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Wealth managers risk losing market share if they can’t effectively report on alternative funds


Wealth management groups who fall behind the technology curve risk losing market share as more and more retail and HNW investors allocate to alternative investment products. Unlike the US mutual fund market, which is a highly sophisticated and homogenous market in terms of the way that funds are distributed and reported on, the alternatives market remains a far more complicated, heterogeneous arena. 

The implication to this is that as more investors add alternative funds to their traditional portfolio, the greater pressure wealth managers face to report on these allocations in a streamlined, user-friendly fashion.

“The way this market operates is very different to the traditional world of stocks and bonds. Each private equity manager or hedge fund manager wants to be seen to be unique and there is less prescriptive regulatory oversight as compared to the mutual funds market. They can decide how and what to report to investors,” says Charles Roberts of Intralinks.

As these tend to be one-off investments, the challenge that wealth managers have is how to present them easily to their clients. Up until now, this has largely been done using print information. However, this means the investor might end up getting six to eight different sets of information from different places, maybe they are having to log into multiple portals online. This provides a lot of problems for the financial advisers as well, who often have to pick up the mantle by collecting some, if not all, of this data. 

“It really slows down the overall process compared to stocks and bonds where information flows automatically; it’s the same reporting process across the marketplace and it is much more straightforward,” observes Roberts.

So how can wealth managers overcome this reporting disconnect?

Certainly, as technology advancements continue at pace there are more digital solutions that wealth managers can consider to update their legacy systems and move away from manual processing. But for some, this is easier said than done. As Roberts remarks, there are some IT systems in wealth management that are so ingrained and so disparate that coming up with a unified digital strategy can be difficult. 
“A lot of wealth managers we talk to have decided to take more of a third party approach so that there is a centralized place where all the information (traditional or alternatives) can be collected and distributed to financial advisers and investors. 

“During the tax season and the processing of K1 reports, wealth managers will almost double their internal reporting staff to do all the collection and processing work in order to meet the deadlines. They are spending a huge amount of time and effort to meet investor requirements; it puts on lot of pressure on them,” comments Roberts.

He confirms that Intralinks has successfully worked with a number of wealth managers recently to facilitate the collection of information from different funds and make it easily accessible online; even if the investor doesn’t want to go online to grab that information, at least their financial adviser can do it for them. 

What Intralinks’ solution does is to provide a greater level of automation where information on a wide range of investments can be viewed from a single location; rather than have some print information, some information stored on one website portal etc. 

“This can help wealth managers reduce the amount of time and money they spend, and the amount of stress, when reporting to their investors,” adds Roberts. 

Ultimately, he says, clients expect this level of automation. One of the upshots of living in the Gig economy is that people want access to information whenever they want. 

“Everyone is becoming more educated on their investments and it is crucial that they have information at their fingertips. There are some people who still remain removed from that information but they are the exception more than the rule today. 

“The alternatives industry continues to move towards more transparency, which means more and more documents are being shared between managers and investors with greater levels of detail and frequency. The less automated that process, incrementally the more expensive and time consuming it becomes for wealth managers,” states Roberts. 

Having a central axis point for all alternative fund information is absolutely crucial for investors and financial advisers as they become more educated. Wealth managers simply cannot expect to grow their market share if they are not supporting the communication demands of their end investors. 

Roberts provides an anecdote on a top-10 wealth management group who successfully moved to an automated ecosystem. “Previously, for almost every piece of information they sent out – account statement, capital call, performance report – required a manually generated Excel spreadsheet with investors’ names and addresses. This was then sent to a print company before finally being sent out to each respective investor. 

“Staff were spending more than half a week doing these report mailings. It was a massive task. Now, they are moving to a fully automated system where investor addresses are automatically accessed using metadata, the print vendor is able to automatically print reports directly, substantially reducing time and manpower. Not only was it more efficient, it allowed print reduction to be reduced by approximately 80 per cent,” says Roberts.

Some wealth managers are more progressive, technology-orientated, willing to react to the needs of the market, whereas others are more hesitant. They recognise the importance of updating their system architecture but they are thinking more carefully about how technology can augment and enhance their business model. 

Either way, it is clear there is a lot of frustration in the industry among investors and financial advisers that the current systems and processes are not adequate for the level of high-touch information that they expect, based on the types of investments they are making and the fees they are paying to wealth managers, says Roberts.

“The broader wealth management market will have to react to disruptive technology. At the end of the day, it doesn’t compel an investor to stay with a wealth manager if they are being asked to go to 10 different places to get the relevant fund information. It makes them less accessible and easy to work with. 

“Intralinks is well positioned as an agnostic market hub for alternative investments where all the information flows in from third party fund managers into one seamless, centralised platform. It also helps the fund manager control the flow of information and improve the dialogue with the investor and financial adviser,” concludes Roberts.

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