Episode 5: It's 2021! What did we see coming?

In this episode, Julie Mochan talks about the volatility in the "short squeezer" stocks and when RiskPro was able to spot the potential risk.   
Julie's guest is Glen Schreitmueller, Chief Product Officer of ProTools, LLC, developer of RiskPro. 
Glen and Julie dig into RiskPro, their new integration with Envestnet, and what a financial institution can easily do to uncover risk in their entire book of business before it can create a problem.
 
For the latest, visit Our Blog!  https://www.riskproadvisor.com/blog

This is a short fun listen with bonus features like....how to create a "gutter garden" :) ping me for more links juliem@tpfg.com
Full disclosure - I never liked the word “ping” - unless it was accompanied by “pong”.  Jus sayin.
 

About RiskPro

RiskPro® is a revolutionary technology platform that provides risk profiling, portfolio construction, and automated account surveillance. Serving as the World’s First Virtual Portfolio Strategist, RiskPro evaluates and communicates risk for investors, advisors, and home offices, utilizing a common language that is simple to understand. RiskPro was developed by ProTools, LLC., a RegTech innovator headquartered in Newport Beach, CA. To learn more about how RiskPro enables financial institutions to achieve Perpetual Suitability. visit www.riskproadvisor.com Follow us on LinkedIn
For more information about a "free look" period for your data, email us at: ENVRiskPros@riskproadvisor.com

About Envestnet

Envestnet, Inc. (NYSE: ENV) is transforming the way financial advice and wellness are delivered. Our mission is to empower advisors and financial service providers with innovative technology, solutions, and intelligence to make financial wellness a reality for everyone. Over 105,000 advisors and more than 5,100 companies including: 17 of the 20 largest U.S. banks, 47 of the 50 largest wealth management and brokerage firms, over 500 of the largest RIAs, and hundreds of FinTech companies—leverage the Envestnet platform to grow their businesses and client relationships.

For more information on Envestnet, please visit www.envestnet.com, subscribe to our blog, and follow us on Twitter (@ENVintel) and LinkedIn. 

RiskPro and Envestnet are separate and unaffiliated firms, and are not responsible for each other’s services or policies. This release should not be construed as a recommendation or endorsement of any particular product, service, or firm.

Music by:  Araelia Lopatic

Transcript

The Translator Episode 5:  What we saw coming...

Julie Mochan: [00:00:00] Hello everyone. And welcome to The Translator 2021 This is a podcast brought to you by RiskPro, where a Wealth Tech and RegTech converge. My name is Julie Mochan The strange and unusual year of 2020 is behind us. And, uh, now we're just charging forward, Into the new, not necessarily final frontier or even efficient one, but it's, it's a frontier. So let's, go. I know some of you are not used to wearing masks you don't know where the truth lies in the news. The government is doing strange things but yeah, it's not muscle memory to put a mask on. Right?  But I'll say this, [00:01:00] that in 2021, Where the state and federal government are telling us what to wear let's make it look good. All right. Um, is it uncomfortable?  Yeah, but I'm not comfortable in anything I'm wearing at the moment. So it doesn't matter.   In this episode, I talked to a financial services industry insider with a hefty 30 years of sales and product management experience in the software as a service (SAAS). industry as well as Beacon Strategies. Broadridge, ADP, and Xtiva before joining ProTools, LLC as Chief Product Officer

Not a data geek. But. He does havea tendency to talk sometimes in a way that sorta well I'll play the clip, 

Bud Haggert via Dave Rondot: [00:01:42] Such an instrument is the Turbo Encabulator.  (https://www.youtube.com/watch?v=Ac7G7xOG2Ag) Now, basically the only new principal involved is that instead of power being generated by the relative motion of conductors and fluxes. It is produced by the modial interaction of magneto reluctance and capacitive directants [00:02:00]  ,    

Julie Mochan: [00:02:00] He's a Big 10 boy, university of Michigan. And I tend to pronounce his name incorrectly almost every time. And I think he is so used to me doing that, that he automatically corrects me, even if I do get it right. 

Glen Schreitmueller -we're going to talk to him about things like a vertical gardens, drip irrigation, cool financial stuff, shortstops, not shortstops. Wow. I think my brain just tried to normalize. The revolutionary Reddit, squeeze of GameStop short sellers into something sports-related and I don't even like baseball  but let's think, think about this.  You're  stuck in your house. you can't do all of the things that you normally wanted to do, like sporting events. concerts, et cetera. So you're forced to spend more time on apps. You're forced to spend more time on the internet to have conversations with 

[00:03:00] people that you love. And you end up spending so much time. on your phone and on worldwide webs. that you've become. You know, that you have this digital life. And it's most of it's gamified, you're betting on sports, maybe, draft Kings, Sportsbook, It's. an easy transfer From playing a game online to playing a "game". on a trading site like Robinhood. So you're now using money that may be, you have received because you don't have a job and you're hanging out on the. Internet. And, Next thing, you know, you're in a Sub Reddit. 

WSBs, or you're on Discord and you're noticing, Hey, this game looks really fun. And it's real money. we'll see how this all plays out, but I, yeah, I totally blame this sort of  Pandemic -driven hyper digital revolution on what is currently taking place in a sub sector of the equity markets ;whether it's a [00:04:00] paradigm shift or not. I think we can say that things would not have moved as quickly in this direction. If people were, acting like they normally did and were able to leave their houses for God's sake. Anyway,  it's difficult now to use fundamentals to valuate,a company and know. 

You know how it's going to move. So how do you know that if you have all of these new traders in the mix, along with the hedge funds that are using. Options margin and shorts and manipulating the market. Like we haven't seen before the volatility is off the charts,  anyway. That's where RiskPro comes in because,  it's not using fundamentals to look at a stock. Or a company it's using the volatility and this is obviously a really good thing for our company. That we had nothing to do with, by the way.

 So it was actually the month of December. when RiskPro is radar [00:05:00] caught the volatility In GameStop. 

It wasn't the end of January when mainstream media was talking about it and everybody was jumping in and you know, there's no bottom if, if you shorted it.

So they're just going full force at pushing these guys out and hedge funds, I'm sure each other, but if anyone's portfolio was monitored by RiskPro, you would have seen the spike in volatility way before it hit the mainstream

And as similar, to a portfolio that I saw volatility in a couple of years back. I think it was like 2018 where I was testing some blue chip stocks. You know, there was energy, consumer cyclicals, some technology, retail... some high dividend payers. 

like maybe 4 or 5 stocks - 20% of the portfolio was One stock.  And that one stock made up 60%. Of the volatility [00:06:00] in the portfolio. And, I was working alongside the UI/UX Teams at RiskPro at the time. And, I ran this thing, like you did a double-take. I ran it through a couple of times going, what in the heck? 

Who would ever think, just looking at this portfolio (a basket of individual equities) that Nordstrom would be the most volatile stock in the portfolio. That boosted the risk in the entire thing so much. And even though it was only 20% of the total holdings. The,distribution of risk in the portfolio was nearly 60%. So that was obviously a huge eye opener to me. And so I was able to, give that information to an advisor and say, okay, this is how you use this.

And whether or not someone has had that Nordstrom in their life for a long time, and they're looking at not selling it all because of capital gains taxes. Um, at least they knew, right. They had something to go on of what the [00:07:00] future could bring for that portfolio if they didn't diversify out of it.   And speaking of capital gains taxes, I wonder what all of these, uh, Reddit short squeezers are going to do when they find out how much tax they owe on their gains.

Hmm. All right. Hey, I almost forgot. I have a guest. I have a guest and he's here with me today. His name's Glen Shrike, Mueller, and it's Miller, actually Glenn SchreitMueller.  I like analogies to remember things. And, that very German name he has, he reminds me Miller is, you know, someone  who mills grain , 

And Schreit means like stride. So apparently his ancestors went door to door saying . I can mill your grain. And that's what, I think he said to us when he came to us, when we were switching from version four of RiskPro, into new development for version. five of RiskPro, which,   we're so happy to launch here, in Q1 of 2021. -we're going to talk about a couple of other things, and Glenn, welcome to The [00:08:00] Translator. This is when I introduce you,    len Schreitmueller 

see what I mean?  

so Glen is my guest today, on The Translator podcast and Glen I just told you about his history in the financial services industry. And, he was gracious enough to join us for this podcast for a couple of minutes where we are able to talk about. The big announcement that we made.  About our integrations with Envestnet so if you could expand on that as well, and we'll just see where this goes.

So Glen, welcome to The Translator. 

Thank you very much 

Glen Schreitmueller: [00:08:34] super glad to be here. 

Julie Mochan: [00:08:35] so yeah. Can you know, the Nordstrom story, because it was version four, by the way that I was using at the time, where I was so, Uh, amazed by the volatility that I saw in a portfolio that would, you would have never known. I mean, obviously if you're a CFA and do all the work and you know, all the valuations, blah, blah, blah, but just if you're a layman or a regular advisor, looking at a portfolio, It just wouldn't strike you as being [00:09:00] that quote unquote, risky or dangerous. and that's something obviously that RiskPro does that I have not seen anywhere, past or present.

Glen Schreitmueller: [00:09:08] It's really gratifying to see that it actually happened in real time. I had the occasion recently, my 90 year old father sold this home and he's looking to invest in proceeds. And so I just have just a normal investor advisor conversation about what his goals were and what was he looking for? And we found an advisor he likes and trusts, and I communicated to them and said, you know, this is what he's looking for.

And this is how much risk he's comfortable with. So we just did the quarterly review as he's getting invested in. And I said, why don't you send me over the model? And I didn't tell him what I was going to do, but I absolutely ran it t RiskPro engine. So look at the allocations and see where they were.

And, and even it was fun because he's only about 70% invested, uh, as you, as he's investing the funds, which is good practice, you could tell that based on the direction of what they're doing [00:10:00] and where he's coming in. They're going to track to come in about 4% over what the amount of risk he said he can handle was.

So my father was dumbfounded that I could tell him with 98% certainty that he was going to be taking out a little more risk than he bargained for. And we can correct that now, before we ever get into it it was really, it's really fun to see the software tools that we make, make a difference for people in our everyday lives.

It's really fun to see it it's really mirrors your Nordstrom story. When you look at what the construct of some good ETFs and some good, portfolio construction is, but if you can't tie it to what an investor's goal is to really tie it through, to be what it means, then you can still miss on a great portfolio.

Julie Mochan: [00:10:40] so you took it back to the advisor. That's so cool. And you totally redeemed yourself in your dad's life. He thinks I walk on water. so tell me how that then transfers. You know, I understand it from the advisor side and the side of the investor, how does that transfer to a big institution or big [00:11:00] financial firm?

Glen Schreitmueller: [00:11:01] That's the fun part is you get to see it kind of politics is local and seeing to help advisors build their practices and see how they do that for. An everyday advisor conversation of, let me take a look at your investments and show you what I would do with them. So we've kind of gone through that and seen that real and not in an adversarial way.

This was a proactive way of helping a existing relationship with just the best. Um, but that same concept applies top-down to the enterprise out of everything we've built is we now help enterprises to understand patterns of risk in types of business they have in. Customer segments they have and platform segments that they have to really kind of run the business rather than the business run them.

And we it's always really gratifying too, to help someone look at their book in the mirror and see. That's my book. That's what I'm really, that's what I'm doing for my advisors. And [00:12:00] that's what I'm doing for my investors and how close or how off they are. Unfortunately, quite often, people are startled to see the results of, of how far off they are versus when they think they are in terms of what the investor's expectations and goals are.

Julie Mochan: [00:12:12] So just break that down, make it easy to understand how that works. You know what do I actually have to do? Is it difficult? And then after I do it, what are the next steps?

Typically? 

What i like about the wholeGlen Schreitmueller: [00:12:24] RiskPro company is it's probably the most empathetic organization I've been in. all of us have used a bunch of tools and been handed a lot of puzzles. I hate it when people give me puzzles with presen ts I have enough things I have to solve every day. So we kind of turned that on its ear.

When we sit down with people, we approach things with a lot of empathy and a " batteries included" methodology, which says. Give us your information. And actually we've already gone ahead and done all the heavy lifting and mapping to understand, the source, most popular sources of information, and really gone head over heels with the Envestnet integration we've done.

We'll [00:13:00] make, we'll talk about that to me too, but the idea is just give us permission to look at your data and we'll take it from there and show you an analyze your book and your terms based on your parameters and those of your investors and tell you how you're looking. And I don't know anybody that's been able to give me that kind of top-down full body diagnostic.

In my entire financial FinTech world you can try to drive some software, but we're really putting the investor and the entire firm enterprise in there in a secure way without literally virtually no effort from the firm to do that. And I think that's groundbreaking.

Julie Mochan: [00:13:37] How do you link up to the data? 

Glen Schreitmueller: [00:13:39] It's just giving permission. We've actually done the work within, in this case with Envestnet, uh, with all the Envestnet variants and  they justs securely push us the , the firm's files.

Using their standard, data extracts and we've got extremely detailed mapping and understanding of those files to be able to represent an entire organization on our platform. so just with that [00:14:00] simple authorization, we can take our data and, and spin up RiskPro with virtually no involvement for that, other than maybe specifying a handful of users that you'd like to see it, that includes their Full book of business from clients and households to accounts, to models, to sleeve representations, to risk profiles, to investment policy statements, we've mapped at all. So there really is nothing for the firm to do to turn that on. We've done that. We take all of that and bring back a polished, full user experience with their data in it.

Julie Mochan: [00:14:33] Wow. I have a question. If, and let's just use GameStop because it's, you know, it's the news of the day. If GameStop is an in portfolio, that's one thing, right? If GameStop is owned by a mutual fund manager or it's in an ETF, or a sleeve, is that volatility caught and shown. 

Glen Schreitmueller: [00:14:52] So if we're going to see GameStop in an advisor as portfolio manager model where it's going to surface the most easily, and the advisor's going to [00:15:00] be able to understand the amount of volatility that that is contributing, the amount of risk that's contributing to the portfolio.

And you can see that move because we're updating that data. every day, we're taking a new positions to be able to reflect that and update and run the RiskPro math every day on those books. So you can see the change in the contribution of GameStop to that portfolio's total volatility based on the size of the position.

And so while the, allocation of a position may be the same, as it's price moves significantly up or significantly down. You're going to see that affect the concentration and th of risk in the portfolio. So while it might've been a happy go lucky portfolio component a month ago, it could have a very different representation this year. And getting an early warning sign to say, this is, uh, more volatility than I expect in the portfolio.

So I can take preventative action earlier, and avoid a pothole in the road. 

Julie Mochan: [00:15:55] Is there anything that RiskPro does not analyze like. private [00:16:00] placements, obviously now, if you have a bunch of Pokemon cards in your basement, it's not going to analyze those. 

Glen Schreitmueller: [00:16:05]  So what we do in RiskPro is a couple of things. We actually, as part of that "batteries included". We've got a pretty large set of standard information. That's got reliable pricing for it. So that's typically going to be equities, , fixed income instruments, UITs, As the core of that. And we receive a tangible price history for that, that all of our math is based on a current, contiguous year about observations of price, data on that.

And we use that in a little bit of intelligence, our own to, to apply in cases where there might be some minor holes. for example, for classes of UITs, we've got logic to make, Intelligent decisions about pricing UITs more completely as part of the standard offering.in RiskPro so that everybody's using the same base price information.

And then we've got a hierarchy of enabling firms to assign, um, alternative security proxies for cases where there's less price visibility [00:17:00] available. So that may be an alt that may be a variable annuity, with a complex, sub-account structure that might be, It could be your coins in your basement.

Your Pokemon cards. So you find the firm's got to decide something and it's comfortable as a, as an alternative Asset for a representation.

Julie Mochan: [00:17:16] Hey, let's, let's get off of the financial services industry. take that hat off and put your, hydroponic, vertical garden hat because I, just so the listeners know  that I am no longer on Facebook. So when I look for someone, I have to sort of scan the internet, which I do anyway. I'm kind of creepy that way, but I found a Pinterest thing of a vertical garden on a wall, and I think it was connected to you somehow.

And so that got me excited about doing the same thing, but I need to know how to do it in a way that, um, it's efficient and it works.  

Glen Schreitmueller: [00:17:50] Anybody can do it. It's really easy. So I actually made a, Uh, gutter garden is what I made. I actually built a staircase on a little unused space on the side of my [00:18:00] house and built some stair risers out of some wood that I painted to match my house.

And I installed some regular residential gutters that I bought her Home Depot and filled them with Coco mulch that I got at a hydroponic store. Cause it's super. Neutral and super moisture, absorbent, cocoa, coconut husks. Okay. It looks like, um, like a big barrel bale of ramen noodles and it expands exponentially in terms of water retention.

And then I put in, uh, some drip gardenings and drip tube gardening in the tied to a timer and my regular garden house. And I, uh, ran the tubes through the gutter gardens and I had an, a self-watering contained garden that took advantage of all of the southern exposure I have in the side of my house, which was great.

So I started all my plants there. So I had salad greens, every variety, and every micro green, and just keep cranking them up. 

Julie Mochan: [00:18:58] The first time I [00:19:00] was trying to understand what you were saying. When you said gutter garden. I thought the water actually came from the rain from the gutter water. I couldn't, I didn't go that far, but.

Glen Schreitmueller: [00:19:14] You'd have to kind of put like a carburetor or some kind of inserted tube to slow the water.  

Julie Mochan: [00:19:17] That's the part I didn't get. I was like, how does he not like overdoing it, but you're saying you hooked up, those sort of black seeping hoses in the soil and then planted and, used gutters to plant the plants.   The gutters were the pots

Glen Schreitmueller: [00:19:32] So it's perfect for row. Rows of things are great for row seedlings. You can do radishes couldn't really do carrots cause they would bottom out the gutter, but any kind of, leafy things that you would normally see in a garden row. They're great. Cause there's really no weeding to do.  I actually covered them with plastic wrap to start them. 

Julie Mochan: [00:19:50] Right for the whole germination thing. 

Like your name. Glen Germinator. .  

Glen Schreitmueller 

Thank you so [00:20:00] much. 

I, want to talk to you a lot more about micro. gardens. And we'll do that again. When we have you back, Thank you very much  I'm super excited to edit this and get it out the door for the world to hear because, we're right up against this launch. And, I want every firm be able to, have the ability. 

To see what lies beneath as far as risk goes 

 And to achieve and maintain Perpetual Suitability. This is where I want to say, um, stay classy San Diego, but it's not my line and it's not appropriate. But i 

Julie Mochan: [00:20:37] Please look for all of the links of everything you heard in this podcast on the podcast site, The Translator by RiskPro.  If there's something you can't find, please reach out to me and I will be more than happy to talk to you. If you would like to be a guest on my podcast, I would love to talk to you about that as well.