In the fast-paced world of finance, innovation often springs from unexpected places. Enter SMArtX CTO Aaron Wormus, who was gracious enough to give us an interview for this month’s edition of Wealth Advisor magazine.
Aaron and SMArtX founder Evan Rapoport stumbled upon a groundbreaking idea while trying to solve a problem for hedge funds. Little did they know that this solution would eventually transform the wealth management industry.
It all began in 2014 when they launched HedgeCoVest, a platform designed to help hedge funds manage their performance and market themselves to accredited investors. The goal was simple: create a space where investors could easily find and connect with hedge funds that matched their specific criteria.
Ingenuity in the face of early obstacles
However, as Wormus and his team delved deeper into the technical intricacies of hedge fund trading, they realized that the regulations surrounding pooled investments posed a significant challenge for matching investors with specific funds. Undeterred, they came up with a clever workaround: offer trading services to hedge funds and allow investors to open separate accounts, with the platform copying the trades provided by the hedge funds into each individual account.
“It was basically a separately managed account and not a pooled investment,” Wormus explains. “Anyone could theoretically invest in a hedge fund, they would be in their own account, and we would be doing the trading for them.”
The software they created to make this possible was nothing short of revolutionary. It could handle long and short positions, margin trading, and all the complex strategies that hedge funds employ. The platform could take this information and immediately execute trades in clients’ accounts, a feat that was unheard of at the time.
As HedgeCoVest gained traction, Wormus and his team had an epiphany: the technology they had built for hedge funds had far wider implications in the asset and wealth management space. In 2017, they pivoted, creating SMArtX and partnering with industry giants such as Black Diamond and Advent.
“We didn’t even know what a TAMP was at that point,” Wormus admits, laughing. “But when we realized that the wealth management space was massive compared to the hedge fund world, things really took off.”
Eyes always on the advisor
SMArtX’s portfolio management engine, which is sleeve-native, quickly became the talk of the town. It allowed for the creation of multiple sleeves, real-time trading, and comprehensive reporting, all within a single account. Advisors could now easily compare the performance of different models and rebalance funds between sleeves without the hassle of moving money between accounts. What’s more, this could all be done automatically, based on the criteria they’d specified.
“It streamlines operations and makes life a whole lot easier,” Wormus says with pride. “And the most valuable piece is that advisors know the money’s being managed by big professional organizations, so they no longer have to trade and manage all their accounts themselves.”
But Wormus’s innovations didn’t stop there. SMArtX’s rebalancing system allows advisors to set thresholds on models or symbols, alerting them when a model moves beyond a certain percentage. This enables advisors to maintain specific ratios, such as 60/40, or let the models drift with the market, depending on their preferences.
Entrepreneurial expertise
Behind the scenes, Wormus has assembled a team of 50 developers, always striving to hire the smartest people who can bring something unique to the table. SMArtX values diversity and has adapted the Spotify squads methodology, focusing on building strong, self-sufficient product teams.
“We want our teams to be the subject matter experts in the products they’re developing,” Wormus emphasizes. “It’s very niche what we’re doing, and we want to build that expertise within our teams.”
This approach has paid off, with SMArtX powering the unified managed account (UMA) tools for industry giants such as Morningstar. “Anyone who uses Morningstar office for their UMA tools, they are behind the scenes using SMArtX,” Wormus reveals.
Building from scratch
But Wormus isn’t one to rest on his laurels. SMArtX has set an ambitious goal of reaching a trillion dollars under management within five years, a significant leap from their current $37 billion. To achieve this aim, the company is focusing on developing additional tools to make advisors’ lives easier and ensure technological longevity.
“One of the things we identified early on with our competitors is that they purchase a lot of their technology,” Wormus points out. “We’ve built everything from scratch, which means we can constantly improve and adapt to our clients’ needs.”
Among the many innovations SMArtX has brought to the table, Wormus is particularly proud of its rebalancing system. “Our rebalancer has an amazing user interface that we built from scratch,” he says. “An individual can rebalance 10,000 to 15,000 accounts at the same time with just a couple of clicks. This was something that would take teams of people days to process on other platforms.”
Looking ahead, SMArtX is focusing on tackling the challenges associated with managing taxes. They’re developing a tax transition tool that will help advisors switch providers without burdening clients with hefty tax bills. “We want to give flexibility to asset managers without having to go to their clients and say, ‘Oh, by the way, I switched providers, and now you have to pay an extra $200,000 in taxes this year,’” Wormus explains.
Informed automation
When it comes to the role of artificial intelligence (AI) in fintech, Wormus is both excited and cautious. “I’m skeptical about the longevity of the first batch of ‘buzzword compliant’ products that companies are rushing to push out the door,” he muses. “Over the years, I’ve seen technology trends come and go. As a trend starts, companies will compete to release technology that generally maps to the trend, but the true implications are not seen until the initial rush wanes.”
Despite his reservations, Wormus acknowledges that SMArtX is already using AI in its engineering and back-office work, helping it innovate, compete, and grow. “Much of the opportunity ahead of us relies on being able to take fintech processes that have been manual or outsourced for decades and automate them,” he explains. “Moving to our platform, clients have discovered that processes that took them days in the past, like quarterly rebalancing and model reconstitution, now take minutes on SMArtX. AI is powering much of that automation and innovation.”
Wormus also hints at an upcoming advisor-focused AI product that he believes will be meaningful, contribute to SMArtX’s core focus, and change the way advisors interact with their investors and SMA and UMA products.
Commitment to thoughtful growth
When he’s not revolutionizing the wealth management industry, Wormus starts his day at 5 a.m., reading business books and sailing manuals. His children have left home for college and careers, allowing him to spend his nonworking hours with his two dogs and lovely wife. As for hobbies, he cherishes his position as the vice commodore of the Palm Beach Sailing Club, and he often heads out to sea after work, finding leadership lessons in the challenges of navigating tides and winds.
“There’s a lot of leadership lessons that come from very strange places,” Wormus muses. “I’m definitely learning a lot every day.”
Drawing inspiration from Jeff Bezos and Amazon’s culture of small, agile teams, Wormus is committed to keeping SMArtX’s teams under eight people. “They have a saying that teams have to be small enough to be fed by two pizzas,” he chuckles. That strategy has been a big part of SMArtX’s ability to be the David amongst many Goliaths in the fintech industry.
Personally, this allows him to have better boundaries around work–life balance than he had in his younger years. He’s able to sleep well at night, knowing he can trust his teams and the ambitious projects each is leading. Wormus is clearly at a stage where he’s still very much full of fire about the future while maintaining the ability to smell the roses along the way.
As SMArtX continues to make waves in the fintech world, Wormus’s journey serves as a testament to the power of innovation, adaptability, and the occasional happy accident. With a trillion-dollar goal on the horizon and a team of brilliant minds at the helm, there’s no telling how far this accidental fintech maverick will go.
