Ep. 180: Building 100,000 Portfolios via APIs with Phil Taylor, FinMason

Come on in and sit back relax, you’re listening to Episode 180 of the WealthTech Today podcast. I’m your host, Craig Iskowitz, founder of Ezra Group Consulting and this podcast features interviews, news and analysis on the trends and best practices all around Wealth Management Technology.

My guest today is Phil Taylor, President and Chief Analytics officer at FinMason. Phil has been at FinMason for four years, but before that he was Managing Director, Head of Capital Markets Desk at Lazard, Managing Director of Global Arbitrage and Trading at RBC Capital Markets, Portfolio Manager for International Strategies at the Palladin Group. He was also Chair of the Board and Director of the CFA Society of New York. Fun fact, Phil received his bBachelor’s and Master’s degrees both from Cambridge in Maths. 

One of my biggest takeaways from this interview was that FinMason is almost totally API-driven. 75% of their revenue comes from clients who access their services completely via APIs, which we find to be very cool since we are very integration-oriented and are very excited about companies who are opening up their services via APIs. 

Before we get into the interview, if you are listening now you’re an executive at a broker dealer, an asset manager or an enterprise RIA you should run not walk to a website, EzraGroupllc.com and fill out the Contact Us form on the homepage to meet with us about your technology platform issues. Our experienced team can assist with software vendor evaluations systems integrations, improving operational efficiency, software implementations and a whole lot more. You can take advantage of our free initial consultation offer by going to EzraGroupllc.com. Now, let’s kick this thing off.

Companies Mentioned

Topics Mentioned

  • Why Build APIs?
  • How Clients Use APIs
  • How Can a Proposal be Generated Through APIs?
  • ESG Data Sources
  • Sending the Entire Book of Business
  • Fintech Vendors Using APIs
  • Crypto

Episode Transcript

Craig: All right, I’m excited to introduce our next guest is Philip Taylor, president and chief analytics officer from FinMason. Hey Phil, welcome to the program.

Phil: Thank you Craig.

Craig: Happy you could make it here. Where are you calling in from?

Phil: I am in Short Hills, New Jersey.

Craig: Love it. Love another New Jersey guy. I’m in Woodbridge, myself. We’re just so close, we should have met in person for this but we’re virtual. We are on Zoom, which is the way we record our podcast so we’ll just have to deal with this. We’ll meet for coffee some other time. If you could help us out, understand a little bit more about what FinMason does and give us a 30-second elevator pitch please.

Phil: Yeah, absolutely. So we built FinMason in order to provide investment institutional grade analytics to every investment application. What we’ve built here is a very large, scalable, and lightning fast and easy to implement API solution that makes adding investment analytics to your application quick, easy and cost effective.

Why Build APIs?

Craig: One of the reasons why I wanted to talk to you was because of your API’s and here at Ezra Group API’s are a big part of one of our business lines, which is our Wealthtech Integration Score. A lot of the integration work we do and we’re doing a lot of work to help FinTech firms build out API’s, robust API’s, which you guys have already done. So you’re really ahead of the game ahead of the curve. So we wanted to talk to you about them, and really sort of dig in deep to how they work, who is using them, what are they being used for some of the trends you’re seeing. So we can start with why did you build them, what was the impetus behind that, and how long ago was that?

Phil: So we started our API’s about seven years ago. We were early, very, very early to this game. As far as what we built, we just recognized that there was a needed out there. Firms were building investment applications and every time they built one they figured out what kind of data do I need? Where am I gonna get it from? How can I consume that data? And then how can I calculate analytics on top of that data? And that’s all very, very time consuming. So with the API’s we’ve already built, essentially just solve that problem ahead of time for our clients. And now they can deploy solutions in a couple of months instead of a year or two.

Craig: So speed to market was one area and also be able to access your services through any front end they wanted to without having to go through your front end.

Phil: Exactly exactly.

Craig: What types of data and what types of services can your clients get access to through your APIs?

Phil: Our library has over 1,100 different analytic data points. So we usually got everything that most of our clients need as far as investment analytics for their platforms. But on top of that, our architecture allows us to quickly and easily add new and custom analytics for our clients.

Craig: And is there a sandbox that developers can use to test the APIs?

Phil: Yep, absolutely.

Craig:  And is there sample code they can download without having to write it from scratch?

Phil: Yes, exactly. We offer the code out and in about seven different languages, to pretty much everything that people are using out there. It’s pretty much a simple cut and paste into their application to get up and running.

How Clients Use APIs

Craig: Excellent. Those are the kinds of questions we ask all the vendors when we were building out our Integration Score because a lot of vendors don’t have that. They may have APIs, but they’re not really well documented. There’s no sandbox, there’s no sample code, so they’re almost impossible to use without that type of support. How are you clients using these APIs and give us some examples?

Phil: So we’re going to have to keep finding new use cases for the API. It’s been really interesting journey. So we have clients who use against the portfolio construction systems proposal generation systems, risk scoring, ESG scoring, security best or compliance and even some insurance calculators.

Craig: So portfolio construction is the most obvious because you’ve got a lot of investment analytics tool. So advisors, when they’re building portfolios, they need to do the investment analytics and search for different securities and meet different criteria. Is there anything interesting about how your portfolio construction data is being provided or how your investment grade data is being provided to firms when they’re building up portfolios?

Phil: No, I think we’ve just got a very complete solution. We provide a really complete picture of a portfolio and its different risks involved in that portfolio. And that’s really the piece that that we feel is often missing, particularly on the wealth applications. Most Wealth Advisors don’t have a really clear picture of risk in the portfolio where those risks coming from. And obviously, that’s a huge hazard because then something unexpected happens. You don’t have an opportunity to prepare your client ahead of time for what might make what might come about and if they’re prepared ahead of time, usually come right that those have tough times out reason.

Craig: So some firms, either other fintechs or other wealth management firms, what’s the breakdown? How many firms are wealth management firms? building their own tools versus fintechs, taking advantage of your tools to integrate to their own software.

Phil: Most of our clients are institutional. We do have a couple of other FinTech software providers. But mostly we’re finding that our institutional clients are building their own platforms and using us to power them and make it easy for them to do that.

How Can a Proposal be Generated Through APIs?

Craig: Interesting, and with proposal generation, how does that work? So there’s a lot that can go into a proposal process, which aspects of your tools and your data is being fed into that?

Phil: It’s really a complete proposal. Obviously the wealth advisor has taken all the client’s information and gotten up to speed on what they need and then coming out of proposing a solution for them. A portfolio that’s going to hopefully solve their problems and well, having an appropriate level of risk and also allowing the client to then really understand that portfolio. And we do focus on a lot of analytics that are very easy to explain and understand.

Craig: How so?

Phil: We use a number of different ways of doing that, we do have what we call our fin score, which is a simple one to 100 risk score. So everybody can say hey, I’m a 50 or I’m a 70. And well, where should I be on that spectrum and where other people in similar situations there’s a number of companies out there that offer those types of scores, but we did as well.

Phil: The other thing that we have, which we try like a lot is that we have our scenario scoring. So we could tell you, for example, well hey, I’ve got my portfolio. Maybe I’m a little bit concerned, what’s going on right now is pretty similar to the two thousand.com crash. Well, if I own this portfolio through that.com crash, what would I have experienced? How much loss would I have experienced and you know, we can come back and say, Well, if that exact event happened again, you would have a 50% loss in your portfolio, but we can talk about that now. Is that okay? Or is that too much? Or could I take a little bit more risk?

Craig: So your API’s allow your institutional clients to send a portfolio to your system, and it’ll analyze it based on different scenarios and return provide that what the return will be in that scenario.

Phil: Exactly.

Craig: Sounds really useful. So it’s also stress testing.

Phil: Exactly. So stress testing scenarios, risk scoring, we can break down the portfolio in terms of which countries it’s invested in which asset classes and so on and so forth. Really dig down under the under the cover and see what’s inside these portfolios.

Craig: So portfolio exposure to different countries and also different sectors?

Phil: Exactly.

ESG Data Sources

Craig: Sounds really useful. And so we’ve got portfolio construction, proposal generation risk scoring, which is part of proposal generation. And then you mentioned ESG scoring. So do you provide the data yourself or do you have a different sources do you provide the data like MSCI and others?

Phil: We are working with a number of the providers, but we specifically partner with a firm called OWL Analytics. They have a really interesting approach, which is that they have consensus whoring so rather than having one methodology they take pretty much everybody else’s scores, and come up with a consensus across the industry.

Craig: I know them well, I had Ben Webster on the podcast back in May.

Phil: He’s a good guy.

Craig: Very good guy and is interesting about how they do their consensus scoring. Although ESG scoring data is a bit of a pet peeve of mine just because it’s so varied. And you’ve got across like Moody’s, S&P, Morningstar, MSCI, the same company can be ranked a 1 or a 10 in the same category with different sources, which makes absolutely no sense. So the problem I have is not that it’s a good people want to be. It’s a good intentions. It’s a fallacy of good intention, just because you have good intention doesn’t mean it’s going to actually do good.

Phil: Exactly. That’s why we like the consensus approach because it does kind of solve that problem.

Craig: Indeed. Moving on to compliance. What kind of compliance tools do you offer through API’s and how can they get access to them?

Phil: The most common way people use our compliance users for compliance is to take, for example, an advisory firms entire book of business, right? And they could say, well, we’ve indicated in our system whether a particular client is a conservative investor or an aggressive investor, for example, and then we can compare that to our risk scores, and see if somebody has drifted out of compliance, because it’s pretty common, when a portfolio to create it initially for a client to make it exactly appropriate for them. But sometimes there isn’t as much monitoring over time. Maybe the wealth advisor meets with that client every year. But in the meantime things can happen. People can buy or sell securities, the market can move, they can have withdrawals or additions. And this way, allows the compliance group to see if any of those portfolios have drifted out of the appropriate risk level.

Sending the Entire Book of Business

Craig: So that’s super important. I know that a couple of other firms are doing something similar, looking across the entire book of business, but how do you do that via API’s? How do you send the entire book of business via an API?

Phil: You just send each portfolio and because our API is so fast, it’s very easy to do that we’d have a number of clients who send us over 100,000 portfolios, and it processes in just a few minutes.

Craig: Is there 100,000 portfolios every night?

Phil: One of them does it weekly, but they could do it nightly, it would be fine.

Craig: So only takes a few minutes to shoot over 100,000 API calls? There’s they’re pushing that data to you, and then takes you a few minutes to process all 100,000 and send them back.

Phil: Exactly.

Craig: Now that sounds like it’s going to be expensive, because do you charge a fixed price? Are you charging a number of API hits per month?

Phil: Yes, we have a number of different pricing models because we want to make it appropriate to our client’s needs. But in general, it’s an ala carte pricing model, which means you’re only paying for the analysis you’re getting, not paying for some some great big package of stuff that you’re not using.

Craig: That’s one way to look at it. The having a varied pricing model is always useful a bit different firms have different needs and you mentioned insurance, what type of insurance calculations can we get through your API’s?

Phil: We’ve built some custom tools for a couple of our insurance clients. For example, there’s one that calculates the value of doing a 1035 exchange from an older annuity into a new annuity. That’s a very popular transaction these days, principally because annuity fees are coming down from where they used to be. Another one is a tax deferral calculation. So it shows the value of entering into a tax deferred investment over a traditional one.

Craig: Oh, also sounds very helpful. I can see how a firm would build out some tools for advisors or or agents and offer them these old calculators as part of an advisor workstation or a dashboard or something like that. The view or get involved in the front end development or what type of front ends are your clients plugging these API’s into?

Phil: So we have a mix there. That’s 75% of our business is just our API business, where we’re just providing the analytics to front ends that other people are building. We do have a design team as well so we can help out with those with those builds.

Craig: What are some of the things you’re seeing across the the 25% of clients that are or 20% of your revenue, when you’re designing it?

Phil: It’s really the same, same set of stuff.

Craig: Workstations, dashboards, widgets.

Phil: Insurance calculators, it’s the same set of stuff, whether they build it or we build it.

Fintech Vendors Using APIs

Craig: Can you share any of the other FinTech vendors that are using your API’s?

Phil: I’m not quite sure who’s defined as a FinTech vendor. But one would be company called Tolerisk. They’re also New Jersey based. So they have a very, very good risk scoring methodology for scoring the investor rather than scoring the portfolio. So it was a natural fit for us to work with them since we can score their portfolio.

Craig: Yeah, I know Mark from Tolerisk well, been following him for a while. Anybody else? I’m racking your brain. Sorry about that. This is an off the cuff question.

Phil: I don’t think there’s any others apart from our partnership with Owl and Tolerisk, I can think about.

Craig: What are the trends you’re seeing in the data and functions that clients are getting from your API’s or is it moving in one way or the other? What are they using more of or less of that’s changing over time?

Phil: We’re adding functional functionality over time. Obviously, we keep evolving and growing our capabilities. So this past year, we’ve added ESG scores, we added a portfolio optimizer and also as I mentioned, the tax deferral analyzer this year in a pipeline, we’re looking at adding cryptocurrencies, direct indexing, and probate assets. And those are all because that’s what our clients are asking for.

Craig: That’s interesting. So those are the hot topics crypto, direct indexing, did you say probate assets?

Phil: Private assets.

Craig: Sorry, private assets. Those are all hot. I mean, we’re seeing a lot more, even with the crypto crash. There’s still a lot of interest in cryptocurrency. We’re still doing some some work on that. Of course, direct indexing peaked, I think peaked a little bit in terms of the excitement in the market as a lot of firms were acquired. Are you seeing the direct indexing being used mainly for ESG purposes or for tax purposes or something else?

Phil: I’d say mostly for mostly probably for tax purposes.

Craig: That people ask us a lot about where we see a lot of these things going on under indexing. That sounds to me like something listed what seems to be something that’s going to become ubiquitous as because everyone seems to be interested in it, but it’s not something that clients are asking for. No client walks into their advisor and says I want to direct indexing product. It has said well I have these needs are the advisor says, you’re too small for an SMA, where you can save money, you get tax advantages in a mutual fund like a pooled investment vehicle versus direct indexing can give you that even without having to have a $250,000 minimum investment.

Phil: Exactly.

Craig: Just seeing it becoming more ubiquitous, and more firms being able to get it through you. So when they when they are using your API, what do they get on to run direct indexing? Can they open up an account or it’s more just here’s a portfolio now turned into a basket then with this much money and this much with this kind of a model? How does it work?

Phil: We’re just providing the suggested portfolios.

Craig: Interesting. So is it based on a bit, they give you the index and then say, here’s the assets we have available? Or here’s how much money we’re putting in. They’ll give us back the portfolio fractional shares and such.

Phil: Exactly.

Craig: That sounds cool. Can they restrict can provide client restrictions, hey, we want this direct index, but we don’t want any military stocks.

Phil: That’s yet something we will be adding.

Craig: Oh, good. I know we used to have a long time ago that used to get feeds of all these different securities that fit into different categories. So that’ll come from the ESG providers as well, like an Owl will say here’s the securities that meet these different criteria.

Phil: Exactly. Companies that use wrote in tobacco or cheap labor in third world countries and all of those sorts of criteria.


Craig: Indeed. When it comes to crypto, what types of things will your API’s be able to provide?

Phil: It’s really just adding them into our core functionality. To what we want to put the ask that we’ve been given is, you know, the advisors are coming to us and saying, Well, you know, a good number of our clients now have, you know, traditional investment portfolio of maybe some mutual funds, ETFs, maybe even some single stocks, but now they’ve got you know, some percentage five or 10% in crypto, and we still want to be able to give them a complete picture of their portfolio.

Craig: So that begs the question of how do you risk score crypto?

Phil: You must have every scoring it’s just done based on historical performance and risk levels and we have a we also break down everything into our 16 factor macro model that determines the sensitivities of the portfolio’s to the major macro factors.

Craig: Interesting, I made a joke a couple of years ago, I was at a another vendor conference. And they were talking about adding crypto to their risk assessment tools. And I said, here’s the risk assessment for all cryptos, 9.

Phil: It’s certainly high, but I guess I guess if you get out your you know CFA handbook, you’ll find that even adding a small amount of a diversity diversified asset can reduce your risk right. What’s the ideal amount of crypto I’m guessing it’s somewhere between 3-5%?

Craig: Or at least one or two as Ric Edelman has been promoting that everyone should put 1-2% of their assets into crypto. For just more diversification. And with private assets, you already support some annuities. Are there any other private assets are going to structure products, anything like that?

Phil: We can do structured products. And then we’re also we find that a lot of clients also say, Well, we’ve got a client who owns our business, and that’s 40% of their portfolio. So how do you figure that into the risk overall?

Craig: How do you do that? Most of most for most portfolio management platforms allow generic, manually entered holdings. So they say, well, they have a yacht and it’s worth a million dollars, just manually put that in, but how do I pass that into an API?

Phil: That’s exactly what we’re going to add the ability to do, and whatever information that they have, they’ll be able to send in and then we’ll work on building that into the portfolio risk assessment.

Craig: That’s got to be hard. So would you would you bring bringing in valuation data? They could ask they could have a yacht they’d have cars. I’ve seen tools that track for very wealthy people, they might have a collection of handbags that are worth millions of dollars. How would you track that? How would that work?

Phil: Yeah, I mean, generally speaking, what we’ll do is we’ll look for an appropriate proxy. So obviously, you can look for things like companies that invest in private assets that are publicly traded or funds that are invested in private assets that are publicly traded, not so much in the US, but but overseas. Those exist. You can take a look at the risk in those proxy assets and that’s generally our approach.

Craig: It’s complicated. Half our clients are the institutional side, broker dealers, or large RIAs, RIA aggregators, asset managers. The other half are FinTech firms. We do get we’ve had a number of alternative investment platforms come to us looking for advice and strategy around private assets, in some specifically around fractionalized seeing the ownership of boats and cars and other arts and other things. So that does seem like an area that’s poised for growth. I would agree. Is there anything else you’d like to discuss before we wrap things up?

Phil: No, I think it was a great pleasure speaking with you and appreciate the opportunity to join you.

Craig: Absolutely. So where can people listening find out more information about FinMason?

Phil: Just come to FinMason.com. And if you want to get in touch with us, that’s a Contact Us on the website.

Craig: Terrific. Phil, thanks so much for being here.

Phil: Thank you.



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at craig@ezragroupllc.com