Growth in Online Investment Management

Emergent robo-advisors provide commoditized advice through very coarse asset class selection, mundane portfolio construction, and access through low-cost passive investment vehicles – things that are very easy to do. In fact, there are free tools on the internet that permit this. While robo advice is perceived as a good trend in introducing the mainstream mass-affluent (a household typically with $0.25-$1 million in investable assets) to investing, we recognize the enormous value that a financial advisor brings to HNW portfolios. We believe that the robo-advisor landscape is cluttered with little differentiation and have no intention to become just another robo.

Growth in Alternative Investments within Retail Portfolios

Our core growth strategy capitalizes on several long-term industry trends that continue to be valid and strong. One being the steady adoption of Alternative Investments.  Affluent investors and their financial advisors are becoming aware of the portfolio benefits of including alternative investment asset classes such as private real estate, private equity, managed futures, hedge funds, and liquid alternative mutual funds. Also, large asset managers with huge distribution systems, continue to introduce new investment products which has increased retail investor access. ActiveAllocator has invested two years with multiple quant PhDs to develop the data sets and algorithms needed to correctly include such investments in portfolios.

Alternative investments are a fast-growing category. However, they have always been difficult to include in affluent investors’ portfolios. Through interactions with over 300 broker dealer systems and meetings with over 5000 financial advisors, we discovered first hand that alternative investments making just 4%-7% of typical retail client portfolios, remain grossly under allocated. This is in part because financial advisors lack sound means to quantify and demonstrate their accretive portfolio benefits. Given mind boggling heterogeneity across 40 sub-types within real estate, private equity, hedge funds, liquid alternatives, managed futures, oil & gas, credit structures and fixed income substitutes, these investments are poorly understood.

ActiveAllocator is built to account for the special issues that arise when it comes to allocating to complex products and alternative investments, for which Modern Portfolio Theory does not work. These include (i) stale pricing which creates serial correlation in returns which understates true volatility; (ii) reporting bias from instant history, survivorship and selection bias which overstates index returns; (iii) volatility is not a proxy for risk as historical returns exhibit negative skewness and kurtosis as well as downside risk; (iv) illiquidity demands a premium, but is hard to calculate as it varies; (v) managers exhibit style drift which is hard to catch given asymmetric information; and (vi) difficulties in differentiating between expensive active skills versus cheap passive market exposure.

We bring best practices utilized by the most sophisticated institutional investors to the affluent and High Net Worth investor. Financial advisors leverage our cutting-edge algorithms to create thoughtful, supportable exposures to private equity, private real estate, hedge funds and other liquid alternative products, private debt and managed futures. We help facilitate constructive client discussions around specific, quantifiable benefits of alternative asset classes.

We account for, among other things:

  • stale pricing, serial correlation and understated volatility;
  • reporting bias;
  • volatility failing to reflect risk;
  • time variant illiquidity premium;
  • inefficient markets;
  • style drift and asymmetric information; and,
  • skills versus market beta exposure.

Buy vs Build?

Our core growth strategy capitalizes on several long-term industry trends that continue to be valid and strong. One of them being enterprise users’ propensity to buy and adapt newly available digital technology rather than build in-house from scratch.


The enterprise market is huge and varied consisting of asset management firms, banks with wealth management divisions, foundations, endowments and other institutions of varied levels of sophistication. All of them are driven by a desire to build deeper client relationships, help clients navigate through making asset allocation decisions and becoming a relevant added value partner. These participants recognize that the new generation of customers who do value financial advice are cost conscious and appreciate the role technology plays. They also seek to attract younger investors who stand to inherit assets through wealth transfers as baby boomers age. Such firms are however often quite undifferentiated, making it hard to achieve efficiency and scale. Tightening regulation, enhanced fiduciary standards that put investor interest ahead of an advisor, the search for transparency in pricing and the digital revolution are all drivers of change in this space. Enterprise customers seek to build a customized, private-labeled technology platform to support their financial advisors with digital investment solutions and services; one that ActiveAllocator provides.


Catalyzing Financial Advisor Migration to Independence

ActiveAllocator’s core growth strategy capitalizes on several long-term industry trends that continue to be valid and strong. One of them being  the trend of financial advisor migration to independence. The past decade has seen a secular shift in the preference of financial advisors to be independent of wirehouses who sponsor investment products, with attendant conflicts of interest. While gaining greater control over the advice they provide, independence also requires that advisors identify more efficient resources. This includes greater reliance on technology, not only for providing advice, but also for documenting the origin and disposition of such advice. is a great resource for enabling this.


$130 bn Strategic Asset Allocation Inefficiency Dead-weight Cost

Why do RIAs / financial advisers, private banks, wealth management firms not remove dead-weight costs of $130 billion just alone from strategic asset allocation inefficiency?

And pass those to their clients, making everyone better off. That’s what Nash equilibrium would suggest. Yet they don’t.

A reason,  among many is a slippery slope. This opens the Pandora box of $260-$300 billion being paid in advisory fees.

ActiveAllocator changes all this in 10 clicks and 10 minutes, at a tenth of cost.

Advisor Fees and Inefficient Asset Allocation to Destroy $400 bn in 2018

We estimate that retail investors lose around $400 billion annually in advisory fees and inefficient model portfolios. This value destruction is both explicit in typical 1% or higher fees charged and implicit in  further 0.5% or more model portfolio asset allocation inefficiency. This is in addition to other contracting frictions, product commissions and costs.

At ActiveAllocator we are driven by an authentic mission. To increase expected returns for millions of investors by eliminating the loss that’s built into the way the retail financial advice and investment management industry is currently structured. To remove the dead-weight costs of $130 billion from strategic asset allocation inefficiency and to drastically reduce the $260-$300 billion in advisory fees. One portfolio at a time, across 33 million individual portfolios.


Traditional Asset Allocation is Costly, Impersonal, Inefficient

Traditional forms of creating and delivering asset allocation advice are costly, impersonal and  inefficient. An astonishing 15-25% and more of annual retail investor return is destroyed through a combination of advisory fees and portfolio allocation inefficiencies. Financial advice based on costly in-person advice is broken. Financial firms can’t provide personal advice to everyone profitably, few customers want to pay for it, and many customers don’t trust financial advisors. Such advice typically puts investors in impersonal “model portfolios” that commoditize and marginalize financial  advisors. Worse still, investing clients rarely know how inefficient their portfolios really are, and financial advisors are unable to validate the value of their services.

ActiveAllocator scores consistently high across these criteria.