Emotomy: Value Delivery Chain from A to Z

Emotomy started as a marketing tool for clients of Belvedere Advisors, a SEC-registered RIA with $1.5B in assets. Belvedere Advisors sub-advises for other institutions who wanted to take advantage of Belvedere’s marketing platform. The platform was named Emotomy (Emo-emotions tomy-removed) and offered as a fintech service. Emotomy encompasses a full spectrum of tools, integrations, and strategies that each financial institution client can tailor to their business.

In order to tell me more about what makes Emotomy tick, Dr. Patrick Beaudan invited me to his lovely home overlooking the Golden State Bridge, in Tiburon, California.

Emotomy’s business model and approach were quite different to what I had expected. Emotomy is not just a robo-advisor or a standalone piece of software for archaic strategy planning— it is a comprehensive interactive tool that touches each element of a wealth management business’ value delivery chain.

Dr. Patrick Beaudan, CEO of Emotomy, received his PhD in engineering from Stanford University. Afterwards, he joined a consulting firm, where his clients were banks and financial institutions. Always active in the finance sector, he then joined an investment bank where he was the head of European business development and M&A. He subsequently created Belvedere Advisors, which eventually led to the development of Emotomy.

Emotomy in a nutshell

Emotomy had a humble beginning as a simple visualization tool that allowed money managers to scale their marketing, without having to repeat themselves or manually create and update presentations. It was an online platform for reviews with investors. Today, it covers the entire value-delivery chain of what a money manager or a private wealth manager does, which includes portfolio research, portfolio construction, investment proposals, custom risk questionnaires, tailored client demographic profiling tools, paperless client onboarding, account reviews, billing and performance reporting Emotomy has a range of tools available for end users, who can be investors or financial representatives. These tools help clients build and optimize a portfolio, discover and perform trade-off analyses, etc. The platform also has automatic optimizers, manual optimizers, goal seekers, and questionnaires (which can be custom questionnaires put together by the financial institutions using Emotomy as a client portal).

The fact that Emotomy is so customizable is what draws investors to it. There is no default questionnaire or risk-scoring system, and investors can build their own investment policy that creates a portfolio out of the questionnaires. Another plus is the ability for clients to be able to model and load their own investment strategies with Emotomy. In addition, as Patrick explained to me, it also offers unmatched flexibility and can cover anything from asset-allocation strategies to hedge funds.

“I developed Emotomy to be that way for my own business. I earned my PhD in computational physics, so numerical mathematics and software development is my background. The programming side is simple; the hard part is to program something that’s useful to some clients.”

The other thing that differentiates Emotomy is that they do not force their institutional clients to use all of the features. They have clients that use it purely for onboarding and account opening, and clients that use it purely for marketing. Closing in on $4 billion dollars of platform assets, several hundred advisors are using the platform, and Patrick says that Emotomy’s clients are driving the growth and development priorities.

Not just a robo-advisor

Robo-advisors are a simple solution for small client accounts and for advisors who want to spend zero marginal time and have as close to zero marginal cost on opening a new account for a small investor. Their portfolio strategy is typically a simple asset-allocation strategy. Using Emotomy, an institutional client can push a button and configure the front-end white-label portal to act like a robo-advisor. This means that when users go to this institutional client’s portal powered by Emotomy, they can answer a questionnaire that leads to a suggested investment portfolio. Users can also use goal seekers, simply pick an investment strategy, or combine strategies to make their own.  If the institutional client wishes to offer more tools, manual or automatic optimizers are also available and users can create their own portfolio with ticker symbols and also combine these with proprietary strategies of their advisor. Emotomy can then seamlessly onboard the investor at the RIA and its custodian, and automatically trade the investor’s portfolio.

Although Emotomy can be configured for what it calls a “pure robo” experience, the difference between robo-advisors and Emotomy lies in the wealth of custom features and interaction tools available between investor and financial representatives. The platform includes tons of rebalancing tools, automatic volatility minimization tools, stop losses, trading stop losses, and overlays, demographic profilers, questionnaires, and customizable workflows that can be deployed towards specific investors to walk them through the platform in pre-determined ways. Institutional clients decide which tools are available to the user—this can be multiple tools or just one tool. The freedom to sign e-documents with DocuSign, which Emotomy is fully integrated with, means that accounts can be opened quickly and clients onboarded in a paperless and timely fashion.

“The reality is that pure robos have not been successful because the concept that a RIA puts up a website, some people are going to show up, create a portfolio, and send money, and that the advisor is not going to do any marketing – that they’re not going to spend money on marketing themselves, [and] they’re not going to talk to the investor – is an unrealistic business model. I have been in this business a couple of decades [and] I know that is not what investors want.”

Emotomy is a B2B2C (business-to-business-to-consumer) business model. According to Dr. Beaudan, approximately 90% of usage is hybrid, i.e. advisors helping clients while using Emotomy as a support tool in ways that suit the advisor’s business style. Emotomy offers many workflows to advisors to match their business style, and if you cannot find what you need, Emotomy can build it on demand.

“If you run your investment strategies as an advisor, you can replicate them on Emotomy or you can send us its trading signals or upload spreadsheets of trades daily. We don’t restrict you to any scheme. You can have hedge funds. You can have complex discretionary strategies on our system and, in fact, we do.”

Emotomy allows clients to build portfolios from any number of US and some non-US listed securities. Besides portfolio and position-level stop losses, it also lets clients design investment overlays using every standard technical indicator, such as RSI, dual momentum, crossover momentum. It offers in addition a number of point-and-click rebalancing schemes on any time schedule, such as minimum volatility rebalancing, fixed weight rebalancing or rebalancing based on deviation from target weights. The compounded combination of these features creates a powerful portfolio construction platform that can accommodate the vast majority of proprietary strategies used by wealth managers.

Visualizing complex sets of data is useful for understanding and tracking the historical profile of a strategy, and the ability given to users to visualize investment strategies, compare them to other custom strategies or any listed security is a strong differentiator for Emotomy.

APIs and integrations

Emotomy has approximately 13 integrations—including CRMs like Redtail—and also plans to integrate with Salesforce when the time is right. On the brokerage side, they are integrated with Interactive Brokers, TCA by E*TRADE, TD Ameritrade Institutional, Schwab, and Pershing Advisors.

Patrick remarked that he has received requests for non-US custodian integrations from European banks, which he says seem a lot more advanced on the API side:

“Historically, many European banks have businesses in Asia. … many of them are not in the US, and because they are in many emerging markets, they are really strong on technology because they have had to rely on technology to resolve issues and succeed in these markets. It’s similar or even more advanced than what we see here in the US, which is a huge market with high barriers to entry, where people are comfortable running their operations the way they have.”

Account aggregation has not been a top priority for Emotomy and not for technical reasons. The economic aspects are not convincing, especially considering that most clients want account integration at no added cost:

“We built our own financial planning tools and we may further integrate with other folks, but account aggregation hasn’t been the crux of what we’re doing. I know of Money Advisor and some other planning software that do account aggregation, but our focus is to prioritize our developments based on demand from our clients.”

The engine and the engineer

While most companies are using agile internal and external teams, Dr. Patrick Beaudan is the main developer at Emotomy supported by front-end, server-side, and back-end professionals, Emotomy uses a combination of standard Java, Javascript (frameworks like Bootstrap), HTML, CSS, and PHP. The reason for coding mostly in Java has to do with API integrations being easier with third-party custodians. Those third-party APIs are also more solid in Java.

“We have weekly meetings with every one of our clients, either the CEO or the chief investment officer who are our points of contact. We have shared online work boards which lists all the issues, and client requests. We use these boards to share development progresses made over time, as I go through and implement functions. We prioritize development based on usability across clients and complexity of the function creation.”

To follow or to challenge trends

Mobile is ingrained in everything. People spend a good portion of their lives on phones. From a tech point of view, Emotomy is optimized and was recently redesigned so that clients can do everything from building strategies to opening accounts and answering questionnaires. Patrick says the platform is ready for smartphones, iPads and laptops.

The market environment is a main driver of change. A tech company can build as many systems and tools as they want, but if it isn’t useful for clients, there is going to be a lot of pressure on fees, which in turn impacts revenues and, subsequently, tech budgets for firms:

“I think digitalization of the wealth-management business is essential. If you don’t have a digital, easy-to-use system for your clients, in five years you won’t be in business—that’s my thought.”

Emotomy is geared to visualize investment data back to 1993, so their predictive algorithms and tools are based on several market cycles and recessions. By analyzing these trends, clients can build models and visualize the historical track record. Clients can also use tools offered by Emotomy to implement investment strategies improvements over a 20-year basis.

A stable and evolving Emotomy

Dr. Beaudan explained that digitalization is about user experience, much more than about the product itself. Emotomy bases their tech tools and investment planning tools on research-based data on current market trends. Undoubtedly, Emotomy is highly skilled at adapting and improving their systems and platforms. The one caveat with this is complexity:

“I view a software company as a mountain made of little grains of sand. You understand every grain of sand, because you coded it and you know exactly what it does. At some point, you have tens of thousands of grains of sand and so the whole edifice becomes complex, just because there are so many little parts. Managing complexity is key.”

The dilemma becomes how to keep the system functional; since it is all object driven, it is going to be easy to find problems. How do you keep building more and more complex systems that are highly stable? That is one of the main challenges that Patrick cites, and it explains why Emotomy has a slight edge over its competition. Emotomy is not encumbered with being loyal to investors such as VCs or anybody else. Dr. Patrick Beaudan controls the company and prioritizes tasks according to what is best for its clients.

The near future

With almost $4 billion of assets under management, Emotomy is not in a hurry to hire big teams. Patrick optimistically says he would like to be at $10B by the end of 2019. He does not need to build a huge company and is not interested in managing loads of people. He is more concerned with keeping his clients happy:

“I think that’s our main challenge. Not making any missteps in integrations. Being attractive to the bigger players, whom we need as clients in order to grow. These are the real challenges. Then keeping all of the clients happy is our ultimate goal.”

To accomplish this, Emotomy would like to have more integrations with key custodians. Indeed, everything I learned points to the fact that Emotomy is becoming a bigger company by making the knowledge and technology available to as many people as possible.

WealthTech Club takeaways

We are seeing an ever-growing amount of WealthTech players in the field, but few stand out. Emotomy both surprised me and surpassed my initial thoughts of what the solution offered. It is really a unique digital wealth-management platform that helps advisors to digitalize their business in a way that is totally customizable and flexible.