COVID-19 has disrupted nearly every aspect of life – and has significantly impacted the global economy and markets. But the pandemic has also accelerated some underlying trends that were already reshaping the wealth management industry. Amid the pandemic-driven economic uncertainty, equity markets look fully priced and bond yields remain disappointing. As a result, advisors and investors are increasingly looking outside the public markets for new sources of return and diversification and are instead turning to alternative investments.
Tom Fortin is the Chief Operating Officer of iCapital Network and a member of the firm’s Executive Committee. He is responsible for the Administration, Investor Services, Enterprise Implementation and Technology departments. Marco Bizzozero is Head of International at iCapital Network and a member of the firm’s Executive Committee. Marco has more than 25 years of international experience in the financial industry and has held senior executive positions in global organizations in wealth management and private equity.
Here they share what banks need to know about using technology to scale access for their HNW clients to private market investing opportunities.
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 require shipping back a new sheaf of papers for correction. Multiply this process by hundreds or thousands of clients, and it’s obvious that manual subscription processes don’t scale well and are costly to administer. In our current digital era, client onboarding for alts should ideally check the following boxes:
Create and store client profiles digitally so that 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 as to 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 quickly 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 in to 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.