Considerations for Wealth Firms Building Alternative Investment Operations

Through my experience of scaling a two-sided platform to tens of thousands of financial advisors and hundreds of asset managers, resulting in tens of billions of dollars of activities, I have learned how to build a continuously evolving alternatives operation and want to share my considerations for wealth firms when building across the pre-trade, trade, and post-trade lifecycle.

We are seeing a big industry shift towards alternative investments,¹ largely due to the 60/40 portfolio struggling in 2022² and the emergence of technology solutions in portfolio construction, execution, and servicing. As a result, wealth management firms are becoming more sophisticated and embracing advanced technologies to solve their alternative investment needs.

However, I believe it is important to be intentional about building an alternative investment operation. Don’t build one by accident. And to be clear, I have seen many firms do so. An accidental alternatives operation is often resource intensive, fragmented, and creates friction in servicing clients.

To aim to prevent that, design the end-to-end journey across the pre-trade, trade, and post-trade lifecycle. Throughout the process, seek to maximize the advisor and client experience, build for scale, and minimize cost. I suggest you ask several important questions to clarify how to create the best operational path forward.

Pre-Trade

• Can your firm gain access to great products consistently and repeatedly?

• Can you maintain a broad menu with a scalable due diligence framework that can adapt to market environment changes to support your advisors?

• Do you have product at the right accreditation level for your target client base?

• What is your plan to help your advisors learn and feel confident about the benefits of alternatives?

• And ultimately, how do you source products quickly, securely, and easily?

Trade

• What are the digital experiences you want your end client to experience?

• How will I reduce paperwork errors and deliver documents safely and securely to the client, the fund, and the fund administrator?

• What workflows and guardrails must I create to support trading and cash movement processes?

• Above all else, how do you make buying funds simple and repeatable?

Post-Trade

• What is your strategy for monitoring key activities such as capital calls, distributions, and fund events?

• When key fund events occur, what is the communication plan for advisors and end clients?

• How are you collecting and centralizing the position and transaction data? And how will it appear on my client reporting systems, and with what frequency and accuracy?

• What is your data’s workflow? And what touchpoints are unnecessary and should be automated?

• Most importantly, how can I make my alternative investments feel like stocks and bonds?

CAIS evolved tremendously. Since day one, we have built every component of the business and technology from the ground up. Because of this, we know the pain points, which allows us to evolve faster and build solutions with both scale and precision. Our solution, coupled with great strategic partners, including custodians, funds, fund administrators, reporting providers, and other advisor technology companies, seeks to ensure a consistent, repeatable, and high-quality experience for financial advisors when allocating to alternative investments. We make the pre-trade, trade, and post-trade experience scalable and easier.

Regardless of where you are in your adoption of alternative investments and whatever state your alternative operations are in, there may be a better way. Alternatives are becoming more efficient as more cutting-edge technologies are being created. Like equities and mutual funds, T+3 may become T+0. Embrace technology and relentlessly focus on the advisor-client experience.