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South African white label financial planning and management startup Arcus Capital is applying machine learning algorithms to analyse the stock market and create risk-targeted portfolios, using mainly exchange-traded funds (ETFs).

Launched two years ago, the company provides sophisticated, tech-enabled asset management, working with brokers and companies in the direct market to help people achieve their financial goals.

By applying machine learning algorithms, Arcus Capital allows advisers and direct customers to determine their financial goals and help them determine their risk appetite.

“We then suggest the most appropriate investments for the user. We have a very intuitive interface so that a user can understand the impact of making one investment over another investment and then show them how likely they are to meet their future financial needs. The product set has just been extended to cover insurance as well,” director Shaun Krom told Disrupt Africa.

Advisors and customer can then upload all their details online together with their FICA documents, which are stored on the cloud. They can log in at any time to receive updated information on their investments, with all subsequent reporting automated. All this saves the user as much as 66 per cent in costs.

As a founder, Krom brings a certain expertise to the operation. A qualified actuary with approximately 18 years of experience in the financial industry, both locally and abroad having worked in London for over eight years, he knows his stuff when it comes to investment banking, hedge funds and asset management.

In South Africa, he has identified a problem that Arcus Capital sets out to address – the fact that 97 per cent of asset managers in the country underperform the benchmark over any five year period, according to S&P. Not only that, but they also charge some of the highest asset management fees in the world.

“It is not uncommon for the total fee to eat up as much as 20 per cent of an investor’s yearly return,” Krom said. “Furthermore, many people are unsure what to expect from their investments, and then they either sell or buy at the wrong time or change over their investment managers too often.”

Arcus Capital, using its algorithms, says it can produce portfolios at a fraction of the cost of traditional investments, and by linking advice to the portfolio algorithms provides an intuitive forward looking interface so that investors and financial advisers know what to expect.

The company has already launched a direct offering with a South African platform, and is working with a company that looks after over 800 financial advisers. Test pilots with two of those financial adviser firms are underway, and Arcus Capital also has an agreement with another mid-sized financial firm.

Krom said the service – which makes money by charging fees on the money it manages – was applicable to other markets outside of South Africa.

“Since its all automated this fee is a fraction of what is traditionally being charged,” he said. “This can be applied to all financial markets – we are currently applying this to South Africans with money to invest both locally and abroad.”

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