If alternative investments used to be a niche extra for advisers to offer their high-net-worth clients, it’s quickly becoming a must-have. Advisers who can’t deliver more than a conventional range of investment vehicles and asset classes simply will not be able to compete–let alone make possible the potential for the kinds of non-correlated returns their clients are reading about in the financial news every day. And with the “qualified investor” metric sweeping in ever-larger swathes of affluents, alternatives represent an opportunity that can’t be overlooked. Even so, a significant portion of alternatives volume is still driven by a small portion of advisors, and private wealth investors overall allocate significantly less to alternatives than what many large-firm CIOs recommend.
The good news is that advisers can turn to sophisticated fintech that enables them to navigate the entire universe of alternative investments seamlessly. A comprehensive spectrum platform can help them learn about and seamlessly integrate all facets of managing alternative portfolios, including discovery, analysis, subscription, distribution, tax reporting, and compliance. Here are five ways such technology is easing the road for advisers.
1. Alts Education
Alternatives cover a wide range of disparate asset classes, from private equity to real property to structured investments and more, each with its own language and complexities. Education is critical, therefore, for the advisers who offer these investments to clients—and for clients themselves, who may have only a vague understanding of them. In a 2023 iCapital survey, just 25% of advisers said they were very knowledgeable about alternatives and 95% were interested in learning more.1
Advisors and alternatives
Just 25% say they are ‘very knowledgeable.’
95% want more education.
A robust, end-to-end technology platform can empower advisers to learn and to educate their clients at whatever level they require, from introductory overviews to sophisticated analyses of specific asset classes. Users receive regular updates on evolving markets and can quickly scan the universe for detailed information about individual vehicles that may support a client’s strategy. An integrated training and compliance platform is also a must in a highly regulated industry like financial services.
Technology, of course, isn’t the only teacher. Comprehensive platforms combine innovative technology with human researchers and education teams to help advisers invest with confidence, stay compliant, and keep their clients informed.
2. Portfolio construction
For qualified investors who feel constrained by the limitations of the traditional 60/40 stock-and-bond portfolio, alternative investments offer opportunities to mitigate public-market volatility and pursue enhanced long-term growth. Forward-looking advisers, meanwhile, are seeing that alternative investments have evolved beyond discretionary nice-to-haves and are becoming integral to individual investors’ allocations. In this rapidly expanding space, the challenges include selecting specific securities to meet various needs, managing illiquidity and other risks inherent to some of these investments, and making sure that a chosen vehicle fits the client’s overall investment strategy.
Today, advanced portfolio analytics and construction tools remove much of the burden. Advisers can use these platforms to integrate alternatives and structured investments into client portfolios. They can test various asset allocations to better understand how they’ll affect a client’s strategy and adjust based on evolving needs and market conditions.
3. Scalability
In the alternatives space, advisers and asset managers still communicate mainly by telephone or email. That antiquated technology may suffice for advisers creating bespoke portfolios for a handful of ultra-high-net-worth clients, but aren’t meaningfully scalable and impede advisers from expanding their client lists and serving a growing appetite for alternative investments. Now, fully integrated platforms enable advisers to choose their preferences, analyze opportunities aligned with their clients’ objectives, and interact directly with fund sponsors. In addition, advisers must at any time be able to execute trades with frictionless security, transparency, and consistency.
As another significant step-up in scalability, advisers can now access model portfolios for a range of investing styles and needs. Supported by powerful analytic technologies, model portfolios enable advisers to quickly evaluate how a client’s alternatives strategy will align with the rest of their portfolio. These carefully selected solutions can help advisers achieve the same goals for their clients as with hand-picked alternatives strategies, but with far greater scalability.
4. Data management and reporting
Traditional investment platforms are ill-equipped for the complex numbers generated by alternative investments. Thus, advisers and wealth managers spend precious time pulling together disparate data from multiple service providers to create reports that too often fail to match the level of detail and sophistication their clients expect and deserve.
Next-generation platforms, by contrast, provide centralized data repositories that eliminate the need for manual collection and allow for data to be managed, updated in real time, and presented with explanations and graphics that clients can understand. Powered by artificial intelligence (AI) and machine learning, end-to-end systems can collect and organize data from scattered structured and unstructured documents, creating reports that integrate smoothly with advisers’ systems. It could even be said that serving clients at scale in the alts space would be impossible without today’s most sophisticated fintech solutions.
5. Cost efficiency
Technology alone doesn’t automatically translate into cost efficiency, of course. For wealth advisers, ad hoc apps and features, applied separately across siloed platforms and parties, may only increase complexity and costs.
As service models in the alternative investment industry continue to evolve, integrated technology that organizes and communicates across functions is likely to win the day. Technology that can help advisers seamlessly research assets, create portfolios, and manage compliance and reporting while communicating vital information clearly and directly to their clients, paves the way for cost efficiencies.
Where to from here?
While there’s no way to know for sure where markets are headed, one thing seems clear: investor appetite for alternative investments will grow. For the advisers who serve them, focusing exclusively on traditional, publicly traded markets may not be an option.
Fortunately, thanks to evolving technologies, advisers who embrace alternatives to pursue their clients’ long-term goals may find the journey simpler and easier than they imagined, with potential upside for client portfolio performance and for their own practices.
To learn more about how technology can help you grow and serve client demand for alternative investments, visit us at iCapital.com.
1. iCapital, “2023 iCapital Financial Advisor Survey: Alternative Investments – Closer to Core.”
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ALTERNATIVE INVESTMENTS ARE CONSIDERED COMPLEX PRODUCTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. Prospective investors should be aware that an investment in an alternative investment is speculative and involves a high degree of risk. Alternative Investments often engage in leveraging and other speculative investment practices that may increase the risk of investment loss; can be highly illiquid; may not be required to provide periodic pricing or valuation information to investors; may involve complex tax structures and delays in distributing important tax information; are not subject to the same regulatory requirements as mutual funds; and often charge high fees. There is no guarantee that an alternative investment will implement its investment strategy and/or achieve its objectives, generate profits, or avoid loss. An investment should only be considered by sophisticated investors who can afford to lose all or a substantial amount of their investment.
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