Improving the Alternative Investment Client Experience

Published on 28 Jun 2021

White paper - Improve alternative investment management

The Future of Tax DepartmentsAccording to financial research firm Preqin the alternative investments market is expected to reach $14 trillion by 2023. Despite this, most alternative investment transactions are processed manually. This means that paper documents are mailed or faxed between stakeholders like sponsors, investors, and advisors. This is an outdated approach that is no longer used for other investment segments like mutual funds. Alternative investments are behind other investment segments in how they are processed, which can lead to poor user experience.

What are alternative investments?

There are three conventional segments of investment, stocks, bonds, and cash. An investment that does not fall into these three segments is referred to as an alternative investment. Some examples of alternative investments are hedge funds, managed futures, art and antiques, real estate, farmland, etc. The main advantage of alternative investments is that they are no linked to the stock market. This means that they can be used to diversify an investment portfolio and mitigate the volatility that is generally associated with the stock market. 

See also: The Future of Tax Departments

Challenges with manual processing

Manual processing of investment transactions creates several challenges. These challenges may prevent financial professionals from investing in alternatives. Some of these include:

1. High Error Rates

On average 30 to 60% of documents submitted for investments are not in good order. Because of incorrect documents, the investment application can get rejected or the transfer agent, custodian, or advisor will need to contact the investor to correct the errors. This is a time-consuming and tedious process. Anytime an error is found, the investor will need to print, scan and resend the necessary documents. 

2. Lack of transparency

It is difficult for financial professionals to get a clear picture of investment in progress through manual processing. Without a call or an in-person meeting, an investment advisor has no way of knowing if a prospective investor has read, signed, or mailed necessary documents. This is a challenge that can be managed if it's a question of a single investment but if there are several investments from various clients, then it can eat up a significant amount of time. 

3. Security

Another big challenge with manual processing is security. Because documents are shared via email they are vulnerable. They may be sent to the wrong address or the recipient's account may be compromised. When documents are faxed, if the receiver is not standing at the fax machine, the documents may be lying around in the open for anyone to see. It can take up to 3 weeks to process an alternative investment transaction. During this time, documents are not kept in secure storage and can be exposed. Once stored securely, documents are still vulnerable to being destroyed by fire, flood, or another natural disaster.

Fortunately, there are solutions available that can be used to automate manual processes. By implementing straight through processing via computer networks, companies can reduce their rates for not in good order (NIGO) documents to as low as 5%. 

Download this white paper by Wealth Forge to learn more about how straight through processing can be used to make investments in alternatives more appealing. Subscribe to for quality fintech resources.  


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