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Innovating Fiduciary Risk Assessment for Growth With Mark Friedenthal


Mark Friedenthal

Mark Friedenthal is the Founder and CEO of Tolerisk, a company revolutionizing risk tolerance assessment technology for investment advisors. With a rich background that includes risk management roles at Citigroup, Cendant, and GE Capital and experience as an analyst with the Federal Reserve, Mark has the perfect amalgamation of insights to lead in the financial technology space. He is the Founder and President of Friedenthal Financial, an RIA firm in Marlton, New Jersey. Mark has been published in numerous publications, including Reuters, Financial Advisor, Financial Planning, Investment News, and many others.


Here’s a glimpse of what you’ll learn:


  • [02:25] Mark Friedenthal discusses how Tolerisk helps financial advisors and their clients make informed investment decisions

  • [04:08] The creation story of Tolerisk

  • [06:25] The dual dimensions of risk: willingness and ability

  • [08:43] Mark explains how advisors can navigate conversations with clients about risk tolerance

  • [10:37] How risk tolerance is communicated through Tolerisk’s model

  • [19:31] The challenges of matching clients’ needs with suitable risk levels

  • [24:55] How advisors can guide clients to better financial decisions

  • [32:29] The potential advances in customer experience with artificial intelligence

  • [36:24] Mark shares the budget impact of a leader on his own sales strategy

In this episode…


Balancing risk tolerance with investment decisions can often feel like a high-wire act in the financial world. But what if there was a way to reconcile the personality-driven aspects of risk with the challenging numbers of financial capacity? Could technology hold the key to understanding and effectively communicating this balance to ensure customer success?


Financial guru, math nerd, and entrepreneur Mark Friedenthal discuss the intersection of customer service, business growth, and risk management in the financial advisory sector. He shares the inspiration behind Tolerisk and how his platform empowers financial advisors, helping them to assess and articulate their clients' willingness and ability to take on investment risk, thereby driving better decision-making and business growth. Drawing from his rich background, including his early career role at the Federal Reserve, Mark stresses the importance of integrating financial data in risk assessment to create a tailored customer experience.


In this episode of The Customer Wins, Richard Walker interviews Mark Friedenthal, Founder and CEO of Tolerisk, about innovating financial risk assessment. Mark talks about the philosophy behind Tolerisk, the need for considering both willingness and ability when assessing risk tolerance, the challenges of matching clients’ needs with suitable risk levels, and the potential advances in customer experience with artificial intelligence.


Resources Mentioned in this episode


Quotable Moments:


  • "We help our customers, help their customers understand complicated topics around risk more easily, so they can make better decisions."

  • "Risk tolerance is someone's willingness to accept risk and financial ability to take risk."

  • "My experience as an advisor has helped me keep a finger on the pulse of technology trends and needs."

  • "The confident client exhibits the highest levels of retention. They're the ones that make referrals."

Action Steps:


  1. Embrace technology to enhance decision-making: Incorporating advanced risk assessment tools like Tolerisk can significantly improve the clarity of investment advice for financial advisors, leading to more confident and informed decision-making for their clients.

  2. Keep learning and evolving: Mark's transition from working at the Federal Reserve to launching a tech company highlights the importance of continuous learning and adapting to change, which is essential for staying competitive.

  3. Leverage dual dimensions of risk assessment: Understanding both the willingness and ability to accept risk when advising clients ensures a more holistic and ethical approach to financial planning.

  4. Utilize AI and machine learning innovations: As AI continues to advance, financial services should explore its potential to automate and personalize services, making complex concepts more accessible to customers.

  5. Focus on transparency and communication: Actively engaging clients in transparent conversations about risk can foster trust and retention, contributing directly to business growth.

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Episode Transcript:


Intro 0:02 

Welcome to The Customer Wins podcast, where business leaders discuss their secrets and techniques for helping their customers succeed and in turn, grow their business.

 

Richard Walker 0:16 

Hi, I'm Rich Walker, the host of The Customer Wins, where I talk to business leaders about how they help their customers win, and how their focus on customer experience leads to growth. Some of our past guests have included Tom Rieman of Practice Intel, Justin Bolmgren of William Joseph Capital Management, and Cormac Murphy of CacheTech Advisory Solutions. Today, I get to speak with Mark Friedenthal, founder and CEO of Tolerisk. And today's episode's brought to you by Quik!, the leader in enterprise forms processing.

 

When your business relies upon processing forms, don't waste your team's valuable time manually reviewing the forms. Instead, get Quik!, using our Form Xtract API, simply submit your completed forms and get that clean context-rich data that is 99.9% accurate. Visit quikforms.com to get started. Now, before I introduce today's guest, I want to give a big thank you to Parham Nasseri, the President of InvestorCOM, also a prior guest on this show. Go check out InvestorCOM's website at investorcom.com, and see how their regulatory compliance solutions can help your firm turn compliance into a strategic advantage.

 

All right, Mark Friedenthal is the founder and CEO of Tolerisk, which provides investment advisors with fiduciary caliber risk tolerance assessment technology to accelerate practice growth and reduce compliance risk. Mark also founded Friedenthal Financial, an RIA firm based in Marlton, New Jersey. Previously, Mark was responsible for capital markets, asset liability management and risk management departments at Citigroup, Cendant, and GE Capital. Early in his career, he served as an analyst with the Federal Reserve. Man you got the right background for this Mark. Mark has been published in numerous publications, including Reuters, Financial Advisor, Financial Planning, Investment News and many others. Mark, welcome to The Customer Wins.

 

Mark Friedenthal 2:04 

Well, thanks. Thanks, Rich. I appreciate you having me.

 

Richard Walker 2:07 

I'm excited to talk to you today, for those who haven't heard this podcast before, I talk with business leaders about what they're doing to help their customers win, how they built and deliver a great customer experience, and the challenges to growing their own company. Mark, want to understand your business a little bit better? How does your company help people?

 

Mark Friedenthal 2:25 

So our customers are financial advisors, Investment Advisors. Their customers, of course, are investors, they're clients. And so we help our customers, help their customers understand complicated topics around risk more easily, so they can make better decisions, and they can have the confidence to stick with those decisions.

 

Richard Walker 2:45 

So I want to talk about the product, but I want to think about something else, your customers' customers are your customers, and that's a common thing, I think, in business to business, how do you think through whose success you're trying to drive for first like, how do you help each of them become successful, and when you design a product?

 

Mark Friedenthal 3:04 

So we focus on advisors, that's our customer, but we recognize that for them to be successful, they have to deliver a successful service. So we can't lose sight of how they help their customers. And I think maintaining that sort of second-level view into the process is important. Having been an advisor, has helped me in that regard. And frankly, I we co-locate these two different businesses, so just down the hall, I have access to advisors who are operating presently with clients, and, of course, deep users of Tolerisk. So I get to hear their experiences with their clients on a pretty regular basis, which helps me stay on top of technology trends and needs, and that's how we continue to stay on top of this industry.

 

Richard Walker 4:00 

So tell me your story. Why you did this. I mean, did you build this for yourself and then say, hey, other people need it, or did you leave financial planning to do this?

 

Mark Friedenthal 4:08 

Yeah. I mean, it was definitely a necessity, was the mother of invention kind of story. So I left Wall Street, Geez, it's about 15 years ago already, and started the RIA. I used lots of high-end vended solutions, but I couldn't find a good tool or a good process to help clients choose the right risk level and have something that would evolve with them intelligently as their circumstances evolved. And so I ended up drawing on my previous background, which was a lot of Applied Math. I spent a good bit of my earlier career building math models used in risk management functions, trading and portfolio management, type functions, and so I kind of leaned on that to solve a problem that I had. In fact, you mentioned Federal Reserve, that's really way back in my career.

 

But I think, as a former regulator, my first thought was to look to the regulator in my new, then new environment, which would have been the SEC, and see what were we supposed to be doing around client risk tolerance. And the SEC described risk tolerance as someone's willingness to accept risk and also their financial ability to take risk. And those sort of two terms, willingness and ability, kind of resonated with me. And I thought about the things that I saw out there, and they were mainly these very basic quizzes. They were overly personality-focused. They neglected to incorporate real financial data into the process. So it was very detached from the financial planning process. And I just thought, even in 2009 as a fiduciary, how were we not including the client's financial data, which was pretty readily available, into advice as important as a risk directive, and advisors weren't doing it.

 

And so I decided I was going to remedy that problem just for my own advisors, and so I built this big spreadsheet model which adapted traditional bond math to household cash flows, and that enabled me to measure objectively, what somebody's financial ability to take risk was, and I could also measure how it would evolve over time as their circumstances change. And I was able to calibrate that to a standard stocks to bonds benchmark risk level. And that made it easy to communicate with the client. And then I kind of leaned on my wife, who happens to be a behavioral psychologist with her doctorate degree, and she helped us conduct a psychometric study, an academic study that would allow us to measure an element of someone's personality compared to a population.

 

And so in this case, it was how risk seeking, to risk-averse somebody was compared to a large population, and we could use this to gauge what the cap on their willingness to accept risk would be. And so now we had the advent of the first two-dimensional construct for risk assessment that I felt really embodied the highest fiduciary standards as I read them on the SEC website. And so it was just this big spreadsheet model. And then after a few years of listening to clients rave about it and say they've never seen anything like it, and it's super helpful, eventually, the light bulb went off for me, even as thick as I might be, that there perhaps was a need for this. And in the beginning, I kind of meandered down this path, but ultimately ended up focusing really on this, as we found lots of accolades and lots of need and demand and lots of wonderful partners along the way and so the rest is history, as they say.

 

Richard Walker 4:14 

It's funny. I wonder if Excel and Lotus 123, understood, how many businesses and products would be formed on their backbone. I mean, look, even Quik!, even our forms was built in Excel. The first version was an Excel spreadsheet with images of forms with fields overlaid tied to a database to pre-fill forms. So anyway, that's just an aside. So you said there's two things, the willingness to accept risk, and what was the other one, the ability.

 

Mark Friedenthal 8:17 

Ability. Yeah, financial ability. Some advisors refer to it as financial capacity to take risk, but we've stuck with the SEC nomenclature. So you'll notice our advisors, and on our site, they use the terms willingness and ability there. I guess I'm not moving around enough from my...

 

Richard Walker 8:37 

He's in a dance club.

 

Mark Friedenthal 8:40 

But nothing beats live TV.

 

Richard Walker 8:43 

No, of course not. Okay, so I'm kind of curious, when you put these two things together with your product, your service, or even your spreadsheet, when you're beginning, how do you then confront the client who has a low willingness to accept risk, but a high capacity to take on risk, and potentially should take on the risk.

 

Mark Friedenthal 9:01 

Well, that's a slippery slope. I was with you until you said, should take on the risk. The challenge is, if somebody truly isn't willing to accept more risk, then the advisor potentially places them in an untenable circumstance. There are people who aren't going to be willing to live with the roller coaster, and so the fiduciary advisor really doesn't want to recommend someone take more risk than they believe they're willing to accept, even if they can demonstrate they have a greater financial ability to do so. So it is a little bit of a slippery slope.

 

Now, that said, the conversation that the advisor is having with the clients really paramount, and so our framework is very flexible and really caters to that. So if the conversation yields that the client is, in fact, willing to accept more risk, the advisor can override the client's willingness score. They do have to document it for their own compliance purposes, and sometimes an override could be in contending with two spouses who are on different pages.

 

Richard Walker 10:15 

Right. This is kind of what I was thinking about, like you have one that's high risk, one that's no risk, but their goals kind of demand they have a higher return on what they're getting.

 

Mark Friedenthal 10:26 

Let's separate that for a minute. That's actually a really hot topic, so let's separate the concept of whether their goals require a higher return. Let's put that aside for the moment, when you're dealing with two individuals, let's say spouses or partners, it may be that they're on different pages when it comes to risk, and if they commingle their finances, then they do share one ability to take risk. Now sometimes advisors will have some differentiation to the extent that assets may be titled, some in one spouse's name, some in another.

 

So it might be they both have a 401 K or an IRA, or something like this, and so they may be able to achieve some of that with some differentiation. It may be that the overall cap on risk is chosen to be somewhere in the middle. It may be that one spouse is the primary decision maker, and so maybe there's more deference paid to that spouse's willingness to live with market fluctuations and things like that. There's also other communication. Sometimes the client has had substantial experience, maybe spouse A profiles at a 70, meaning in tolerance.

 

That's a 70/30, stocks to bonds benchmark. So it's very easy to make sure everybody's on the same page with what the outputs mean, and maybe spouse B is a 60. But through communication and dialog, they say Mr. Mrs. advisor, we've had an 80/20 for many years. You've worked with us, and we're comfortable going up to an 80. And so the advisor can override and lift that cap, and the rest of the math will flow through, and the rest of the visualizations will flow through as well. And it would work the other way too. The client says Mr. Mrs. advisor, we've never had more than 50% in the stock market, and we're not comfortable with that.

 

The advisor needs a mechanism to pay deference to that. Now, most of the time you're not going to see huge deviations because the profile of their personality is quite realistic. So most of the time the advisors say the client looks at the results from that psychometric profile and says, yeah, that looks and feels about right. So your example of them having two spouses on different pages that can usually be resolved through advisor-client dialog. Now I want to touch on your other question.

 

Richard Walker 12:44 

Before you go there, before we go there. So your product is helping the client understand their profile, because there's a metric behind it, there's math and science behind it, and then that's also giving the advisory tool set to work with that client. Am I understanding it correctly?

 

Mark Friedenthal 12:59 

Yeah, it's really designed to take what for many are complex topics and make them more understandable and make them easier to explain for the advisor. The standard in the industry with other tools is that they each use their own proprietary scale. We just found that we didn't need to invent that, that most advisors are used to talking to clients about a stocks-to-bonds benchmark, and even if they don't use exactly that kind of approach, that's what they're used to conveying when it comes to some comparison of risk. You're an 80/20, or a 70/30, or a 50/50, or something like this. And so it was easier for advisors to talk to clients about risk using that same framework.

 

So for us, a 100 is the risk level of the total global stock market. I'll tell you. One of the examples that our folks often give is to score the Vanguard Total global stock index fund, and we don't have any formal relationship with Vanguard, and I can't guarantee what will be in their fund in the future, but it scores a 100 in Tolerisk. We don't calibrate it to Vanguard, but we're using that same broadest of broad benchmark indices, and so it makes sense that it scores a 100.

 

Richard Walker 14:20 

Oh, yeah. And there's typically index funds, so, that would make sense.

 

Mark Friedenthal 14:25 

And if you put a Tesla stock in, it scores, I think last I looked, 340 something, right? It's got almost three and a half times the volatility, the long term volatility of that total stock market. So we're not constraining the scale either. So while we don't score a person over 100 a portfolio can clearly have more risk than the total stock market. I would for fun, I put in Bitcoin. You want to take a guess as to what Bitcoin scored in Tolerisk.

 

Richard Walker 14:55 

Okay, I'm gonna give you my wild guess. I'm gonna say something like 5000.

 

Mark Friedenthal 14:59 

Not quite, not quite. I think when I looked at it last, it was a 716 so it has more than seven times the volatility of the total stock market. Now, when we find our peers, when you put a Bitcoin, a Tesla, an emerging market stock, a small cap stock, our biggest competitor scores them all at a 99 because that's the top end of their scale and that's okay, but we find advisors look at positions like that and say, no, they have very different risk levels. We understand why Bitcoin scores 700 if it's got seven times the volatility of the stock market. And it makes it more intuitive to explain what these numbers mean to a real person who may not have this kind of training.

 

These are complicated things. So when we think about a risk assessment, there are really four risks that are really identified and measured and communicated to the client. One is, what is the client willing to accept in terms of a stocks to bonds, benchmark level of risk or volatility. The other is, what are they financially able to take, which may change, by the way, as they migrate towards and through their financial chronology. Imagine you have a young client who's saving up for their first house. Well, if all their money is being used towards that house in a year, well, then they have very low ability to take risk.

 

Now, they may be in great financial shape because they may still be saving money, and they're going to work a long time and they may be willing to accept lots of risk, but right now, their ability to take risk would be low. And I know most people would think, well, you're young, you should have a lot of risk, right? Take an older client. Maybe you have somebody deep in retirement. Now, if you were to look at your average retiree, would they have a reduced ability to take risks? Sure, law of large numbers, that's fair, but there's a lot of variants from person to person, and I've seen examples where you have somebody who's deep into retirement, who's done buying real estate. They're done putting kids through college.

 

As it happens, they have a nice pension, lucky for them, they have Social Security, and they may live on that, so their assets, their principal, may actually chronologically, be expected to be used by children or grandchildren or the favorite charity or something like that, so they have the time horizon of that utilization, and so that person would score with a very high ability to take risk. For them, it's all about their willingness to accept risk. So whichever is really the constraint, I want to get back to something you asked earlier. You said, Well, what if somebody, in a sense, needs to take more risk because they need a higher return? I think that was your implication. This is an area that I think challenges a lot of advisors, and it causes some confusion. If you look at what the CFA society publishes on this, and by the way, not surprisingly, they get it right. They talk about someone's need to take risk in the context that if they may be willing to accept a given level of risk.

 

Let's say they're willing to accept a 70/30, risk level, and let's just say they're able to take an 80/20 risk level, but they could achieve their financial goals of not running out of money with a 40/60 portfolio, right? That means their need to take risk is only 40/60. Well, what happens if you look at it the other way? I think where advisors sometimes step on that slippery slope is they run a financial plan, and let's say it doesn't look so good. There's a higher-than-acceptable failure rate. And so the advisor thinks, what would solve this? Well, higher returns would make this look better. Now we can't just assume higher returns. So what would need to happen to reasonably substantiate an assumption of higher returns? They need to take more risk to be able to substantiate higher returns. Ergo, they need to take a higher level of risk. Now the problem is that if that level of risk is above what somebody's willing to accept, they may not live with it.

 

They may choose it now, but when the roller coaster hits, they may more likely abandon it, and that will cause more long-term damage to a financial plan than if they had chosen the lower risk level. And by the way, ability to take risk. Same thing if you're buying a property or you're putting your kid through college, that's independent of what the stock market does in the short run, and so the presumption that most have is that you're going to pull that money out. That's what's driving, in that example, down your ability to take risks. So just because the advisors, financial planning system says, hey, you need more returns, we better put you in more risk, that can really challenge that construct and create a failure that may not be able to be overcome. So, it is a challenge. So I appreciate the question, because it's a bit of a hot topic.

 

Richard Walker 20:15 

Well, no, it is and it's one that I think your product can help serve to the surface, because you do have situations where somebody is able to take way more risk than they're willing to take. Maybe they have a high cash position that's doing nothing for them, and they just feel like cash is king to them. They have to have it. But if you can help them see, well, you've got a five and 10-year time horizon for this cash. Why is it sitting here getting 0% and I'm not suggesting, by the way, that, oh, to make your portfolio work, you're going to earn 20% a year. No, that doesn't make sense to me.

 

Mark Friedenthal 20:48 

Let me just make sure that I'm clear too there are solutions for the problem that we just identified. Right? The right solution if somebody's probability of outliving their money, and that's how we define it in Tolerisk, if their probability of outliving their money is too great, by the way, that's a whole other topic. What is the right probability of running out of money? But if it's too great by the advisor and client comfort level, then the right response is that the advisor is going to help coach the client to perhaps work longer, if that's possible, practical, it could be to save more and spend less between now and retirement, right?

 

It could be to downsize or monetize something else in the future, both bringing in assets as well as potentially reducing ongoing expenses, or some combination of these things. And so Tolerisk, actually, most advisors utilize one of the features in Tolerisk, which allows them to choose when a warning appears on a screen to suggest these things. And advisors have shared that it's a way to reframe their dialog from being the naysayer, right? Imagine the advisor says, ooh, you're not in good shape. You are spending way too much money, right? I'm exaggerating a little bit, but it changes the tone from that to here's why Tolerisk is telling us that you have 29% chance of outliving your money, and here's what we're going to do to remediate that, to help you solve it.

 

Now the advisor is the advocate. The coach. Talk about helping their clients win. It's helping their clients win by making better decisions, also having more confidence in the decisions that the client makes, which is good for them to avoid behavioral mistakes. Also, it's great for the advisor, which is our customer. So how do we help our customer win? Well, the reason that's great for our customer is because that confident client exhibits the highest levels of retention. They're the ones that make referrals. Most advisors tell us that 80 to 90% of their referrals come from 10 to 15% of their clients. And while I would love to sit here and tell you that, use Tolerisk again, 98% of your clients will make referrals.

 

That does not appear to be realistic, but what we hear from advisors is they can move the needle. And so instead of getting 10 or 15% of their clients making active referrals, they can move that to a 25 to 30% kind of number, and even though that's still a minority, what advisors tell us is that that can make a pronounced difference in the pace at which their practice grows. They also often use this with prospects. So the other area where they can accelerate practice growth is driving up the conversion rate. How do you get more prospects to become clients? You get more of them to see your level of diligence, that you're customizing your risk management process for them, that you're going to be with them through these events. That's how you drive confidence for their customer, that their customer is going to win, and that helps our customers win.

 

Richard Walker 23:57 

One of the things I love about what you're saying and what you're doing for your customer is when I was an advisor. Now it's been over 20 years since I've been an advisor, but when I was an advisor, I felt like a lot of my job was helping my customers make better decisions in their life. And I found it always funny when I would meet somebody prospective customers say, Rich, I will call you when I have the money. Like, no, don't wait till then, because you won't have the right decision-making pattern then, you'll get this inheritance. You'll get this big windfall, whatever it is, and you'll spend it because you won't know you'll have alternatives. So I love that you're creating conversation with your product, so advisors can help their customers better. I love all this Mark. I have a curiosity question, though, but you want to react, go ahead.

 

Mark Friedenthal 24:42 

Well, no, I was thinking back to something else you had said. There are some more extreme conversations that advisors have shared with us. The young client who gets spooked, there's been a lot of reasons to get spooked in the last few years, too. So we understand that. So sometimes advisors said they'll dig deeper into the roster of analytics and Tolerisk. We provide them with a lot of different visualizations and a lot of different content. And it's all optional. It our belief is that people learn in different ways. And not only do advisors learn in different ways, but what they experience, they have to often be educators, as you I'm sure, remember, so their clients learn in different ways. So we have to give them a wide range of arrows in the quiver so that they can reach people in different ways. And so some of the reports may be less popular, but the advisors will still utilize them in certain circumstances when they have to break them out.

 

And so something you had said kind of reminded me of one of those in that sometimes an advisor is dealing with a client, maybe a young client, who just gets spooked and says, I don't want anything in the stock market. And you can imagine that the advisor then has to teach the client that you might think that you're taking less risk by having us manage an all-bond portfolio for you, but in reality, you're now taking greater risk of running out of money, because your money's not going to be expected to grow as much over the long run, you'll live through multiple bear markets in your lifetime, if you're young, hopefully, but the long term cost of inflation on your expenses, your inability for your resources to support your cost in 30, 40, 50, 60, years for a young person is substantial. And so we have tools that help advisors illustrate those kinds of things. And while that might not be the most common interaction, giving the advisors tools for sort of all occasions is something that they seem to really appreciate anyway, just something that I...

 

Richard Walker 26:56 

No, that's interesting. I was remembering back in college in the 90s, in my finance classes, we analyzed Ross Perot, who sold his company for a couple billion dollars. I think he pocketed like one and a half billion or something like that. He put it all into bonds, and over 20 years, it grew to about $2 billion but compared to the stock market, it would have grown to like five or six or even $8 billion. So, yeah, I mean, he's not going to outlive $2 billion nobody is. But I think the point is, you're right. Okay, I have a curiosity question. It's just because you're talking about all this risk, do you use Monte Carlo simulation? Is that still in use by advisors? And what's your perspective on that?

 

Mark Friedenthal 27:36 

We use a variation. So we use a simulation. We don't technically use a Monte Carlo simulation. Technically, for those math nerds like me out there, technically it would have to utilize random numbers to generate the paths, and we do not use random numbers. There are reasons for it, maybe deeper than what we'll go through on this podcast, but essentially, what we want to encounter is a lot of different paths like you would have in a Monte Carlo simulation. But some of the areas where we've been able to actually go deeper by not being constrained by the assumption that volatility will be constant is one of the advantages of our mathematical process, not being constrained by the assumption that the correlation between equities, fixed income, inflation, that's constant, is one of the benefits of the way we've constructed this simulation.

 

We also have variable paths for inflation. So we're enabling advisors to incorporate the sequence of real return risk, which goes beyond what's commonly called the sequence of return risk, sequence of nominal return risk, and what we find is someone's financial longevity, how long their money ends up lasting them is better indicated by the path of real returns they end up experiencing, which, of course, we don't know in advance, then the path of nominal returns. So in other words, it's not just how your portfolio ends up performing throughout your lifetime. It's that relative to the pace at which you draw from your portfolio, which is indicated by the inflationary path you end up experiencing. And so that's one of the areas where we've gone deeper.

 

And we find that many advisors appreciate that, that they don't have to give quite so many caveats, quite so many assumptions when they hand over results to a client. I've heard some advisors lament having to say, hey, here's the output, assuming a constant risk level, assuming a constant inflation assumption, assuming a constant lifespan, or things like that. They like the fact that Tolerisk varies. These things that last one is very innovative and very unique to Tolerisk. We don't presume a constant lifespan. We don't presume that Jane and John Doe both get hit by a bus on a specific date. We actually build mortality probabilities year by year by spouse inside the simulation.

 

So it's one of the most innovative features, I think, sitting under the hood. And I know we have advisors that seem to really appreciate that. That doesn't mean they want to get into the nitty-gritty math with their clients, but they like being able to tell the client that we're not limited. We didn't assume you both died on someone's 90th birthday. We recognize that there's uncertainty here, and we can account for it, and that helps engender confidence by their clients, which, again, is all about not only helping the client make their client make better decisions, but have the confidence to stick with the decisions, to know that we ran well more than 1000 different paths that we incorporated, paths that reflect the depression of the 30s in terms of the stock market, that reflect the inflationary environments of the 70s and 80s, that all of that has been contemplated.

 

And so when the advisor says, here's the right risk level, and by the way, we validated your premise, your assumptions, and you have a 8% or a 14% chance of running out of running out of money. Whatever the results are that the client, their client, our client's client, if you will, can be confident in the decisions, and that helps them stick with the plan and stick with their advisor.

 

Richard Walker 31:35 

I'm glad you pulled up the hood a little bit so we could hear some of this stuff, because you must have a lot of fun building this product.

 

Mark Friedenthal 31:41 

It was and by the way, there's a seminal piece out there. It was published in Advisor Perspectives maybe four years ago, called The Third Generation of Financial Planning. So if anybody's interested in going a little deeper, if you just Google third generation of financial planning or something like that, you'll find it, but that's a great piece that will give you a little more insight of some of the intricacies and things like that.

 

Richard Walker 32:05 

So Mark, we're already going long on this episode, and I want to keep going. And I just want real quickly to hear your perspective on artificial intelligence, because you're sitting in between this world of behavior and psychology, etc, with a toolset that helps people communicate. So I'm just kind of curious how you see artificial intelligence impacting customer experience and maybe your product.

 

Mark Friedenthal 32:29 

So first I need to get some kind of artificial intelligence that knows if I'm still in the room, even if I'm not moving so my life doesn't go off like that. No, it's a great question. I'll tell you candidly. Up until a few months ago, I think I was the old curmudgeon here that was dragging his feet on AI. We've been using it in the development process. It's super helpful for our developers. They can code things faster using artificial intelligence. So we've been using it internally for a while, but in terms of the product, I think I was still anchored in some of the older types of AI from decades ago, which was very quantitative, I used neural networks genetic algorithms as a back in my college and in my 20s, which is a long time ago, probably evident by my white beard here.

 

So Artificial intelligence has evolved in and of itself over the years, and is evolving very quickly. And something triggered for me, I think, as I gained more exposure to LLMs, large language models such as chatGPT, for example, and I've done kind of a 180 on the topic. I have all of a sudden been able to see, thanks to our board and thanks to our CTO and others who've kind of taught me a little bit about how we can utilize this, and so we've been working on some things to improve our customer and their customers experience. We haven't rolled it out yet, but I'll share with you the first thing that we are likely to roll out is an AI driven narrative based on the risk assessment. And so we understand that a lot of this is about arming the advisor to better communicate these topics around risk with their client. They're really the four topics around risk, right? What are you willing to accept?

 

What are you able to take now and in the future? What's your risk of running out of money, and what's the actual risk of your portfolio, to see if it's aligned? So we arm advisors for all of that. But how do you take that which has a lot of numbers to it, and how do you distill that to something that's narrative, something that, again, makes it easier to explain. We have a wide range of advisors. Some of them are brilliant at being able to articulate these things, and again, we give them visuals to help them substantiate that and deliver that message. But how do we give them something in verbiage to provide this narrative, especially if they want to leave it behind with the client.

 

We have these really snazzy reports that advisors not only keep for their compliance department, because this, a lot of what they do with Tolerisk is to reduce compliance risk also, but they also deliver that report to their client as a wonderful kind of leave behind. So to be able to give them with a written narrative, leave them with that written narrative in a human voice that embodies them, as well as the unique information of the client at the time of this risk assessment, we think is going to be another big advantageous tool for them. And I'll tell you, we had a ton of fun doing this internally. With things like chatGPT, you can also give a tone to the messaging. And so we played around with this internal.

 

This is not going to make the final cut, by the way, I'll tell you, but we said, what if we let it use a snarky tone? And let me tell you, if you want to take financial planning-type data, risk assessment data, and create a narrative with the snarky tone, it's pretty entertaining if you're a math nerd like me. Again, not to make the live version, but we've had a lot of fun with it. It's coming, and there's a lot of other things that we see coming to enhance that advisor-client experience, utilizing AI. So, great question, and for our advisors out there, stay tuned.

 

Richard Walker 36:24 

Maybe you can have different flavors, like The New Yorker version, the Californian version, the Texan version.

 

Mark Friedenthal 36:30 

It won't be labeled like that, but in some sense it will be. It'll be different tones based on different styles.

 

Richard Walker 36:37 

Yeah. Mark, before I ask my last question, what is the best way for people to find and connect with you?

 

Mark Friedenthal 36:43 

We're pretty easy to find. Tolerisk.com just like risk tolerance, tolerisk.com you can find lots of information there. For your users, your listeners. I should say, if somebody wants to reach me directly, they can reach out to me on LinkedIn as well. You won't have trouble finding me there, and I'm happy to meet with anybody. If somebody wants to see a demonstration live, if I can schedule myself personally, I'm happy to do that. You can even email me mark@tolerisk.com I'm lucky enough to be the first Mark, and we do have more than one Mark, but I got the good email address, so you'll find me there.

 

Richard Walker 37:20 

Like a founder should, awesome. So here's the last question, who has had the biggest impact on your leadership style and how you approach your role?

 

Mark Friedenthal 37:30 

That's a long list, Rich.

 

Richard Walker 37:32 

We'll have to keep it short. We're almost out of time.

 

Mark Friedenthal 37:34

I have been very fortunate to work for some wonderful leaders who've given me a lot. But I'll tell you, the one that pops in my mind first is not someone I worked for, somebody I met a couple of years ago that I hired, actually to design our sales process and hire and train salespeople, and I didn't have that background. And so while a lot of the intended parts of that process were around landing meetings and things like that, I ended up going through his sales training almost inadvertently and that's because I was his subject matter expert.

 

I learned so much by going through sales training. It was humbling, because I as a math nerd, I'll tell you, I saw sales as kind of a fufu science, and that wasn't fair. And this is what I learned. This was the humbling process, is that sales can be much more scientific than I ever thought possible, and he corrected some real fundamental flaws and how I was attempting to sell software. And so I'll give a big shout-out to Monty Patterson, who actually started a company recently called Outbound Labs. So if you're looking for somebody to help with your sales process, Monty is a wonderful resource. So shout out to Monty. Thanks for that.

 

Richard Walker 39:00 

Oh, that's awesome. Yeah, I'm similar. I'm a product guy, I'm an engineer, I'm a finance guy. Sales is something that's been hard-earned for me to figure out. So I completely appreciate that. All right, I gotta wrap this up. I want to give a big thank you to Mark Friedenthal, founder and CEO of Tolerisk, for being on this episode of The Customer Wins. Go check out Mark's website tolerisk.com and don't forget to check out Quik! at quikforms.com, where we make processing forms easy. I hope you enjoyed this discussion, will click the like button, share this with someone and subscribe to our channels for future episodes of The Customer Wins. Mark, thank you so much for joining me today.

 

Mark Friedenthal 39:35 

Rich, thanks for having me. This was a lot of fun. Appreciate it.

 

Outro 39:39 

Thanks for listening to The Customer Wins podcast. We'll see you again next time, and be sure to click subscribe to get future episodes.

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