The next step in the evolution of alternative investment platforms should be a more targeted approach to match RIAs with the most suitable funds and asset managers for their client base, according to speakers at Inside ETF+, part of Wealth Management EDGE at The Diplomat Beach Resort. in Hollywood Beach, Fla.
As the size of the global alternative investment market grew from $8 trillion in the mid-2000s to $200 trillion today, the challenge for RIAs has changed from discovering that rare alternative opportunity that made sense to fill with a pipe of fire with different fields, said Andrew. Stewart, CIO of Exchange Capital Management.
The process is further complicated because much of the growth in the alternatives space comes from the private wealth channel rather than from more experienced institutional investors, and VNRs must remain vigilant in fulfilling their fiduciary duty while recommending these products to customers. Sometimes, this nuance can be very good. Stewart mentioned that while it makes sense to invest in funds across the liquidity spectrum for very large and financially secure clients, he would think twice about recommending a semi-liquid fund to a client who barely qualifies for it.
“I think it's important to start with segmentation. You can't talk about automation and you can't talk about features that evolved in the alternative investment process without segmenting your client book,” said Devon Drew, CEO of Asset Link.
To reap the benefits of automation that alternative investment platforms offer, VNRs must first segment their clients into groups based on their levels of accreditation and liquidity needs, and understand which asset types and fund structures will to better serve their needs, he said.
According to Stewart, RIAs should also consider which alternative investment opportunities they want to pursue and which fund managers they want to work with so they don't get overwhelmed by campaigns.
He said the multiple actors, including custodians, that come into play when retail wealth managers pursue alternatives make the process much more time-consuming and complicated than it is on the institutional side. Stewart cited an example of a firm that wants to allocate $75,000 each on behalf of 200 clients to an alternative-focused fund. These RIAs now have to work with 200 separate sets of documents. “It's not scalable. There are people out there trying to bridge the gap between the ideal and the actual process, but it can be rough,” he said.
Stewart noted that advisers would do well to narrow down which alternative asset classes they are interested in, which types of fund structures they can work with and which custodial platforms those funds would need to be accessed from before jumping in. on investment platforms. Exchange Capital Management might like fund X, but if fund X isn't offered by Schwab or Fidelity, while there are 12 similar funds, the firm will have to go with the funds available on the custodial platforms it uses, he said.
To make the process easier for advisers, fund managers should also segment their offerings in line with RIAs with clients who qualify for them, according to Drew. “To scale and automate, I think it's imperative that we somehow integrate it into their distribution strategy with advisors,” he noted.
At the same time, asset managers should continue to invest in personal relationships with advisors, Stewart added. This makes the investment process more efficient and allows RIAs to contact the asset manager and discuss what is happening if a fund is not performing as expected, so they can then relay that information to their clients. and prevent them from panicking.
“These are not just numbers; these are real people deploying capital,” he said. “Relationships really matter.”