Investment POD is Bringing Wealth Management to a New Generation

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Technology has removed the human element from much of our daily lives. Automation allows industries to adapt to changing markets and reduce costs faster and more efficiently than ever. Unsurprisingly, the wealth management space has seen an influx of automated services, known as robo advisors, that allow investors to manage their money without the necessity of a human intermediary.

Jackie Ko Matthews of Investment POD
Investment POD’s Jackie Ko Matthews

But financial minds, like Investment POD founders Jackie Ko Matthews and Peter Matthews, believe technology is more of a tool than an end solution in the investment world. Jackie spent years at Goldman Sachs, spearheading the opening of its Taiwan and China offices before working in the ultra-high net worth family business. Peter developed algorithmic trading strategies and founded Mint, the first Commodity Trading Advisor to cross the $1 billion threshold.

The pair believes the path to success lies in the combination of robo advisors and traditional wealth advisors, rather than relying on one or the other.

The Problem:

“Whether you’re an institution trying to manage billions of dollars or an individual trying to manage $100,000, the core problem is still the same,” Jackie Ko Matthews says. “Everybody, no matter what size, wants to create a portfolio that stands the test of time and weathers the market’s storms through all sorts of market cycles.”

One of the simplest steps in doing that has always been asset diversification— spreading wealth across different areas. But diversifying investment strategies is also crucial.

The three main pillars of investment strategy are passive buy-and-hold, opportunistic asset allocation and defensive risk management.

The most common is passive buy-and-hold, which is designed to look past short term gains. Investors purchase assets and retain them throughout market fluctuations. “No matter what the market does, it will come back,” Matthews explains. “Don’t worry, don’t get out, it will come back.”

Many wealth management shops operate on this principle, and every robo advisor service does as well, because it’s the simplest.

But if the market crashes like in 2008, patiently waiting out the downdraft is difficult, especially if you’re an investor nearing retirement and every day your nest egg is shrinking. That 2008 carnage wasn’t an atypical event, either.

“Over the last 100 years, at least once every 10 years, passive buy-and-hold [strategies] have a devastating drawdown that devastate or impact retirement portfolios,” Matthews says.

That’s where a diversified strategy can ease the pain.

“Empirical evidence shows if you combine opportunistic asset allocation strategies with defensive risk management strategies and complement that with passive buy-and-hold, over the long run you should get equal or higher returns with much lower drawdowns,” Matthews explains.

Head swimming? Don’t worry. Matthews has a simpler way to explain it.

“When you’re losing money you’re getting ulcers. We measure it by something called the “Ulcer Index.” That’s the mathematical measure of the depth and duration of drawdowns,” she says.

The more diversity in your investment strategies, the less impactful the drawdowns will be; which means an ulcer-free financial status.

Some existing wealth management shops offer that strategy diversification, but are largely inaccessible to average investors. To offer those services, firms spend tons of resources and time on research and due diligence, and that cost gets passed on to the consumer. They simply won’t expend those resources unless the amount of money they’re managing justifies them.

Investment POD’s Solution

But Investment POD has a fix. By creating an algorithmic tool that allows wealth managers to automate much of the research, due diligence and strategy diversification, it reduces the cost of offering multi-strategy solutions to investors.

“What we are doing is taking multi-strategy approach, which is handcrafted, incredibly labor-intensive and expensive, and we are digitizing it. We’re automating that,” says Matthews.

This allows traditional wealth managers to take on clients with less money, because it costs them less to offer the expanded services. It also gives them digital solutions for clients who are drawn to the robo advisor model. As the baby boomer generation ages, the market is primed for one of the biggest transfers of wealth in history. As those assets move to a younger generation, the industry must have technology-driven solutions to accommodate them. However, Matthews doesn’t believe a pure robo advisor model is the future.

“For the robos to say they can just replace the human being completely and that 100 percent of the world’s wealth will just be managed by robots, so to speak, I don’t think is a realistic prediction of what will happen in the future. I think it’s going to be a hybrid combination,” she says.

The Human Touch

Investment POD believes the human touch is essential, because wealth advisors offer something an automated program cannot.

“It’s their job to know what’s going on in that person’s life. If their kids are getting ready for college, if they just got a divorce, if there’s been a death in the family or if they’re getting ready to buy a new house,” she says. “They know those intangibles that a computer cannot know.”

That knowledge is important, because it allows wealth managers to act as a cushion when emotions get involved. When external factors enter the equation, or even if the market takes a sharp downturn, investors can act irrationally without the buffer of a knowledgeable advisor.

“Usually it’s the human emotions that get in the way of people making the worst decisions in their life, mostly driven by fear and by greed,” Matthews says.

That’s ultimately why Investment POD decided not to go straight to the consumer. In an effort to democratize advanced wealth management solutions, they believed it was best to equip wealth management advisors with streamlining tools to better serve their clients, as well as allow them to serve more clients.

The ideal result is a lower Ulcer Index for a greater number of people. Not only will investors get better strategies regardless of their net worth, they’ll still have a human face to turn to in times of uncertainty; a combination usually reserved for the ultra-wealthy.

As the market begins to reprice itself, the robo advisors will face a significant test. Offering cheaper services is a valuable tool when economic times are good, but when money begins to disappear, the technology may be ill-equipped to handle the human element.

“The robos are under a lot of pressure. If we have another 2008 and they are on a single strategy passive buy-and-hold with basically no human contact and no human emotional support, I’m not trying to predict anything but it’s human nature that a lot of that money will get pulled from those robo advisors,” Matthews says. “Because the robos are lacking the human advisors to basically reassure them and stop them from making irrational decisions in times of fear.”

This blog was created in collaboration with SixThirty, a member of the EQ Partner Network.

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