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
Hedgeable: Artificial Intelligence and Communication
|Clients||HNWI; (non-HNWI) Individuals; Pooled investment vehicles; Investment advisors.|
|AUM||$44.7M in 2016
$70.4M in 2017
|Value proposition||Artificial intelligence (AI) module that focuses on customer experience, investing strategies, and predictive analytics.
Unique features, such as core-satellite investing, socially responsible investing, income investing, investing in Bitcoin, investing in Bitcoin and alternative investments.
|Top Executives||Michael Kane, Co-Founder and Master Sensei
Has 10+ years of experience of investing. Oversees Hedgeable’s investment product, business development, and branding initiatives.
|Matthew Kane, Co-Founder and Chief Ninja
At Hedgeable, focuses on design, technology, product development, strategy, and overseeing the ninjas (employees).
In 2016 founded Hedgeable AI Lab, which builds AI FinTech products for both Hedgeable and partner financial institutions globally.
|Siddharth Sharma, Tech Shogun, CFA, and FRM
Has experience working in S&P Capital IQ and McKinsey & Company. Oversees Hedgeable AI Lab, technology innovation, investing systems, algorithms, security, and infrastructure.
Hedgeable‘s office is on Broadway, not far from Madison Square Park. I would say that the office is a typical open-plan room, though with its own culture. At Hedgeable, everything is based on Japanese culture. The open-plan room where the entire staff works is nicknamed “The Dojo,” which is a room for training in martial arts. This reflects the company’s mission “to slash through the old ways of doing things on Wall Street and create new paths for innovation via AI.” Their wish to “break” Wall Street is highly visible from the images on their site, posters around the office, and the graffiti mural in The Dojo.
However, Hedgeable not only opposes Wall Street, but innovates, disrupts, and listens to democratize the market. This has been recognized via several awards:
- In 2014, Hedgeable was awarded for client transparency by Paladin Research. The Paladin Transparency Index for Hedgeable was 4, the same as for Betterment and Personal Capital.
- Hedgeable was one of the eight winners of the Best of Show Award at Finovate Fall 2015.
- Also in 2015, Hedgeable was announced as the winner of the UK government’s Great Tech Awards in the FinTech category.
- Hedgeable AI Lab was one of the eight winners of the Best of Show Award at Finovate Spring 2017.
These awards, and the entire company’s innovation and success, became possible largely due to “The 10 Hedgeable Commandments,” in which they claim to be open, creative, collaborative, and innovative.
I visited Hedgeable in order to see how this culture works, whether it really favors innovation, what makes Hedgeable unlike other digital wealth-management platforms.
A great conversation with Sid Sharma, the company’s CTO—or “Tech Shogun”—revealed a lot of insights into the Hedgeable product, particularly its heart, the AI module. While talking to Sid, I saw how proud he was of the product the company offers. In every phrase he highlighted the advantages of both platforms, whether for private customers or for advisors and institutions. It’s difficult to find any drawbacks in what they have created.
Hedgeable offers both B2B and B2C services. Their two platforms are:
- Hydrogen, a B2B API platform that helps global financial institutions build and scale FinTech applications. Sid Sharma describes it as “the AWS for FinTech services. An enterprise never needs to integrate with another platform. Hydrogen is all they need to integrate with.”
- A B2C online platform. This is an implementation of the Hydrogen platform for private investors.
Sid asserts that what the company offers is more than just automating mundane processes that don’t require human involvement. Both platforms use the AI module, which makes Hedgeable known as an innovator. Their offer includes the following unique features:
- Core-satellite investing: Clients’ portfolios are invested in the typical core securities, and also less correlated satellites for increased diversification and liquidity.
- Socially responsible investing: The engine automatically adjusts portfolios to social themes depending on the clients’ goals and risk tolerance.
- Income investing: Clients’ portfolios are customized by including securities that pay high-dividend yields.
- Investing in Bitcoin: Since Bitcoin is a volatile instrument and the correlation of Bitcoin with other asset classes is almost zero, Hedgeable enables clients to invest small portions (1% to 2%) of money in the digital currency.
- Alternative investing: Hedgeable provides “accredited investors” the opportunity to invest in alternative opportunities not available to the general public.
It looks as though Hedgeable is the first to employ AI in the entire digital wealth-management supply chain. According to Sid Sharma, it is focusing on AI mainly in the following three respects:
- Customer experience: A chatbot and a smart site-wide search make the customer experience easy and smooth. “We try to make it as simple as possible, to explain everything to the consumer. They don’t have to go through all the white papers.”
- Investing strategies: Using machine learning to analyze more data—global macro data, unstructured data—and incorporating this into the investing strategies.
- Predictive analytics: This helps them to better understand their clients and predict their behavior, with the aim of providing a better product for clients and serving them better.
Though the majority of their clients are millennials, Hedgeable has tailored their products for all generations, offering a large variety of accounts that no other digital wealth-management platform has. As Sid says, “We have appealed across the board for somebody who’s willing to come online, search for a good product, and invest online.”
For end investors, the company offers 25 different account types, among them:
- Individual and joint accounts;
- IRA accounts—Traditional, ROTH, SIMPLE, Rollover, Inherited;
- Trust accounts—Revocable, Irrevocable, Testamentary, Business, Custodial UGMA, Custodial UTMA;
- 401(k) accounts;
- Corporate accounts.
Highly useful is the offer to keep track of the entire customer’s financial life in one account by pulling all their brokerage, loan, mortgage, and bank accounts into the Hedgeable platform.
The robot on the back
On the frontend, clients answer common questions, as in any other robo-advisory questionnaire; on the backend, all the hard work is done. Hedgeable has about 2,000 to 3,000 customization data points to provide efficient asset allocation. These data points include the following aspects:
- Household income;
- Percentage of net worth invested with Hedgeable;
- Time horizon;
- Risk willingness and ability to take risk;
- Alternative investing, etc.
Sid says, “On my last count there were around 200 individual strategies using technology; some of them use AI a lot, some of them are very simple. We are customizing a lot of decision points, combining a lot of those strategies on the backend to deliver that final product to the consumer.”
Unlike most robo-advisors, which build portfolios according to modern portfolio theory, Hedgeable’s strategy is not to predict the market, but to react to events in the market. All accounts have access to downside protection overlay, which protects investments from huge downturns and reduces drawdowns on clients’ portfolios by moving to nonrisky assets.
One of the core parts of the AI module is a full natural language processing library that is used to carry out sentiment analysis, risk analysis, risk profiling, etc. for clients. However, clients might not even notice that the AI is involved. Sid says, “The purpose is not to put a robot in front of somebody’s face. The purpose is to put the robot on the back so that you can build the best product for the consumer.”
Processes and approaches
Hedgeable believes that, no matter what the underlying technology is, it is the end product that matters, that should be useful for clients, and that should benefit them. This is why customer feedbacks make a difference. Matthew Kane, co-founder and head of product, created a team that interacts with clients using a number of touchpoints, such as live chat, text messaging support, and blogs. The team aggregates and interprets all feedback to enable the development team to make the product even better.
To manage development, the following tools are used at Hedgeable: JIRA, Asana for long-term projects, Trello for daily task lists, Slack with all its integrations. All their teams (BAs, QAs, developers) interact with each other.
To provide a valuable platform, Hedgeable has set up an SDLC pipeline. The CTO of Hedgeable explains what this means: “Developers work in pairs, everybody reviews the code of the other developers, a senior manager reviews the code of the developers. There’s a solid round of testing after that. Before it goes to production, it is pushed to a sandbox environment. We have a continuous vulnerability scan that runs on both our production and sandbox environments. We have IT audits, we have penetration testing done by external third parties on the external applications, on our source code and our internal offices, and they give us certifications on security.”
Hedgeable adopts a security-first approach. The company is regulated by the US Securities and Exchange Commission, and has bank-level encryption on its communications and on the data that is stored for each client. In addition, its developers are trained in this approach and are focused on the security of not only data, but the code as well.
To invest in Bitcoin, Hedgeable partnered with Coinbase. While blockchain is not used on the B2C platform, it is built into the B2B side, primarily for “know your customer” and document management—to verify somebody’s identity, collect SSN or driving license information, and complete other actions involving sensitive information.
The offering that Hedgeable provides to business clients contains two services:
- Primarily for US companies, it has a multi-tenant SaaS model built on the Hedgeable Hydrogen platform and utilizing Hedgeable APIs;
- For international clients that prefer not to use US servers, it can deploy the platform at the client’s location.
What to expect
Hedgeable provides a very interesting, innovative product, and wants to make it even better so that as many people as possible can benefit from it, no matter whether they are users of the B2C platform or clients of partners licensed to distribute the Hedgeable B2B platform. Sid Sharma says, “We do not want to see a financial crisis situation again, where because of no fault of theirs people lose 50% of their money. Then there is uncertainty, nobody trusts anyone anymore. It’s not only in the financial services, nobody trusted anybody everywhere. We can’t define policy. But what we can do is we can put out a great investing product so that people don’t have to face such a situation again.”
Sid believes that to be more competitive in the business, the company has to be much more specialized to release financial advisors from the tasks that can be automated based on a set of rules. Thus, the advisors will be more involved in the personal aspects pertaining to an investor, building trust and relationships, and conducting complicated aspects such as estate planning.
However, the CTO of Hedgeable doesn’t exclude the possibility of replacing human advisors if Hedgeable ever builds more empathy into the chatbot that is available on their enterprise platform. Sid asks, “Do people need empathy from the financial advisor or do they need them to be a human?”
WealthTech Club conclusions
Hedgeable is an innovative company that delivers a wide range of options, features, and services. It not only invests clients’ money, but educates them and makes them conscious of every step and change in their portfolio.
The team are strong followers of the Japanese culture and the management is obviously proud of this. What they don’t want is to look like a typical financial firm with the old Wall Street culture that blocks disruption and lacks innovation.
The way Hedgeable builds their platforms corresponds to the internal company culture: open-door meetings, free and open thinking and debates, communication within and across teams, tolerating mistakes but not lying, and making decisions in the best interests of clients. This is how they are trying to change the Wall Street system—through innovation, collaboration, work, and fun.
Though the employees come from a number of recognized companies, such as Morgan Stanley, Apple, McKinsey, etc., they have a sense of family. The guys are excited about their work, particularly about the AI they have created.