregation, or it’s called Risk Management, or it’s called Tax management. As an industry, we’re gonna need to figure out how to get along. What’s the you about that? Do you agree?

Aaron Klein: No, I think that’s exactly right. And I think that, look, it’s a big industry. And there’s room, I love how you articulated that before, because there is room, one of the things I love about this profession is that, you know, for one company to win, that does not mean others need to lose, yes, it’s a big space. And there’s a lot of room for different solutions. And I firmly believe that. And that’s why we’ve been pretty aggressive about investing in integrations and hopefully, coordinated integrations, because I agree with your point of view on that. And so we’re going to continue to do that. And that’s a big theme. You know, that’s one of the things we’ll be talking about at our board meeting in a month, our first board meeting with HGU board is how much we want to accelerate our investment integrations. Because again, in that multi-platform world, it’s incumbent upon us to make this even easier for the advisors we serve, that’s gonna be good for our business, it’s gonna be great for each of those partners that we work with. And at the end of the day, it’s going to be really great for the advisors that we serve.

Jack Sharry: Yeah, I think that’s where we’re of like mine, I think it is about how do we get along? How do we work together, and there’s lots of different wonderful capabilities out there. But I think the key will be that coordinated integration. I love it. But our time grows. Nice. And as we often do, at this point in our discussion, we try to keep this under 30 minutes. This has been fascinating, so far, and many more questions for another day, I suppose. For sure, if you would just quick three points summary. What’s the takeaway that our audience which by the way, I don’t feel team made you aware of this, but we’re up to almost 2400 listeners to this podcast?

Aaron Klein: Awesome. That is awesome. That has got to be one of the most well listened to podcasts in this space.

Jack Sharry: I must admit they don’t listen to every episode that way. I think they might listen to this one, though, because you’re on error. But point is that I think there’s a lot of people in our industry. Yeah, I gotta believe we must be getting near the max are trying to figure out just the strategy and where they play. But talk about three key takeaways from our discussion today.

Aaron Klein: Why think about the three key takeaways that advisors should really be thinking about, you know, in the context of all that we’ve talked about today, to really like put a pin on it, advisors need to be more confident in the value that they deliver to their clients. And I love the points that you made about cost and risk and tax. And I think that that’s a great way to think about it. It was only five years ago, that advisors would come up to you or me, and they would say, Gosh, I’ve got to figure out how to compete in a 25 basis point world against robots. And it turned out they did not need to figure out how to compete in a 25 basis point world against robots. It turns out that they Got a lot of advantages over robots. They know how to do empathy. They know how to do behavioral coaching, they know how to actually deal with the complexity of taxes, and risk and ensuring that they can get good outcomes for clients. To me, like that’s the thing that advisors really need to understand is they proved this during the pandemic, right? They actually got to put this in action. And I really believe another big takeaway is that this is the risk first decade, one of the things that we proved during the pandemic, I would tell you that like a decade ago, it was controversial that we called the company Riskalyze. And people were like, risk, like, that’s one of the two things advisors are never supposed to talk about, right? Like, it’s not religion and politics, its risk in the short term. And you’re talking about how clients react to risk in the short term. This is not good. That’s no longer a controversial idea, right. And like not having a risk solution on your desk in the 2020s is a bit like not having a computer on your desk in the 2000s. You know, the third takeaway for me is that look, best of breed technology solutions with strong, and I’m gonna add the word coordinated integrations, when I’ve seen it over and over, when you have focused innovation in an area, you’re going to deliver better impact to your customer. And advisors are well served by thinking about where is a company focused on innovation, versus where are they just trying to be all things to all people, because I can tell you no matter how broad we might get, and we’re going to, you know, we’re on this growth journey with hp. But no matter how broad we might get, we’re going to stay very focused on focused innovation to help advisors win, because that’s how you can deliver best of breed solutions that help advisors.

Jack Sharry: That’s great. Love your passion, by the way. Thank you. So it’s been a real pleasure chatting, I look forward to the next time. But in the meantime, as we do each week, when we close our podcast session, I always like to find out something interesting or unique you do outside of work that people may not know about, you would find interesting. So do tell.

Aaron Klein: You know, you gave me a heads up to this question. And this is hard, because I’m like things that I do outside of work. Well, I’m a dad, I mean, because this is an intense job that I’m in. And so I’m like, Well, I’m a dad of three kids who are almost all teenagers. And so like between that, right, and my wife and I are blessed with these amazing three kids. They’re 17, 14 and 12. One thing people might not notice we’ve adopted three times. So our first son was born in South Korea, and he’s the 14 year old and then our daughter is 12. She was born in Ethiopia. And then, you know, that got us involved in some nonprofit work. On one of those trips. We met the kid who became our oldest, who is 17. He was born in Ethiopia. And so what do I do outside of work? I mean, gosh, I wrangle this typical average Korean Ethiopian American family, right. It’s just your everyday Korean Ethiopian American family. I love it. There you go. That’s it between those two things. I try to leave once in a while.

Jack Sharry: But there you go. That’s enough. I follow you on social media and I love the way you share about your family and I’m most appreciative to be able to follow your journey. It’s really quite wonderful. Thank you, sir. So Aaron, as always wonderful to speak with you love the energy, love the passion not only at work, but also with your family. It’s all just very, very good stuff. So thank you for spending some time with us and for our audience. If you have enjoyed our podcast, please rate review, subscribe and or share what we’re doing here at WealthTech on Deck. We’re available wherever you get your podcasts. Thank you again, Aaron. This has been a lot of fun.

Aaron Klein: Thank you so much, Jack. Thanks for having me on.