Digital
alternative investments platform, YieldStreet, has acquired a digital IRA platform, WealthFlex, as part of a strategy to bring the individual retirement account market into the twenty-first century.
"The IRA industry is stuck in the '80s," said Milind Mehere, founder and chief executive of YieldStreet, a robo platform founded four years ago to offer wealthy investors access to sophisticated and mostly secured debt investments across real estate, shipping, marine, legal and art finance, and commercial loans.
New York-based YieldStreet had until now been affiliated with seven external IRA platforms, including Bellevue, Wash.-based WealthFlex, but decided that adding an internal IRA platform would make the process of
owning alternatives in qualified accounts easier to manage.
"Our investors wanted a tax-efficient method of investing on YieldStreet, and we listened," Mr. Mehere said. "Anyone who has ever tried to move their 401(k) or IRA understands that the process is not consumer-friendly or designed for today's world."
Joe DiDomenico, founder of WealthFlex who will be joining YieldStreet as director of retirement services, called the deal a "match made in heaven."
"The playing field for individuals to be able to invest for themselves has radially improved as a result of this acquisition," he said.
WealthFlex, founded in 2014, has $250 million in client assets across 500 accounts.
Since its 2015 launch, the YieldStreet platform claims to have funded 160 investments worth nearly $1.2 billion.
Mr. Mehere said approximately 200,000 investors have signed up on the platform.
Most of the investment offerings are made up of senior secured debt with durations of between one and four years.
As the investments mature, the principal and interest are paid to investors on the platform, and so far, nearly $550 million has been paid to investors, Mr. Mehere said.
Despite the affiliations with IRA platforms, only about 10% of the investments on YieldStreet are held in IRA accounts, which is something the WealthFlex deal is designed to change.
The deal is also leveraging the
2012 JOBS Act, which expands access to alternative investments to a wider universe of potential investors.
Alternative realities
Mr. Mehere believes there is an untapped market of wealthy investors looking for ways to allocate to alternative investments through IRAs for advantages that include tax efficiency.
"We believe the $27.1 trillion retirement market is currently underutilized and lacking diversification," he said.
Paul Platkin, co-head of investments for RegentAtlantic, currently uses traditional IRA platforms to help his clients invest in alternatives, and he agrees that certain less-liquid investments are best held inside qualified accounts.
"We are always trying to do alternatives inside people's IRAs," he said. "It's a little bit of work sometimes, but we've never underwritten something we couldn't get on the platform."
Among of the biggest advantages of owning certain alternatives inside a qualified account, according to Mr. Platkin, is tax management.
"Inside an IRA there is no K-1 to deal with and no tax filing," he said. "If you can put it in an IRA and you're younger, you didn't have liquidity anyway."
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Todd Rosenbluth, director of mutual fund and ETF research at CFRA, concurred that alternatives often gain appeal when markets get volatile or transition to new cycles, which might be the tipping point YieldStreet needs.
"Advisers look to alternative investments to provide diversification for clients," Mr. Rosenbluth said. "Given the strong equity market of 2019, we think some will look to limit the downside in 2020 concerned that the gains might not persist."
However, Paul Schatz, president of Heritage Capital, wonders if there enough of an appetite for alternatives inside IRAs.
"This is a very small market in and of itself," he said. "I don't think many clients wake up and decide they want to invest their IRA or 401(K) specifically in the alts space. And alternatives remain fringe investments."
