WealthTech Insights #15 with Min Zhang: Don’t Lose on the Questionnaire, the First Impression

Our today’s guest is Min Zhang, CEO and co-founder of Totum Wealth.

Min Zhang
CEO and co-founder of Totum Wealth.

Min received her MBA from Stanford Graduate School of Business. After starting her career at Lehman Brothers after college, Min worked for a number of investment management companies focusing on quantitative analysis, risk management, and asset allocation strategy.

At Nutmeg, Min helped build the foundation of the investment process. As a vice president of asset allocation strategies at PIMCO, Min worked on new product development, launch, and marketing. In 2015, along with her team, Min started Totum, a FinTech company offering a unique risk-assessment tool that helps financial advisors better understand their clients’ risk capacity given their life situations.

With Min, we discussed how advisors can win the client conversation by harnessing the power of client data with an engaging experience. We also spoke about robo-advisory and whether it will aid or replace conventional human advisors in a digitalized world.

Q: Please tell us more about your background. How are you related to the wealth-management industry?

Min: I have been working in investment management since 2005 and learned various things from sell-side equity research, quantitative investing, and fixed income relative value.

I wanted to do more with my computer science background, so I went to business school hoping to make an impact in asset management with technology. That’s when FinTech was just starting. I helped my business school friend Nick Hungerford, who founded Nutmeg, the first robo-advisor in the UK, in the early days.

I saw a market opportunity while working at PIMCO, that very few investors, large or small, really understood investment risk. Unlike institutions with access to resources, most individual investors are not even aware of what they might need.

“Financial advisors don’t lack portfolio analytics, but rather lack client analytics, as well as a good way to engage clients in a professional conversation from the get-go.”

Q: How did you come up with the product for Totum?

Min: We couldn’t find a solution that answered a basic but critical question, how much risk can I actually afford? Will I be okay during another market downturn? We learned that financial advisors don’t lack portfolio analytics, but rather lack client analytics, as well as a good way to engage clients in a professional conversation from the get-go.

So we built Totum to understand how changes in our lives, be it your health, family, career, or life goals can impact your Risk Capacity, which is how much investment risk you can comfortably take on without affecting your normal lifestyle.

Totum Wealth

We separate Risk Capacity from risk appetite, the psychological tolerance, and visualize them against the portfolio risk, which is also measured by its potential downside. This is our proprietary metric that considers downside deviation (“bad cholesterol”) in addition to standard deviation, leveraging research from the Sharpe Ratio and the Sortino Ratio.

Advisors can easily explain “here is how much risk your portfolio is taking, here is where you feel comfortable, but here is where you should be.” I actually use Totum myself, and for my friends and family to make sense of our investment decisions and stay the course. We provide a simple, yet insightful digital experience to help advisors get to know your clients and have full control over the client interaction.

Q: Let’s talk about your solution. What market-data and account aggregation providers do you use?

Min: We use Xignite to get exchange pricing, Morningstar and FactSet classification, and Thomson Reuters Lipper for bonds, variable annuities, and global funds data.

With account aggregation, we have shifted our model from doing it directly to using already aggregated multi-custodial feeds. We have integration with TDAmeritrade, CircleBlack, and RedTail, and working on integrations with other performance reporting, custodian, and financial planning platforms.

With a 2-way integration, advisors never need to leave their workflow because our API grabs the data, processes it, and sends it back to display on their dashboard (of the CRM or PM tool). And the advisor can always still use Totum directly or open it from the dashboard.

Q: What data analytics tools do you use? And how can we improve the efficiency of these long questionnaires?

Min: We built all the analytics in-house because we use many different sources to enrich the simple inputs. I think it’s more “Big Model” than “Big Data.” Advisors don’t want to give clients too much homework – right now many clients have to fill out this really long, six-page survey about their entire financial situation.

We limit the questions to just 12, asking for simple inputs—for example zip code, your work industry, etc.—that we further process with additional data from the Census Bureau, Bureau of Economic Analysis, as well as academic and industry research.

Because our risk capacity requires only factual data, we can potentially score existing clients using data that’s already in the system via our API, without having to fill out the questionnaire. This is where we differentiate from other risk tools since they mostly require answering subjective questions.

Q: Do you have any robo-advisors as your client that relies on the results of your risk assessment?

Min: We’ve talked to many automated investment management providers across US, China and Europe, but most of them are also startups and dealing with their own challenges. While many are aware that their questionnaire and risk model need to be more robust and their questionnaire can be better to improve client conversion, they’ll ultimately still have solve the gap between high client acquisition costs and a low-cost provider business model first.

Larger financial institutions have thought of us as both an advisor-client experience and a lead-generation tool (with some of our gamified questions). This might be how we get into the consumer space eventually instead of going directly – a lot of the robo-advisors were direct to consumer initially and have started working with banks as well.

“Eventually AI could replace more of the work by the advisor, including as some of the interactive functions. But even simple questions can give people anxiety because the empathetic tone is not there.”

Q: According to your observations, what trends have been prevailing trends in the wealth-management space in the past few years?

Min: Digitization for higher efficiency is the most obvious one. Most of the advisors are getting older and there are not as many younger advisors. That’s a demographic trend. The talent succession is a big issue at a lot of firms.

The other trend is the prolifeation of robo-advisors by large incumbents. The adoption of robo-advisor 1.0 was not as fast as initially anticipated, and now large institutions are starting to wake up to the reality that having a robo- advisor alone doesn’t mean they have a robust digital experience for the core wealth management business.

It’s ironic that high net worth clients are actually just starting to use the technology has been available in retail for a few years, but it’s good that innovators like us and our peers are making technology available to everyone, and making advisors more efficient.

Unlike robo or our risk competitors we are neither replacing advisor or moving into investment management, but razor-focused on risk and proposal, the most crucial touch points for the advisor-client relationship, and our DNA is built for advisors from the get-go.

Q: Do you think in the future robo-advisors will totally replace humans in wealth management?

Min: I don’t think any time soon. First, we are in a huge baby boomer retirement cycle, and this generation still picks up the phone and calls their advisors. As for millennials, our generation, when we have an issue, look it up on the Internet or watch a YouTube video. But most of the money is still with the baby boomers.

Second, it’s less about replacing human but making complex financial information digestible to human investors. For example, we iterated a few times to simplify our UX significantly to make it more human-friendly, which make the advisors’ effort more rewarding once they can relate to the clients.

I think that eventually AI could replace more of the work by the advisor, including as some of the interactive functions. For example, I recently checked into a hotel by clicking buttons on a kiosk – but even simple questions can give people anxiety because the empathetic tone is not there. So maybe our questionnaire can have a soothing voice interface that flows like a natural conversation? If that’s what our customers (advisor firms) ask for. Think of how a medical assistant taking the patient’s vitals before the doctor comes in, but doesn’t replace the doctor.

“There’s still a lot that we can do to use technology to make financial services and wealth advice a lot more prevalent, accessible, and transparent.”

Q: What skills are required to be successful in wealth technology?

Min: Most people in FinTech are either those who have expertise in capital markets or those who had a technology background. I think it’s important to understand the basics for both, which has some learning curve but are not difficult. Obviously digital marketing skills is always needed for almost all businesses today.

But most importantly it’s product management, having the humility to observe and listen to our customers, and figure out the underlying drivers. And lastly if it’s a B2B model, you will need the patience and financial runway too, to work with large companies that juggle multiple initiatives.

Q: Which companies do you feel are the most innovative in wealth management?

Min: I think whoever can deliver an amazing user experience and start early for the next round of innovation will lead in the future. Looks like all the largest firms are trying to do capturing all the data for advisors, and provide end-to-end experience. I admire the ones who can move fast. However, overall our space is mainly trying to catch up to how technology is consumed outside of financial services.

Q: What kind of cooperation do you think market players will have in the next few years? Are we going to observe a series of mergers and acquisitions, or will they continue to compete with each other?

Min: We will continue to see that – we saw many robo-advisors being bought out. I think there’s continuous innovation. It’s all about earning trust and gaining distribution. If you have a great product and you have to get it out there: you need to present it to a larger audience and encourage them to consume it. Many robo-advisors have realized that they have to be on a bigger platform in order to do that.

I think consolidation of wealth management firms and tech providers will continue to happen even outside of robo-advisors too, as well as the line between the two become increasing vague. The gap between a bank’s innovation group or venture firm can do them disservice – these groups may not be close to the business and understand what they need most to compete. So whoever can move faster, either buy or build, will stay ahead of the curve.

Q: What are the benefits of blockchain and other new technology for wealth management?

Min: I see certain blockchain use cases for wealth management but 1) I’m not sure if we need it to support the entire experience, or if it can; and 2) there are other technologies that can provide similar benefits.

There’s still a lot that we can do to use technology to make financial services and wealth advice a lot more prevalent, accessible, and transparent.

I think these new technologies will eventually provide benefit to wealth management, but I don’t think we’re there yet. The problem at hand is advisors’ day-to-day interactions with their clients, become more efficient, and growing their businesses. So rather than forcing the trendiest technology on them, we believe in providing beautiful solutions that solve these problems best.

Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also author of the WealthTech Club blog, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.

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