Amplify Platform, a wealth management tech provider, has launched a proprietary risk analysis tool to help advisors measure risk in client portfolios.
The new tool, QuantumRisk is based on the work Dr. Ron Piccinini, director of investment research at Amplify, who has a background in fat tail risk modeling. He was responsible for developing PrairieSmarts’ risk management system in 2017, which was subsequently acquired by Covisum, a software company that serves RIAs.
“Over the last decade, advisors became more and more focused on trying to explain portfolio risk to their clients,” Piccinini said. “As an advisor, your goal is to maximize some kind of return for the risk you’re taking.”
Piccinini said Amplify had a risk scoring tool previously, but it provided a “vague indication” of the actual risk of underlying investments. The firm considered using something off-the-shelf, but they didn’t think any of the existing tools were sophisticated enough.
“The sad reality is, we think, most of these things out there are toys, at best,” he said.
QuantumRisk uses a series of risk scores across a portfolio on a scale of 0 (cash) to 1,000 (penny stocks). The S&P 500 is scored at 100.
“So I know if I have a score of 100, I’m just as risky as the market,” he said. “If I have a score of 200, I’m twice as risky as the market. If I have a score of 50, I’m half the risk of the market.”
It uses real-world probabilities and market stress scenarios, rather than relying on backward-looking models.
The tool will start with risk analysis of stocks, bonds, mutual funds and ETFs. Alternatives and options are on the roadmap for future inclusion.
“What we’re trying to do is just inform people about the risk of their investment, and we’re not cutting any corners on statistical distributions, calculations, those types of things,” he said. “A lot of toys/tools out there oversimplify things and give people overconfidence.”
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