Covid-19 disrupted nearly every aspect of life – including the global economy and markets. But the pandemic also accelerated some underlying trends that were already reshaping the wealth management industry.
In this article, iCapital – the global fintech company powering the world’s alternative investment marketplace – explains how technology has begun to smooth the path for banks and wealth managers that want to provide alternative investment to clients.
Tom Fortin is the chief operating officer of iCapital and a member of the firm’s operating committee. He is responsible for the administration, investor services, enterprise implementation and technology departments.
Marco Bizzozero is head of international at iCapital and a member of the firm’s executive committee. Bizzozero has more than 25 years of international experience in the financial industry and has held senior executive positions in global organisations in wealth management and private equity.
Amid the economic uncertainty we face today as a result of the pandemic and war in Ukraine – and the resulting supply chain disruptions and inflation pressures – investors are facing significant volatility in the public markets. As a result, advisors and investors looking for new sources of return and diversification are increasingly turning to alternative investments.
There have been longstanding challenges to providing access to alternative investments to high-net-worth (HNW) investors. Banks and wealth managers find the investment minimums for direct investments into funds too high for most investors, while the cumbersome, paper-based subscription process is burdensome to administer. For fund managers, the marketing, subscription, processing, and servicing required to accept a large volume of smaller investments was beyond their capabilities.
In recent years, technology has begun to smooth the path for banks and wealth managers that want to provide alternative investment to clients and for fund managers interested in tapping into the HNW market. These technology solutions can solve for four key challenges that providers face when offering alternatives.
Challenge #1: Client profiles and subscriptions
Offering alternatives to clients entails considerable paperwork. Subscription documents and limited partnership agreements are lengthy and require multiple signatures. Advisors typically print, manually fill out, and mail these documents to clients, flagging items requiring attention. The chance of errors is high and the process doesn’t scale well. In our current digital era, client onboarding for alts should:
- Create and store digital client profiles so advisors can enter client information into the system once, then use that profile to subscribe to multiple strategies.
- Digitise and track all fund marketing to create a convenient, dynamic experience for advisors and investors and offer transparency to banks and fund managers regarding who is considering an investment.
- Digitise all subscription paperwork and signatures as well as the verification process.
- Facilitate subscription workflows to enable banks to see who owns the next step in the process and flag where errors or backlogs occur.
Challenge #2: Client servicing
Unlike the subscription process, servicing alternatives may represent years of client interaction. An alternatives technology integration can streamline client servicing and enable banks and fund managers to scale their offering cost-effectively. Key client service features of an integrated alternatives offering include:
- A centralised, online document repository that enables the advisor to log into a single portal to access documents for all alternative strategies and send them to clients or interested parties within seconds.
- Consolidated and streamlined client and shareholder communications to limit notifications to advisors.
- A capital call system that automates notifications and tracks capital activity, instead of leaving the task to advisors, while allowing operations teams to focus on exceptions, such as late payers.
Challenge #3: Ecosystem connectivity
Every financial firm operates with a tightly interwoven ecosystem of multiple administration, accounting and tax firms, transfer agents, reporting partners, and custodians, among other players. Ideally, all investment data is optimised to flow through to all parties within this ecosystem seamlessly and securely. The industry standard for an alternatives platform should consist of the following:
- Highly scalable, fully cloud-based implementation.
- Maximum flexibility in ways to share data between ecosystem partners, based on their preferred formats.
- Single-point integration that offers firms seamless access to their ecosystem of providers.
- HTTPS TLS v1.2 and fully encrypted client personally identifiable information (PII)
Challenge #4: Analysis & insights
An alternatives integration that connects the ecosystem lays the necessary groundwork to provide greater visibility into analytics. With clean data, optimised to move seamlessly through the process and between partners, advisors can show clients how alternatives fit into their overall portfolio strategy and quantify the potential benefits. While historically less transparent than traditional investments, analytics for alternatives are moving closer to reality every day and will enable true visibility into performance.
Adopt a holistic approach to alternatives integrations
When evaluating your options for an alternatives integration, it’s important to take the long view. Building a solution in house or taking a piecemeal approach that involves tackling one challenge at a time may appear attractive, but it can create greater challenges downstream as the ability to increase volume creates larger client-servicing burdens, the need to manage multiple service providers, and expanded data requirements.
Adopting a state-of-the-art, preexisting, end-to-end solution that is already deeply integrated into the alternatives ecosystem can meaningfully improve efficiency and the client experience by providing the benefits of reduced complexity, streamlined integration and operations, plug-in compatibility with vendors, increased security for personally identifiable information, and the potential for rich analytics. Ultimately, this approach is likely to be more cost-effective while also enabling advisors and clients alike to appreciate the full potential of alternative investments.
Founded in 2013 in NYC, iCapital has transformed the way the wealth management, banking, and asset management industries facilitate access to private markets investments for their high-net-worth clients by providing intuitive, end-to-end technology and service solutions.
Wealth management firms use iCapital’s solutions to provide clients with quality funds at lower minimums and simplified digital workflows. Asset managers, RIAs and banks leverage iCapital’s technology to streamline and scale their alternative investments operational infrastructure. Additionally, the iCapital ‘flagship’ platform offers wealth advisors and their high-net-worth clients access to a curated menu of private equity, private credit, hedge funds, structured investments, and other alternatives to help meet their investing needs for return and diversification. iCapital’s research and diligence team offers robust analysis alongside the firm’s extensive suite of advisor education, compliance, portfolio management, and portfolio analytics tools and services.
As of 30 April 2022, iCapital services more than $125billion in global client assets across more than 1,000 funds. Employing more than 800 people globally, iCapital is headquartered in NYC and has offices worldwide including in Zurich, London, Lisbon, Hong Kong, Singapore, and Toronto.
This material is provided for informational purposes only and is not intended as, and may not be relied on in any manner as legal, tax or investment advice, a recommendation, or as an offer to sell, a solicitation of an offer to purchase or a recommendation of any interest in any fund or security offered by Institutional Capital Network, Inc. or its affiliates (together “iCapital”). Past performance is not indicative of future results. Alternative investments are complex, speculative investment vehicles and are not suitable for all investors. An investment in an alternative investment entails a high degree of risk and no assurance can be given that any alternative investment fund’s investment objectives will be achieved or that investors will receive a return of their capital. The information contained herein is subject to change and is also incomplete. This industry information and its importance is an opinion only and should not be relied upon as the only important information available. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed, and iCapital assumes no liability for the information provided.
Products offered by iCapital are typically private placements that are sold only to qualified clients of iCapital through transactions that are exempt from registration under applicable securities laws, including the Securities Act of 1933 pursuant to Rule 506(b) of Regulation D promulgated thereunder (“Private Placements”). An investment in any product issued pursuant to a Private Placement, such as the funds described, entails a high degree of risk and no assurance can be given that any alternative investment fund’s investment objectives will be achieved or that investors will receive a return of their capital. Further, such investments are not subject to the same levels of regulatory scrutiny as publicly listed investments, and as a result, investors may have access to significantly less information than they can access with respect to publicly listed investments. Prospective investors should also note that investments in the products described involve long lock-ups and do not provide investors with liquidity.
Securities may be offered through iCapital Securities, LLC, a registered broker dealer, member of FINRA and SIPC and subsidiary of Institutional Capital Network, Inc. (d/b/a iCapital). These registrations and memberships in no way imply that the SEC, FINRA or SIPC have endorsed the entities, products or services discussed herein. iCapital is a registered trademark of Institutional Capital Network, Inc. Additional information is available upon request.
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