With Bryan, I discussed global trends in wealth management, humans and robo components competing with one another, and expectations for the near future.> More details
Evolute: On a First-name Basis with Technology and Industry Regulations
|Clients||Independent wealth managers and banks|
|Value Proposition||Unlocking the true value of wealth-management solutions through a comprehensive digital offering|
|Top Executives||Kaspar Wohnlich, CEO
Markus Buehrer, COO
Michael Gauckler, Co-founder & Business Devt
Mark Gustafson, Head Product
Andreas Ruflin, Business Development
Pascal P. Lemann, CMO
Heinz Perren, CFO
Martin Polasek, Сo-founder & CTO
We continue our dialogue with industry leaders that are changing the future of wealth management. This time we had a chance to talk with Martin Polasek, CTO of Evolute Group for Switzerland, a company that offers end-to-end digital wealth-management tools that empower banks and independent asset managers to better cater to the needs of their clients. Evolute offers a fully integrated digital wealth-management engine that streamlines technological, operational, and service components:
- Technology: hybrid advisory and portfolio construction modules;
- Operations: high-quality data sourcing from third parties and custodians;
- Service: risk management and legal components that are regulations-compliant.
Evolute goes above and beyond to offer an innovative wealth-management toolkit to enhance the daily operations of banks and RIAs.
We spoke to Evolute’s CTO, Martin Polasek, to get some details on how Evolute makes a difference, and its internal processes and company culture.
Martin Polasek is a co-founder and CTO of Evolute. He has years of experience in the IT and banking sectors with a core strength in quantitative portfolio construction and risk management. Prior to founding Evolute, Martin worked for Credit Suisse in asset management and was leading initiatives in the area of business digitalization and robo advisory. Martin also has strong business & IT consulting background from his time at Accenture, where is focus was on enterprise architecture and operating model design. He has a master engineering degree from ETH Zurich and a bachelor’s degree in economics and business from the University of Basel.
Insights into what makes up Evolute: How is it different?
Unlike many of its rivals, who are lagging behind in terms of client experience and personalization, Evolute strives to delight its customers. The company’s hybrid advice model delivers on its pledge and is able to handle the emotional component of each client’s journey while tailoring bespoke solutions.
“We don’t provide a platform for running a pure robot adviser because we don’t believe in that model right now.”
Being a purely B2B solution provider, Evolute pins its hopes on a synthesis of technology and human touch, especially when advisors have to deal with high net worth individuals (HNWIs) who are unlikely to entrust their assets to a robo-advisor.
“At Evolute, we believe in the combination of personal relationship management with a high level of automation in the background.”
Evolute’s solution benefits from a couple of features that run slightly differently compared to conventional models:
- Aggregation of multiple components: The company can actually infuse market views and investment stories from the chief investment officer and the research department straight into the portfolio construction process. Evolute brings three things together: a market view, possible scenarios, and individual client preferences and goals. Compliance matters are automatically accounted for, so clients don’t have to take care of this aspect manually.
- Regulatory compliance at hand: Evolute can significantly lower client servicing costs at every stage of the client life cycle.
Evolute’s philosophy revolves around a very sophisticated portfolio construction on individual security level. Globally, the company supports the full suite of instruments offered by Reuters. Empowered by innovative technology, the company still encourages client involvement in the actual advisory process and portfolio construction, while guiding the customer through every stage of the process. To bring advisors closer to their clients, Evolute has built a mobile application to guarantee seamless communication between the parties.
Martin is confident that there is no need to reinvent the wheel when assessing prospects’ risks:
“… in general, the task is basically to collect all the assets and liabilities of a client. Put together something like a balance sheet. To see how many free assets the client has. This clearly determines his ability to bear risk without running into financial liquidity issues.”
Evolute’s risk ability assessment is simple and lean, and is similar to the procedure followed by banks. When it comes to risk tolerance, another component of the risk assessment process, behavioral finance suggests that the rich are unlikely to take large risks as the stakes are too high, so HNWIs have lower risk tolerance than risk ability.
“Through simulations, Evolute can really show the impact of the possible paths of the investment the client is about to make, and allow him to explore the risk–return trade off in order to come up with a solution that works emotionally for him.”
This gamification approach can be applied not only as per the banks’ approach—once every two or three years—but more frequently, so as to refine the strategy for the client in question. However, Martin points out that these strategies don’t manage the downside risk.
“There are studies in the market which claim that actually 60% of clients are not really interested in growing their wealth.”
The main objective, instead, is to actually preserve the assets they already have. Such a tendency is very common among the rich. For WealthTech, it entails a need for a more dynamic approach when it comes to portfolio management. Martin says that such a setting puts advisers in a position to proactively manage things, and not just report on past events. This is where there is plenty of room for innovation, and an opportunity to create a solution clients are really willing to pay for.
Creating a product roadmap
Different stakeholders have different interests and requirements, which can come from the market. For example, requirements could come from existing regulations, which usually have a deadline, meaning there is little flexibility in terms of when the company has to deliver the feature. Another source of “inspiration” is technical defects that need to be eliminated for the whole system to function smoothly.
These insights for improvement come from team members, mostly developers who work on the code. Evolute juggles the needs coming from different stakeholders by crafting its product roadmap and further refining the product. The rest of the process comprises classical product management, which is about collecting the requirements and sequencing them for delivery. Later on, it is time for estimates followed by actual productization of software.
Tech stack behind Evolute’s solution
Initially, the product architecture was a set of microservices, with some parts added to it as monoliths. Once the business matured, Evolute began to split the whole thing into smaller services, taking into account capability and maintenance. Evolute provides its solution as SaaS, with larger customers being able to run it on their own.
Predominantly, the .NET platform is used for all business-related tasks, with C++ coming into play on the optimization and number-crunching sides. Evolute has migrated to .NET core 2.0 recently, which can be run in the .NET on Linux, as per the initial plan, with development environment still in Windows. Some other components are written in Python and mainly used for data integration.
Software: How is it developed?
Using Scrum methodology, Evolute has adopted a two-stage development approach in which the tasks get assigned to teams who run a micro Scrum process and refine the requirements before they get scattered for a sprint. Evolute can boast of a rapid process pace due to super high automation, which DevOps are in charge of. Using Invision and Confluence, the company enables the designer to collaborate on the screens, while Confluence allows it to accommodate the requirements. Everything makes its way to a build server and GoCD for deployment, and it all ends up on Docker.
In addition, Evolute uses Ranger and myriad other applications to monitor and control performance, including ElasticSearch, Grafana, and Kibana. These tools allow the teams to track individual changes in a test case down to the actual requirement it came from. Evolute hires highly professional DevOps engineers, and this investment in its skilled workforce has paid off.
Teams and squads
Currently, Evolute has four teams, with 25 of its associates comprising developers, designers, business analysts, and QAs located in Lviv, Ukraine. These teams are fully cross-sectional, so each is as independent as possible. However, there are some shared resources as well—e.g., DevOps, which comprises a separate team of engineers. A group of Business Analysts is also a separate unit at the moment.
Sharing lessons learned
At Evolute, a culture of knowledge sharing is distributed in several ways. For example, any task or deliverable is well documented, and is reviewed by someone from another team. In this way, knowledge is spread not only among people in the same team but across the whole company. Thus, the code review, along with supporting documentation when shared, keeps everyone in the loop and up to date with what is going on. Another aspect that contributes to overall professional education is actual demos teams carry out and share with each other, so everyone is on the same page in terms of what is happening and who is currently working on what.
Evolute operates its own data center, which is located in Switzerland. This was a significant investment, which was necessary due to the requirements of HNWIs who were not ready to store data in the cloud even though it would have been a more cost-effective approach. There is a clear segregation of data levels—e.g., the developers don’t access the production environment with real client data.
The production environment itself has various security levels, from authorization to authentication, etc. In addition, Evolute has internal firewalls that segregate the database from the application servers and so on. One thing that is still work in progress from a security perspective is that Evolute has yet to encrypt client data. Such a security measure is hard to implement, especially when running reporting applications and aiming to get most of the data from the custodians. This is something Evolute’s architecture plans to deliver in the long run.
Integrations: Third-party applications and market data suppliers
Evolute has close ties with around 15 large custodians, including the most important in Switzerland. Some of these custodians are connected to third-party software. On the data side, the company has an agreement with Northfield Information Services, which delivers the risk model required for portfolio construction and optimization. Thus, Evolute has integrated mean variance optimization, including more advanced features such as the ability to perform tax optimization and maximize the return after implementation costs (transaction costs and costs of underlying products). Northfield Information Services, which has been around for more than two decades and offers one of the best multi-asset class risk models on the market.
“… the beauty of this model is that it’s a 93-factor model.”
This multi-factor model has no statistical components, but it does have macro-economical ones that make real sense in the market where there is a need to bridge the economic forecast to the impact it might have on the portfolio. Basically, there are two models:
- A long-term horizon risk model, which is aimed at long-term investing of five years or so, and is about strategic allocations. This model gets renewed on a monthly basis;
- A short-term horizon risk model, which has a forecasting period of 10 days and is meant for more active investors, or even for trading purposes. These estimates are refreshed once a day.
Earlier in 2017, Evolute joined forces with SwissComply, a regulatory services agency for the asset management sector. As a result of the merger, the newly formed Evolute Group AG has been able to accommodate digital power and legal compliance aspects under one roof.
With more challenges to come, Evolute sees its strategic focus being concentrated on a very specific niche, without deviating from the chosen course elsewhere. Another problem that might arise in the digital era is on the data side, because if there is no high-quality data, certain processes just can’t be automated easily.
WealthTech Club takeaway
Evolute has a powerful suite to offer clients who are looking for a superior level of services while preserving and growing their wealth. By successfully capitalizing on DevOps investments and distributed teams with shared resources the company has managed to find its place, offering a unique B2B solution for banks and independent financial consultants.