Introduction

Risk scoring is foundational to aligning investment strategies with client needs, but standardized, off-the-shelf tools may not always reflect a wealth management firm’s unique philosophy or client demographics. Developing a proprietary risk scoring model tailored to your firm’s approach offers a competitive advantage, fostering client trust and operational differentiation.

This article delves into the benefits of building proprietary risk scores, the challenges of implementation, and how Milemarker provides the infrastructure and tools to simplify and accelerate this process.

The Case for Proprietary Risk Scores

While tools like Riskalyze or Nitrogen Wealth are widely used, they may not fully align with a firm’s unique approach to client risk assessment. Challenges of relying solely on off-the-shelf solutions include:

1. Generic Methodologies

Standardized tools may not account for specific client factors or niche investment strategies.

2. Limited Customization

Pre-built tools often offer limited flexibility in adapting risk calculations to reflect a firm’s philosophy.

3. Inconsistent Data Integration

Firms using multiple risk tools across advisors may experience data silos, creating inefficiencies and inconsistencies in reporting.

As Kitces highlights, “Advisors who personalize risk assessments to better fit their client base not only build trust but also improve portfolio outcomes.”

How Milemarker Enables Proprietary Risk Score Development

Milemarker provides wealth management firms with the tools and infrastructure to design and implement proprietary risk scoring models. Here’s how it works:

1. Centralized Data Management

Milemarker’s unified data model consolidates client information into a single source of truth, ensuring consistency across risk scoring processes.

2. Custom Algorithm Integration

Milemarker supports the integration of proprietary algorithms, allowing firms to develop tailored risk scoring methodologies that better align with their investment strategies.

3. Real-Time Updates

Risk scores calculated using Milemarker’s infrastructure update in real time, reflecting changes in client profiles or market conditions instantly.

4. Automated Reporting

Milemarker’s data warehouse infrastructure generates standardized reports, simplifying compliance and providing clients with clear, actionable insights.

5. Seamless Tool Integration

Firms can integrate Milemarker with existing platforms like eMoney, Orion, or Salesforce, enabling proprietary risk scores to seamlessly integrate into advisor workflows.

Case Study: Building a Proprietary Risk Model

A mid-sized wealth management firm specializing in high-net-worth clients wanted to account for factors like alternative investments and philanthropic goals in its risk assessments.

Before Milemarker:

• Advisors relied on standard tools like Riskalyze, which did not account for unique client goals or complex portfolios.
• Data silos made it difficult to track and integrate risk scores across the organization.

With Milemarker:

• The firm used Milemarker’s platform to integrate proprietary algorithms that evaluated risk based on custom metrics, including exposure to alternative assets and charitable commitments.
• Risk scores were seamlessly shared across CRM, financial planning, and portfolio management tools via Milemarker’s real-time integrations.
• Advisors delivered highly personalized risk assessments, strengthening client relationships and improving portfolio outcomes.

The Benefits of Developing Proprietary Risk Scores with Milemarker

1. Tailored Client Solutions

Proprietary models allow firms to account for unique factors, providing a more accurate and personalized risk assessment.

2. Operational Efficiency

Milemarker automates risk calculations and data synchronization, reducing the time spent on manual data entry and reconciliation.

3. Enhanced Compliance

Proprietary scores are backed by Milemarker’s automated reporting capabilities, simplifying audits and ensuring regulatory compliance.

4. Differentiation in the Market

Custom risk scores demonstrate a firm’s unique value proposition, setting it apart from competitors relying on standardized tools.

As EY notes, leveraging customized processes in wealth management not only boosts efficiency but also builds client trust.

Steps to Develop Proprietary Risk Scores with Milemarker

1. Define Key Metrics

Identify the specific factors that should influence your risk assessments, such as investment philosophy, client demographics, or niche strategies.

2. Design the Algorithm

Work with your team to build a proprietary algorithm that reflects your firm’s unique risk methodology.

3. Implement Milemarker’s Data Model

Use Milemarker’s data model to centralize data and integrate your proprietary algorithms seamlessly.

4. Integrate Tools

Connect Milemarker to existing systems like CRM, financial planning tools, or portfolio management platforms to ensure risk scores are accessible across workflows.

5. Train Advisors

Educate your team on the new scoring system and how to leverage it effectively for client interactions.

6. Monitor and Refine

Continuously evaluate the performance of your proprietary risk scores and refine the model based on feedback and changing market conditions.

Conclusion

Developing proprietary risk scores is a powerful way for wealth management firms to differentiate themselves, improve operational efficiency, and provide tailored client solutions. Milemarker’s infrastructure accelerates this transformation, offering a unified data model, seamless integrations, and automated reporting to simplify implementation.

As Kitces notes, “Personalized risk assessments are key to aligning portfolios with client goals and building long-term trust.” With Milemarker, wealth management firms gain the tools they need to bring these personalized solutions to life.

For more information on how Milemarker can help your firm, visit Milemarker’s Data Model or Milemarker’s Data Warehouse.

Works Cited

“How Data Modernization Can Benefit Advisors and Clients.” EY, 2023, https://www.ey.com/en_us/insights/wealth-asset-management/how-data-modernization-can-benefit-advisors-and-clients.

Kitces, Michael. “The Importance of Risk Assessment in Client Relationships.” Kitces.com, https://www.kitces.com.