Technology and Innovation Community

I was browsing Acquire.com over the holidays (strongly recommend a perusal for curiosities sake) and I was amazed to see just how many seemingly simple startups are advertised there with (claimed!) high revenues & margins. An "Excel tool for portfolio management" was seemingly bringing in $350k+ of net profit LTM and listed on sale for $1Mn.

This got me thinking: I'm certain the very talented and high intellect members of the CFA Society for Technology & Innovation community are sitting on some very high quality ideas? I try not to make requests on something I'm not prepared to undertake so in the spirit of CFA & education, here is one simple idea from me (not acted upon!). 

Investor Knowledge Verification Platform (IKVP)

Core Problem

Wealth managers and private banks:

• Want to cross-sell higher-margin products (options, structured notes, alternatives, derivatives, private markets)

• Are constrained by:

  • Suitability rules

  • Appropriateness tests

  • MiFID II / FCA / SEC / FINRA regulatory exposure

  • Litigation risk if a client claims they didn't understand the risks

Current state:

• Education is ad-hoc, PDFs, disclaimers, or box-ticking questionnaires

• Knowledge is asserted, not demonstrated

• Records are weak in court

Solution

A regulated, auditable, product-specific investor education and certification system that:

1. Teaches clients exactly what a product is

2. Tests understanding, not memory

3. Produces a defensible, timestamped knowledge record

4. Integrates directly into the wealth manager's sales flow

The output is not "education content" - it's legal protection + revenue enablement.

Hi Shane, the regulatory onus of verifying knowledge/capcity to invest is still on the advisor/sell-side because, if they are involved, they are viewed as the enablers and hence ought to have greater knowledge/responsibility. Clients can be accredited investors if they want to have more scope to invest and issuers have to take "reasonable steps" to verify this is true (check income/net worth or confirming professional licenses). I'm not hopeful this practice of the principle of the "More Knowledgeable Other" will change because it is easier for a regulator to chase/punish an institution and their employees than an individual investor who can do a runner. But the first port of call on whether an Investor Knowledge Verification Platform would have weight (I guess, in court in a dispute?) is to ask regulators through their innovation teams. A version of an IKVP was built into SIMON, the structured products platform consortium supported by banks which has since been acquired into iCapital, but for verifying/auditing the knowledge/capability of discretionary managers (private wealth/RIAs, but who are institutional employees and not retail investors) buying structured products. Building this into the SIMON platform was a day1 decision because the banks wanted to create a standard bar for dealing in structured products to ward off US SEC criticisms and fines. Seems to be working.