Finance students employ software to explain, gauge client’s risk tolerance
A tool is only as effective as the person using it. More practice and experience mean better results. That’s true not only for hammers and saws, but for software and spreadsheets as well. That’s why Penn State Behrend business students are encouraged to learn the ins and outs of Riskalyze, a risk-management software tool used at many financial-planning firms.
While the program is commonly used in the finance industry, it’s not often found on college campuses.
“We are one of the first universities to have used Riskalyze in our finance classes,” said Eric Robbins, lecturer in finance. “We first engage students with it in FIN 420 Introduction to Investments, where they create and manage two simulated portfolios.”
Then, things get real.
Students enrolled in FIN 461 Portfolio Management and Analysis put Riskalyze to work calculating and assessing risk levels of various strategies in managing investments for the Intrieri Family Student-Managed Fund. Any profits are reinvested in the fund, which is measured against a customized benchmark that includes the S&P 500.
“In FIN 420, our goal is to give students a foundation in Riskalyze that Dr. Tim Krause, assistant professor of finance and director of the student-managed fund, can build on,” Robbins said.
Senior Finance major Jason Pettner, the president and chief investment strategist for the fund, said Riskalyze is useful for assessing the riskiness of the equities within the portfolio.
“When picking securities, the focus is often on the potential upside, which leaves the possibility for a large downside risk,” Pettner said. “Riskalyze helps us to identify the risk inherent in our positions, so that we can mitigate the downside risk of the portfolio.”
Managing client risk is one of the toughest tasks that most advisers face. Riskalyze allows them to help their clients see just how much risk they are taking or need to take to achieve their financial goals.
“It helps financial professionals give clients a clear picture of the risk they are taking,” Robbins said. “But, perhaps most importantly, the software can quickly run the numbers and generate reports on different investment scenarios, and the risk involved in those, with just a few key strokes.”
The creator and CEO of Riskalyze, Aaron Klein, recently visited Penn State Behrend to see how the students were using the software in class and how that might be expanded to other colleges and universities.
While on campus, Klein met with faculty members, spoke to students in finance classes, and attended a Finance Management Association club event.
“It was great to meet with the students and faculty at Penn State Behrend to hear how they have been using the technology in the classroom and the student fund, including their feedback on the program thus far,” said Klein. “We see this as another opportunity to empower fearless investing—providing students with the technology they will use once they graduate, and to be more comfortable addressing risk with clients and adjusting portfolios to help those clients achieve their financial goals while also staying within their risk tolerance.”
Robbins said that Riskalyze is a user-friendly visual tool that helps facilitate discussion between financial advisers and clients.
“Riskalyze doesn’t replace the financial planner, but allows the adviser and client to look at the data and illustrations on the screen so that they are both on the same page in regards to risk,” Robbins said. “It’s one of the most visual and valuable client-facing technologies that I have used, and I am thrilled to be able to give students this real-world experience.” Aaron Klein, left, creator and CEO of Riskalyze, chats with a student during a visit to the school this fall.