Unlocking the power of model portfolios, with Kwanti CEO Christophe Gauthron

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On this week's episode of the Financial Planning Podcast, Christophe Gauthron explains why the most powerful model portfolios are the ones advisors have the ability to mold and shape to their liking.

Christophe Gauthron, founder and CEO of Kwanti

Gauthron, founder and CEO of Kwanti, stops by the Financial Planning Podcast this week to talk about time, confidence and portfolio management. Formerly a software engineer working exclusively in the technology world, Gauthron was inspired to launch Kwanti as the 2008 financial crisis created chaos in the lives of countless Americans. 

Hearing horror stories about how difficult it was for advisors to make sense of what was going on in the late aughts while relying on the technology of the time, Gauthron began thinking of ways to upgrade the experience. And through that process, he fell in love with the problem solving and human connections he encountered on a daily basis.

Fifteen years later, his California-based portfolio analytics firm continues to develop software solutions to support financial advisors and investment managers with prospect conversion, client retention and model management.

READ MORE: Why wealthtech running out of 'free money' isn't as bad as it sounds

During his conversation with FP Podcast host and lead editorial producer Justin L. Mack, Gauthron talks about how a "midlife crisis" sparked his career change; why counting clicks helps craft more efficient advisor tech; and why every minute of a financial planner's day is so important. 

Listen to the new episode — as well as to all future and past episodes — by subscribing to the FP Podcast on Apple, Spotify or wherever you get podcasts.

Transcript:

Justin L. Mack (00:03):
Good morning, good afternoon and good evening. Welcome to the Financial Planning Podcast. I'm your host, Justin L. Mack, and it is my pleasure to introduce this week's guest, Christophe Gauthron, founder and CEO of Kwanti. Christophe, thank you so much for joining us on the show this week. 

Christophe Gauthron (00:18):
Hey, it is great being on the show. Thank you. 

Justin L. Mack (00:20):
Absolutely. Now Kwanti, a portfolio analytics solution aiding financial advisors and investment managers with prospect conversion, client retention, model management and more was founded smack dab in the fallout of the 2008 financial crisis. Naturally, not the easiest time to start a new business, but a fantastic time to start helping financial advisors help their clients make sense of all the madness. Kwanti, inspired by the term quantitative analysis, was built on the vision that advisors with access to comprehensive and affordable portfolio analytics could serve their clients better. And from the jump it's been their goal to provide metrics and visuals that inspire advisors to go deeper in their analysis of investment risk and performance. Kwanti believes that when advisors have the tools they need to feel confident in their portfolio decisions, their clients are the ones who really win. And today with Christophe, we're going to talk about all those victories that Kwanti wants to put on the board for advisors and their book of business. 

(01:15)
We're also going to get into how this kind of service can lighten the load for planners who are expected to do more and more for their clients as time rolls on and demands change. So Christophe, before we get into all of that, we always have kind of a first-timer toll that we ask new people on the podcast to pay. Tell us a little bit about your origin story. How did you get into the world of financial services? Is this something you always wanted to do, or did you have another background that eventually led you to the founding of Kwanti during a really tough time in 2008? 

Christophe Gauthron (01:47):
Yes, Justin, thank you for having me on the show. I'm really excited to participate for the first time. Well, what got me into this is a midlife crisis. First part of my career I was a software engineer working in high tech and I worked for various startups in Silicon Valley. Doing chips, the chips that went into the first smartphone, went to satellite, those sort of things. I really liked it, but after 15 or 20 years of that I thought, well, is there something else? I'm getting a bit bored. And actually it happened right at the time, as you mentioned, of the 2008 financial crisis. It took a few friends who were in the financial industry telling me how bad things were that millions of dollars, billions were managed with Excel spreadsheets and technology was really bad. And I thought, well, maybe there's something to do there. And I had always had this bit of an entrepreneurial bug and I decided to dive in head first. I started with an idea of how we can have it such that advisors and asset managers can see — in a way that's easy, intuitive and visual — to better understand what's in their portfolio. To understand return, risk and all these other characteristics. So that was the idea and it turned out to be much, much more difficult than I thought. 

Justin L. Mack (03:19):
Of course, of course all good ideas are. 

Christophe Gauthron (03:22):
Yes, and it took many years to really start the company, but I'm really happy I made the switch very different from the high tech industry and I've met wonderful, wonderful people in this industry. 

Justin L. Mack (03:35):
Very cool. And before we get into more about the work you're doing at Kwanti, I've got to ask, when making that kind of a change during a time of a lot of uncertainty and, like you said, at a point where you've been doing what you were doing and kind of wanted to try something new. That probably takes a lot of stepping out on faith and believing in your idea. And so I've got to ask, when you make the switch, what is the biggest difference in working with the kind of tech world you were in before and working more closely with advisors and working with money instead of working with chips? What's the biggest difference there? 

Christophe Gauthron (04:11):
Well, there are many differences, but I can see high tech is all about pure innovation and numbers and whatever is the newest thing is going to win. In the financial industry, there are many more things that matter. I think trust, number one, is extremely important. Or reputation. So it's slightly different. And of course in the finance industry there's less, I guess a bit less room for innovation. People tend to be a bit more conservative in general. So it's a different base, but equally from a human point of view, very interesting people on both.

Justin L. Mack (04:53):
Awesome. Well, glad to have innovators like you stepping into our industry and getting us to think outside the box a little bit, shaking things up and like you mentioned, trying to find a new way to do the work that advisors had to do almost more analog or more manually. Like you mentioned, managing billions of dollars with Excel spreadsheets. That sounds like a nightmare. As someone who has more Excel spreadsheets in front of 'em than any human should have, I would hate to manage something as important as a client's future through something like that. So talk to me about the work you're doing now and how were you able to take that manual old school process and really give it some new life? What kind of work are you doing now to make that easier for advisors? 

Christophe Gauthron (05:36):
Yes. Well personally I really like to program. I like to experiment with technology, try a lot of whatever is out there to see what's the best and what is the best fit for the job, and understanding what the problems advisors are facing every day in their practice and trying to bring the tools that would help them every day in being more efficient. So there are three things that we focus on. One is proposal generation, and it's a critical step for all advisors to grow and gain new clients. And there are a lot of ways in which we help in that. The second one is client account analysis. Portfolio analytics. We want to know not only what's in the portfolio, but why is it there? What is the risk? There are so many questions, and in those regular client meetings or review meetings, we want to provide the tool that helps advisors communicate with their clients and explain the investment choices and reassure clients that they actually invested in the best possible way with respect to their financial goals. And the third thing is model management. So we are big believers in model portfolios and we want to help advisors manage those models, be efficient with those models. Because it ties into those two other things. When you do proposal generation, you have a prospect portfolio and you likely won't have a model to compare with. And when you have a client review, same thing, you compare the portfolio against the model. So those three things are what we're trying to resolve. Proposal generation, portfolio review for clients and model management. 

Justin L. Mack (07:32):
Absolutely. And on the same token, those three things, when you're able to help advisors do that more efficiently, have some help doing it in a new way, probably a heck of a lot quicker than they did, especially for folks who've been doing this for a long time, what kind of benefits are there for advisors who leverage those tools in terms of growth and supercharging their business? Because getting new clients, growing your business, expanding AUM, obviously that's the goal. This is a business you want to grow and you want to help more people. How does leveraging model portfolios like the ones in the work you guys are doing at Kwanti help advisors do that? 

Christophe Gauthron (08:08):
Yes, and a good question. I'll preface this by saying model portfolios are not necessarily a third party model, something that's outsourced. It can also be a model developed in-house. And that implies that there are tools in the advisory firm to have the discipline of developing good models and distributing them within the firm. The first advantage that we hear from advisors is that using model portfolios reduces time spent on investment tasks and administrative tasks, and as a result there's more time to spend with the client. So that's definitely an advantage. Number two, those model portfolios are more reliable. If you take portfolios for example, that are put together by big firms such as BlackRock, Vanguard or State Street, they provide those models for free actually. And those models are put together by people who have a lot of resources and tools that an advisor may not have. And those models have a rationale about why some trades are done, why some rebalancing is done. 

(09:28)
And that I think for an advisor who doesn't have time to dig deep into those matters, that provides some reassurance and confidence, and not even talking about from a compliance point of view or justifying that those decisions are solid. And a third advantage of a model portfolio is that model portfolio is not a cookie cutter solution. It's actually nowadays quite evolved where you can have sleeves, and the sleeve for certain aspects of equity investment and some other sleeve for fixed income. And you can blend those sleeves at different levels depending on the client's financial goals or risk tolerance. You can also have sleeves that you compose yourself and mix them with sleeves from a third party. So there's a lot of flexibility in there or that I think was misunderstood when people thought of a model portfolio. That this is just one same cut for all. It's not at all the case actually. And we want to provide the tools that help doing those customization. 

Justin L. Mack (10:42):
So it's not "we grab this, you set it and forget it." There's the ability to tweak it for what your specific needs are, your specific size is. I imagine that means no matter what your firm might be, whether you're a solo practitioner or part of a giant team, they can be tweaked to meet what you need through those sleeves. And two things I want you to keep in mind that you mentioned earlier that I'm going to bug you more about after the break, time and confidence. Everyone stay locked. We're going to take a quick break with a word from our sponsors, but when we come back, we're going to jump right back into our conversation this week with Christophe Gauthron, founder and CEO of Kwanti. Hang tight.

(11:24)
And welcome back to the financial planning podcast. I'm your host, Justin Mack, and we're jumping right back into our conversation this week with Christophe Gauthron, founder and CEO of Kwanti. Now, before the break I kind of queued it up and teased it a little bit. Time. Confidence. Two things that are very, very important and that I want to talk to you more about really as it relates to, not so much about the business side of the business, but the human side of the business. That client advisor relationship and something we hear about a lot more is a greater emphasis on really working with the people and working with them in a very human way, the folks that we serve, strengthening the advisor client relationship. So it's not just transactional, it's very real because as you know, the problems that clients come to advisors to solve are big ones. 

(12:14)
We're talking about saving for the future, planning for retirement, planning for your children. These are human problems, not business problems, but like you mentioned, time to actually work on that stuff is hard to come by because advisors want to grow their business and have more responsibilities. And confidence that they're able to do so in a way that's actually going to align with those goals. How are you giving advisors more time to be more confident with their clients through something like this? 

Christophe Gauthron (12:44):
Yes. And I mentioned model portfolios as a way to free some time that would be otherwise spent in selecting investments. The philosophy behind Kwanti has always been the same. We want to have a tool that's simple to use, and trust me, it's been incredibly difficult to achieve this. And to go into detail, from the start of the company, I always count clicks. The number of clicks it takes to achieve. For example, you export a portfolio or do some changes, how many clicks? How much time does it take? We measure everything so that it's always, always a solution that's simple and the advisor never has to think, well how do I do this? Where was this function? So to keep things simple and easy to use has been a trademark for quantity and why it's known for. And the other side we discovered is that it's a communication tool. 

(13:50)
So you have a lot of numbers, investment is a lot of numbers. And as an advisor, okay, well you don't want to dig. Sometimes you have to dig into all these numbers, but when you talk to the client, it's just too much. How do you explain those numbers? How do you communicate? How do you justify that you've chosen this folder, that folder, this particular asset in the portfolio? This is where a tool that is visual, that is simple, that is interactive, helps a lot in the conversation. And from what we hear a lot of advisors using Kwanti, use it in meetings and show the screen and explain here is why or this is the right choice for you. And going through the narrative or to explain the choice and reassure the client in case of their crisis or market dips as well. So that's part about the confidence that comes in as well. And that is a huge plus not only for analytics, but also communication. 

Justin L. Mack (15:03):
And facilitating that conversation. Like you said, it's a lot of numbers. Sometimes you can make perfect sense and state something very factually to a client and focus on the numbers, but when you can bring that visual element, there's another level of connection that you can develop when you show someone something as opposed to just tell 'em something. And something else I wanted to ask too, and you kind of alluded to it, it's probably a very complicated process to create a simple solution. Talk to me just very briefly about how much work goes into making something that's simple but also effective. I don't know if we talk about that enough. You know what I mean? I imagine you probably put a lot of work into that. What's that like? 

Christophe Gauthron (15:47):
Yes, yes, thank you. That's a great question. Kwanti is not the kind of company that is going to put out some flashy announcements, "here, we have a sexy new feature that nobody else does." Just no. We do a lot of grinding work. The understanding of these little things that are friction every day in the practice of advisors, they lose one minute, they lose two minutes. How can we just make all this smoother and it's actually tedious. And to keep things simple is hard. Remember I mentioned Excel, but Microsoft Word you remember 20 years ago was a simpler tool. Nowadays it's a bunch of menus and buttons, It's … 

Justin L. Mack (16:30):
A mess

Christophe Gauthron (16:31):
It's a kitchen sink, everything will be added. And this is what we resist the pressure to become a tool that does everything for everyone because then you end up having too many menus and buttons, then you get lost. So part of getting simple, keeping simple is staying focused as well. So that's why we're trying to maintain. 

Justin L. Mack (16:53):
That's a great example and one that I think will hit for a lot of people, Word being supplanted by something that figured it out in a more simple way. Hey, I love Google Docs because  of it. Takes the simplicity that I remember from the early days of Word and brings it back but adds some more efficiency. But a lot of thought has to go into that. Let's stick with the grind and the work that Kwanti does. I want to talk about what's next for you and your team. Obviously keeping busy and working, so not spending time announcing all that you're working on. So I want to take some time to do just that. What's new with Kwanti? Anything new you've added recently and what's next for your team? What kind of priorities are you focused on as we head into the last part of the year, which I still can't believe we're almost done with 2023, but it is true. So what's new and what's next for quant? 

Christophe Gauthron (17:45):
Yes, we have great things in store this year already. We had some pretty good enhancements. We introduced a screener. And of course screener is a tool to select investments. There are others out there. It's been around for a long time. But we did in a way, the Kwanti way, which is super easy, intuitive to use. And we had good feedback on that. And also we improved our model tracking. So we've done model tracking for years, but we added a graphical interface to this. And for power model users, it's probably the best solution out there. But going forward, we are working on a big project. I don't want to give too many details, but it has to do with proposal generation, helping advisors getting quicker to proposal generation. And this is a case where we listen to what their pain points are and where can we help further. 

(18:43)
And we are developing an idea on that that we hope to announce later this year. If all goes well, it's a bit ambitious, but I think it's going to be pretty good for advisors. And also as usual, we have a lot of integrations where Kwanti exists in the middle. The ecosystem is connected to a lot of other partners because we don't want people to spend time inputting the portfolios in the tool and so on. We want this to be seamless and we're adding integrations. I can name one we're adding very soon is Altruist. There's a lot of advisors asking for that. So this is one we're adding and we have others in stores as well. 

Justin L. Mack (19:24):
Fantastic. And again, love the kind of a tease of what's coming next on that ambitious announcement. As someone who made an entire career change during one of the most difficult periods in our recent history, jumping into something ambitious sounds right up your alley. I first want to thank you for joining us, but we're going to transition into something that has become customary here on the Financial Planning Podcast, which is ending with some good vibes. And we talked a little bit about how you got into the business, your desire to make things easier for advisors, doing the complex work to craft a simple solution. So when you think about all that, I have to ask, what do you love most about your job? Taking that risk of making that big career change and all these years later still excited about what you've got coming. You can see it, you can feel it. So what is it about this crazy industry and helping advisors that you love so much that keeps you coming back? What's number one on the list for you? 

Christophe Gauthron (20:32):
Well, first, let me say Justin, I really enjoyed the conversation here and thank you for having me. Well, obviously I'd like to think that we're making an impact and that the way we help advisors in turn can help a lot of people. So there's an amplifier effect in the good we do. It benefits a lot of people throughout the country, but really that's more of a general thing to say. But day-to-day here is something I really like. I like to talk to advisors, and what I do is I actually insert myself randomly in the calling queues. So we have people calling with some support question, sales questions. I insert myself randomly some days and I pick up the full answer. And that's the occasion to have contact directly with those advisors. And of course we start with the question they're interested in, but we go into a more spontaneous exchange and I always learn something. Every advisor is different and every story is interesting. So that's the part I really like. 

Justin L. Mack (21:44):
Awesome, awesome. I love to see you do that. That hands-on approach, that grind. Yeah, that comes across in that. So love to see you getting in there. And just want to thank you again for joining us this week on the Financial Planning Podcast. It's been an absolute pleasure. 

Christophe Gauthron (21:57):
It's been terrific. Thanks Justin. 

Justin L. Mack (21:59):
Alright, and I want to thank everyone for listening to this week's edition of the Financial Planning Podcast. This episode was produced by Arizent with audio production by Kevin Parise. Special thanks again to our guest, Christophe Gauthron, founder and CEO of Kwanti. Rate us, review us and subscribe to all of our content at www.financial-planning.com/subscribe. For Financial Planning, I'm Justin Mack. Thanks for listening.