Riskalyze tears into Orion’s HiddenLevers over predictive modeling

The competitive atmosphere among adviser tech just got a lot thicker after Riskalyze launched a highly publicized campaign Tuesday claiming the risk methodologies used by competitors are inaccurate and lack fiduciary responsibilities. 

Riskalyze co-founder and CEO Aaron Klein countered competitors HiddenLevers, which Orion purchased in March, and RiXtrema “predictive guesswork models” calling it “wildly inaccurate,” compared with the Riskalyze approach of a “historical data model,” according to the post via Riskalyze’s website. 

“Advisors should beware: There are two very different approaches to risk analysis and stress testing,” Klein said. “Riskalyze leverages a Historical Data Model and calculates a historical range to illustrate risk and support client behavior.”

A historical data model, according to the post, uses objective data to calculate a range of historical probabilities for a portfolio, based on the actual risk in the underlying securities, strenuously avoiding subjective assumptions that can lead to guesswork.

“Tools like HiddenLevers and RiXtrema are spearheading a Predictive Guesswork Model that attempts to forecast what complex markets and portfolios will do,” Klein said. 

A predictive guesswork model makes guesses about what will happen to a variety of levers in a complex market, and tries to model the impact on a portfolio if those guesses are correct.

In the risk tolerance software space, Riskalyze dominates capturing 25.8% of market share, according to T3 and Inside Information 2021 adviser software survey. By comparison, HiddenLevers has just 1.6% of market share and RiXtrema is less than 1%. 

Despite reigning king of risk management tech, Klein felt the firm had to speak up. “We can’t stay silent and allow flawed methodology to put our profession at risk of violating its fiduciary responsibilities,” he said. 

Riskalyze’s post includes a white paper and a short video highlighting language used by HiddenLevers co-founders Raj Udeshi and Praveen Ghanta, calling one of the risk scenarios related to the coronavirus “Kung Flu” during a 2020 coronavirus pandemic-related webinar.

The March 12, 2020 webinar titled “Black Swans are the New Black,” occurred prior to Orion’s acquisition of HiddenLevers. Eric Clarke, founder and CEO of Orion said the firm takes the issues raised by Riskalyze “very seriously” and that the references made do not reflect the values of the combined company today. 

“We regret the insensitive language that was used with the COVID-19 pandemic to describe the scenario, and you will not see this type of reference or anything close to it used moving forward,” Clarke said.

Moreover, the accuracy of HiddenLevers’ risk model has been detailed in white papers, most recently in the summer of 2020 and is “currently backed by a staff of over a dozen and a half CFAs and two behavioral finance Ph.Ds, and a half dozen CFPs,” Clarke said. “We’re confident about the HiddenLevers offering and we’re excited about what we’re building toward.”