Stocks and bonds are simply no longer enough to give your clients the diversification and performance they demand, and as “alternative” assets go mainstream, commodities — especially gold — are leading the way.
Unfortunately, while advisors and investors alike are begging for alternative assets, the data management challenges of monitoring and reporting their impact on client portfolios can be very burdensome.
Advisors who can meet those challenges definitely have a competitive edge.
According to a July national survey by Gold Bullion International (GBI), nearly two out of three individual investors would prefer to own a physical asset like gold coins or bullion instead of pooled, non-physical assets like stocks and mutual funds.
As GBI president Savneet Singh tells me, gold has not only demonstrated its negative correlation to traditional assets, but even a moderate allocation can improve risk-adjusted returns.
“In the absence of a perpetual bull market, advisors have realized that they can utilize alternatives to boost returns and lower risk,” he says.
The regulatory climate and demand for greater transparency
Alternatives have traditionally been treated as held away or other assets, in that valuation and pricing were treated as cumbersome and periodic.
The old method of receiving data from a fax, downloading a PDF or accessing a secure website and then manually inputting it consumes a lot of time and just doesn’t scale.
As if that wasn’t burden enough, Singh warns that elevated regulatory scrutiny — especially coming from Dodd-Frank — puts asset managers and the entire financial industry under pressure to operate more transparently.
To give clients and regulators alike what they want at a reasonable cost, family offices and other wealth managers are turning to data aggregators like ByAllAccounts to eliminate manual data entry wherever possible.
Automating the process using data aggregation helps, whether the “alternative” in question is gold bullion, private equity or hedge fund shares — or any asset class that emerges down the road.
Easing the reporting burden
The multiplication of exotic instruments in a client’s portfolio will likely require data from multiple custodians to ensure best execution.
“There clearly needs to be standardization across custodians,” Singh says. “Right now you can buy the exact same alternative product at three different firms and have three different tickers, reporting results and fees.”
Alternative investment providers like Gold Bullion International say that the most important thing the custodians can do to combat reporting burdens is to continue to push for the addition of alternative investments products on their platform.
“By creating a formalized process, they will create adoption and more importantly education which in turn will lead to greater industry cooperation,” he says.
In the meantime, advisors and asset managers who want to work with these assets need to take the reins themselves, using whatever technological tools they can to make it happen without sapping their own resources.
Mr.Savneet Singh is president and co-founder of Gold Bullion International (GBI). Singh was an investment analyst at Chilton Investment Company where he covered investments in the technology, alternative energy and infrastructure space. Prior to Chilton, Mr. Singh was at Morgan Stanley in the investment banking division, where he worked on large financial sponsor and strategic company transactions. Mr. Singh received his B.S. in Applied Economics and Management from Cornell University and currently serves on the boards of Ecologic Solutions and Stiki Digital.
You May Also Be Interested In…
Up Your Game with an Automated Reconciliation Process (Blog Post by John Maronich, Business Analyst, IntegriDATA)
Reconciliation Best Practice (Whitepaper)
The Definitive Guide to Streamlining Operational Efficiency (Complimentary E-Book)comments powered by Disqus