Martin Tarlie, Product Lead for Nebo Wealth, joined Julie Cooling, Founder and CEO of RIA Channel, to discuss the evolution of the Nebo Wealth platform and its unique take on portfolio optimization.
Nebo Wealth is a goals-driven portfolio optimization platform that connects planning and investing. The system is built on an award-winning optimization engine. Nebo Wealth was incubated by Grantham, Mayo, & Van Otterloo. Starting from a series of white papers in 2014, feedback and client discussions continued until the platform was launched in September 2022.
In conversations with a client building a defined contribution plan, it became clear that glide paths were not being built with explainable methodologies. Asset allocations start with an understanding of client risk tolerances, where the key risk of individual asset owners is not having the money they need when they need it. However, the industry has built models where risk is defined as volatility, not as drawdowns or falling short of long-term wealth goals.
Risk tolerance questionnaires are used to build portfolios but may focus too much on risk and not the goals and objectives of the investor. Nebo Wealth seeks to answer the question, “How much do you need and when do you need it?” The inputs are the current wealth, the expected contributions, and the desired goals for spending and legacies. The objective of the optimization is to maximize the probability that future wealth meets or exceeds the investor’s goals.
A key feature of the platform is an open architecture, where the advisory firm can preserve their investment identity. The optimization can be used on liquid and illiquid assets, with the timing of the cash flows of illiquid alternative investments included in the analysis. The platform sits between planning and investing and integrates with the Advyzon platform for trading, reporting, and billing. The target portfolios generated by Nebo Wealth are sent to Advyzon for implementation.
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