Vancouver-based Responsive Capital Management is looking for Asian financial institutions interested in adapting its artificial intelligence to the back end of wealth management.
Although Responsive markets itself in public as an AI-driven tool for investing, its business model to date has relied on leasing its technology to other wealth managers to improve their operations.
This raises the question of a robo-advisor’s true value. Is it the investment decisions, or the user interface and automation of back-office operations?
“We want to help wealth managers compete through a better client experience and outcomes,” said Davyde Wachell, the company’s CEO.
DigFin spoke with two of Responsive’s clients in Canada on the condition of their anonymity.
One, a wealth manager, contracted Responsive in mid-2016 to build a white-label version of its technology. But it wasn’t interested in Responsive’s AI-driven investment tool. “We have our own optimization tools for investing,” said a representative of the wealth manager. “We wanted the platform: it’s got a pretty user interface” for customers and advisors.
Another client, a C$1.1 billion asset management company, took on Responsive’s tech for reporting and client on-boarding, including know-your-client processing. “We’re a paper-based firm,” said one of the company’s partners, noting it needs to automate in order to cut costs.
One of its partners is also related to Responsive’s CEO Wachell.
Wachell, during a visit to Hong Kong in January, said Responsive is looking to partner with a private wealth manager in the region wanting to create a digital channel to its customers.
“We’re looking [for partners] in Hong Kong and in the newer markets in Asia,” he told DigFin. “Sensible wealth management has a future here – assuming investment behavior changes.” He believes a more comprehensive and disciplined investment methodology can take hold among the region’s generally short-term, transaction-oriented investors if it’s packaged properly.
That means an emphasis on providing basic operational components to local wealth managers or insurance companies, rather than pushing Responsive’s own asset-allocation platform, he said.
For now, Responsive treats its retail-facing advisory platform as means of experimentation rather than as its core business. Like other robo-advisors, it uses AI to develop a portfolio of exchange-traded funds for customers, but its version is more active, using market and economic data to adjust portfolios rather than creating a ‘set and forget’ menu of options.
“That’s a wealth-management lab,” Wachell said of the robo-advisory part of the business. “We run it to be aware of customers, of clience, and other concerns. The real business is B2B, selling the platform to IT and back offices, where the client experience often gets displaced.”
Both of his clients cited this as a reason why they are working with Responsive: it’s already gone through Canadian securities compliance and KYC rules.
This may be less relevant for customers outside of Canada, however, so any attempt to find partners in Hong Kong or other Asian territories may require the firm to expand its front-end advisory service to customers in new markets.
Wachell declined to discuss the company’s finances or revenues. He said the business can go “a long time” without funding pressure, although he would like to tap new sources of capital in order to enter new markets or build new products. “There’s a lot of research I want to do on the active asset-management side,” he said.
One client estimated Responsive had two years' worth of funding, if it didn't increase revenues. He said if his employer became reliant on the service, it could in a pinch employ Responsive's team itself.
A number of factors, such as the high cost of client acquisition, will continue to make that difficult for robo advisors. Is white labeling the digital interface for more conventional wealth-management businesses the future for robo survivors?