Nobody has ever accused the financial services industry of being overly aggressive in its adoption of new technologies. Just witness how many of today’s investment activities are still consummated with the use of paper and PDF documents and wet signatures. This has been a significant impediment to the broader use of alternatives by investors and their advisers, despite the presence of organizations offering straight-through processing technologies capable of accelerating financial transactions by streamlining data sharing and fully automating the process. Straight-through processing also promises a to eliminate repetitive tasks and reduce the errors.
One of the industry players pressing advisers to make the technological leap is Joe Ujobai, CEO of AIX, a digital straight-through-processing platform built to simplify and improve the investing process and boosting the use of alternative investment options.
How many significant players are currently operating in the straight-through processing space?
Very few. Paper-based and PDF-based processing often causes friction that requires patience and time. The industry has invested in removing some of the friction related to the buying or subscription of alternative investment products. Automation often ends once the subscription documents are completed and PDFs are sent to other administrative providers such as custodians, transfer agents and fund administrators. There are very few enterprise platforms that support the end-to-end process for the full lifecycle of an investment. Wealth managers are looking for an enterprise system that supports pre-trade, trade, post-trade, transfer and tendering in an authentic, digital and fully integrated process for all investment products and investor types.
At what pace are we seeing adoption, and what are the chief impediments to adoption?
Adoption is, indeed, increasing. The pandemic encouraged the use of technology simply because people weren’t coming into the office and were not able to use traditional processes like wet signatures and overnight mail. Users of digital subscription services want more post-trade automation as they service their clients over the many years of an investment in nontraded products.
Barriers to adoption are the typical issues facing many business leaders. They include competing priorities, negative attitudes toward change, and lack of understanding of the benefits of innovation. Adoption is growing as more wealth managers, such as RIAs, increasingly embrace alternative investments to provide better client outcomes, meet fiduciary obligations and create market differentiation.
If two wealth managers using different platforms merge, what then? What determines which platform survives the union?
It depends. At this point, most wealth managers don’t have straight-through alternative investment processing systems so there’s rarely a conflict. When there are multiple systems, sometimes they all remain based on the preference of the advisers. In most cases, wealth managers go through a re-evaluation exercise to determine the best possible outcome for their advisers and clients.
What should wealth and asset managers look for in straight-through processing systems?
Platforms that connect data and integrate all participants in the investment lifecycle seamlessly and without the tedious back and forth communications. Platforms that adapt to how they do business and conform to their workflow and style. Platforms that don’t just offer technology, but the knowledge of seasoned alternatives investment experts. Platforms that are flexible enough to methodically evolve your alts process at your pace, without turning your business upside down.
How do you expect the space to evolve over the next five to 10 years? Can we expect a shakeout or a flurry of mergers?
Industry experts such as Preqin estimate significant growth of $10 trillion in alts investments over the next five years. We are still in the early stages of alts adoption by individual investors. With the rise of retail investors as asset allocation models evolve from 60 percent equity and 40 percent fixed income to 50 percent equity, 30 percent fixed income and 20 percent alts, the need for authentic scalable platforms will become increasingly apparent. The long-term goal is to make alts investing as easy as mutual fund transactions. As in all fast-growing industries, technology providers will come and go, and partnerships and consolidation will occur as the industry settles on standards and a scalable infrastructure to support growth.