The Dark Side of Technology Consolidation

What makes this whole incident even more curious is that Riskalyze didn't have to take on this level of brand risk, as it is by far the market leader in its category.

By definition, market leaders do not need to engage in guerrilla marketing, as the only outcome will be to elevate competitors, damage their own brand and plant doubt in the industry regarding the long-term viability of the firm.

Even more curious is that the approach is so out of character for Klein, as he is widely known, admired and respected as a collegial, authentic and positive leader.

Which leaves the industry scratching its collective heads and wondering, why this approach? And why now?

One popular theory is Riskalyze's evolving strategy to venture further up the investment management supply chain, not by acquisition, but by adding new capabilities for trading and rebalancing, model marketplaces and even a white-labeled robo advisor to the platform. At the same time, Riskalyze has pursued an aggressive integration strategy with adjacent technology platforms, successfully embedding itself in just about everyone's workflows.

As a result, it could be that Riskalyze is running out of room to collaborate with the industry and now needs to compete directly with the consolidating giants.

Riskalyze's evolution brings the profitable basis points that TAMPs, trading, rebalancing, reporting and portfolio management systems deliver directly into Riskalyze's competitive sights — all of which, by the way, make up the majority of Orion's revenue streams. Thus, it is clear that Riskalyze and firms like Orion have been on a collision course for some time.

Complicating matters for Riskalyze is the capital raise of $20 million in institutional funding it received from FTV Capital back in 2016. Perhaps that equity needs to be replaced, as PE and VC funding typically has a time frame of five to seven years?

These financing issues could be putting even more pressure on Klein and Riskalyze to grow faster and attract new investment as more large-scale competitors are entering the risk space, such as Orion with its purchase of Hidden Levers.

Don't Offend Prospects

As a result, the attack campaign becomes even more confounding given Riskalyze's precarious "boxed-in" position as an island in a sea of giants. The best it can come up with is to assault smaller competitors, which it had to know had the real possibility of backfiring in a spectacular way.

This competitive message had no chance of propelling the brand forward, let alone persuading Hidden Levers and Rixtrema users to change their minds and buy Riskalyze licenses instead.

The particularly aggressive message suggested that, as an advisor, if you use these platforms, then you are not worthy. I'm pretty sure that in the history of business, deliberately offending prospects has never worked as a marketing strategy.

As we look forward, the question remains: Is this just a marketing blunder or the start of an ongoing war, as Riskalyze's product development road map brings it more into direct conflict with the consolidating giants and the rest of the wealthtech industry? Will others move to the dark side and respond in kind?

Meantime, history has taught us that the more an industry consolidates, the more opportunities are created for innovators on the fringe. The good news is that all you have to do is take one look at Michael Kitces' fintech landscape chart to see the light glowing from the emerging renaissance in technology innovation that is alive and well in the independent wealth space.

Timothy D. Welsh, CFP, is president, CEO and founder of Nexus Strategy, LLC, a consulting firm to the wealth management industry and can be reached at [email protected] or on Twitter @NexusStrategy.