There are so many amazing technologies available to advisors today from practice management to portfolio design to marketing. One technology that has become pretty popular with my advisor clients over the past year is HiddenLevers. Today, I want to give you a quick overview of what’s cool about HiddenLevers and how it works.
HiddenLevers markets itself as a risk modeling and stress testing technology, but it’s actually a bit more than that. It combines a proprietary risk tolerance survey with basic portfolio stress testing and a really cool scenario planning tool that can help your clients understand how specific events can impact their portfolios. Here are the main features and how you might use them with clients and prospects:
Risk Tolerance Survey
The HiddenLevers Risk Tolerance survey is a way to determine the greatest loss a client is comfortable experiencing before they see a recovery. For example, if the client scores 24%, that means they are comfortable experiencing a 24% drawdown in their investments before recovering.
You would use the risk survey similar to Riskalyze, to get on the same page with your clients about how much risk they’re comfortable with. You could also use it with prospects to show them that their current portfolio doesn’t match their risk tolerance.
Basic Stress Testing
Once you’ve entered your client’s account into the system, you can begin stress testing their portfolio to find out how much they would gain or lose in different scenarios. You can move the levers yourself, for example to stress test against an increase in interest rates or a decline in the S&P 500.
The output on the right shows the impact on the portfolio in both returns and dollar value. With interactive stress testing you can see the effect on a client’s portfolio with multiple variables adjusted, such as a stock market decline with rising unemployment.
From there, you can create a stress test report that shows the potential upsides and downsides for the portfolio and how much the client would lose in each situation. This can help your client feel more confident in their portfolio and less in the dark about how certain risks could impact their wealth.
The Scenario Planning feature is my favorite feature of HiddenLevers. Their Scenario Library is a collection of common scenarios you may want to use to stress test a portfolio. Here are some examples:
- U.S. Housing Price Changes
- Tech Bubble Correction
- Climate Disasters
- Trump Agenda
A Scenario Planning Example
Here’s one built-in scenario you can test within the scenario planning tool:
What if the United States gets involved on the ground in Syria, akin to the 2003 Iraq War?
- This scenario is based on part for the market drawdown from Jan 14, 2003 to March 11, 2003, in the runup to Gulf War II.
- Syria’s economy is a fraction of the size of Iraq’s, and it is not a major oil producer, diminishing the impact of US involvement here.
This means that you can run a stress test for a client’s action portfolio for given scenarios. Say you have a client with $164,000 in an IRA that’s invested 100% in equities. Using the war in Syria as a test scenario, your client’s account is likely to go down 7.5% or $12,300.
This tool has the potential to help clients feel educated and informed about how their portfolio would perform in different situations. It shows that you have considered and prepared for multiple risks to their wealth.
The hedging wizard allows you to select a client’s portfolio and hedge it against a scenario they may be worried about. For example, we could select Barbara’s IRA and hedge it against a terror attack in the U.S.
To get started, we would select that we’d like to run a screen for mutual funds that would hedge against the terror scenario. Once we run the screen, we can select mutual funds to add to Barbara’s portfolio. It turns out that gold, precious metals, and commodities protect against losses in this scenario. By adding a gold and precious metal mutual fund to Barbara’s portfolio, you can lower the potential loss in the event of a U.S. terror attack.
That’s great to know, but what do you do with the information? Scenario hedging allows you to run a “hedging screen” to find out which investments would hedge against this loss. It turns out that oil, gas, and defense investments would hedge against this scenario. You can allocate a portion of their portfolio in these investments and view the results with the hedge.
The result is a new portfolio that is more resilient to the scenarios that your client might fear.
Finally, you can compare portfolios for all given scenarios. This shows the potential impact on two accounts for each scenario and which portfolio performs best in each. This feature could be a great way to show a prospect that a more diversified account can protect them better from many different scenarios they may face in the future.
War Room Education Webinars
In their monthly War Room Webinars, HiddenLevers experts present the potential economic effect of scenarios that concern investors, such as Fed Unwinding. The educational webinars help advisors understand potential market changes and be informed about the markets.
Overall, HiddenLevers provides several important technologies in one easy-to-use package. You can assess risk, stress test portfolios, and show clients concrete models of how their portfolios may perform in different markets. The starting price of $300 per month for one advisor makes it a competitive solution. You can schedule a demo or sign up for a free trial at hiddenlevers.com.
What are your favorite technologies? Which technologies would you like me to review next? Comment below or email me at firstname.lastname@example.org.
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Claire Akin runs Indigo Marketing Agency, a marketing firm serving top independent financial advisors. Claire is a former Investment Advisor Representative who holds her MBA in Marketing from the Rady School of Management at UC San Diego as well as a BA in Economics from UC Davis. It’s her goal to help specialist advisors target their ideal prospects with content marketing.