Outside-IN

Alt investments on the rise among RIAs

Advisers considering independence have new, high-tech options

Jan 2, 2018 @ 7:00 am

By Matt Sonnen

Based on the success of the RIA industry, the trend of breakaway advisers interested in exploring the independent channel continues to gain momentum.

Slowly but surely, the notion that independence cannot support complex, sophisticated advisers and their clients is being torn down as billion-dollar teams continue to launch RIAs and more industry headlines highlight multi-billion-dollar firms that are successfully executing both organic and inorganic growth strategies in the independent channel.

Despite this very visible evidence of success, there still remains a veil of misinformation running through the wirehouses that the more sophisticated investment products are not available in the independent RIA space.

Propagated by wirehouse branch management to keep their top producers in their seats, this false campaign is now being revealed as its exact opposite; there are more customizable solutions for RIAs to access and deploy alternative investments for their high net worth clients than ever before.

(More: Digital marketplaces aim to ease RIA access to alternative investments)

According to Mark Tibergien, CEO of BNY Mellon's Pershing Advisor Solutions, "It appears those firms most under pressure are the ones whose value proposition is tied to investment performance."

"Those who can command a premium are those who can deliver a premium experience and who are perceived to be offering more value. They may be giving their clients access to private banking or alternative investments, or they are creating a community of clients in which others want to be a part."

ENHANCING SERVICES

It is now incumbent upon all advisers to enhance their service offering to deliver a differentiated investment management offering. One of the most compelling ways advisers can do this is by offering access to alternative investments, and one of the great news stories for RIAs is an emerging renaissance of alternative investing platforms that are now available.

These nimble institutions and technology platforms are customizing access, technology, compliance and due diligence in an effort to create transparency and operational efficiencies to expand RIAs' use of alternatives.

For example, to access alternatives on their own, RIAs in the past typically would be looking at $25 million AUM minimums just to reach cost-effective scale, and many alternative managers have $10 million individual minimums themselves.

To streamline access, new platforms and institutions are able to aggregate investment dollars across all of their clients either in a pre-existing fund available to RIAs on the platforms, or they can take an investment idea from an RIA and create a fund to meet their needs at much more accessible minimums.

Along these lines, many RIAs don't have the internal bandwidth to conduct the proper due diligence and create sufficient compliance files to satisfy SEC auditors during a routine exam.

This issue is being addressed and solved for by these alternative platforms through their ability to bundle in comprehensive research and due diligence reports to provide the basis advisers can rely upon in a compliant manner for their investment recommendations.

ALT TECH

Additionally, investing in alternatives has historically been a complex, opaque and slow process, which caused many RIAs to avoid investing client assets in them due to the infrequency of performance reporting and valuation.

(More: Silver lining in BDC fundraising figures)

To counter this issue, these new alternative platforms are leveraging cutting-edge technology portals to allow advisers and their clients to access fund reports, view performance in a timely fashion and have a detailed analysis of the various funds' holdings.

Many RIAs have steered away from offering alternative investments to their clients because they often felt they couldn't cover the costs or human capital associated. However, the alternative investment platform providers specialize in these nuances and can use their scale and experience to staff employees specializing in these areas.

Advisers considering independence, as well as existing RIAs looking to improve their investment solutions, can now act in confidence in their ability to offer sophisticated investing solutions to their clients.

Matt Sonnen is Founder & CEO of PFI Advisors.

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