Survey Says: Advisors Want To Simplify Their Alternatives

By Cynthia Stephens, VP of Marketing, ByAllAccounts on Monday, December 10th, 2012

One in two financial professionals ByAllAccounts and Millennium Trust Company recently polled say they would use alternative investments more — if only they could ease the time spent per reporting cycle.

Advisors are giving their clients wider exposure to hedge funds and other once-”exotic” investments: 75% have increased their use of alternative investments over the past three years.

But 51% of those who responded to our latest survey say that they may increase their allocation to these vehicles even further if they could reduce the amount of time spent per reporting cycle with them.

Consider this: 65% of advisors who have added hedge funds to their platform say they spend 3-4 or more hours per fund manually collecting and reporting every cycle. Private equity / capital commitment funds carry a similar burden.

Couple this with the fact that 41.7% of those surveyed were unaware that many hedge funds and private equity / capital commitment funds provide valuation information online — as opposed to a PDF — and we have a recipe for inertia and inefficiency.

There are easier ways

If anything, what surprises me about the survey results is how complacent advisors are about a general lack of efficiency reporting on alternative investments.

The thought seems to be that if you want to add something exotic to your platform, you need be willing to disrupt your existing operations to accommodate it.

But while providing a rich investment universe for your clients is a strong competitive asset, your time is the most precious commodity of all.

Anytime we can become more efficient by reducing the time required to do something, without sacrificing quality, it’s a “win.”

And the fact is, you can have alternatives without accepting a substantial drain on your time.

A full quarter of respondents (26.4%) say they have direct connectivity to retrieve information on alternative investments.

What’s holding the rest back from eliminating manual data collection and reporting? Can we usher in a new era of timely data for alternative investments reporting in 2013?

The aggregated alternative approach

Aggregation services that have been used successfully for years to gather transaction-level data on conventional investments are turning their attention to collecting balances and asset valuations on hedge and private equity funds.

At a minimum, those services would have to deliver asset values on a monthly basis to satisfy most (74.8%) of the people who took our survey.

T. Scott McCartan, CEO of Millennium Trust Company, tells me that understanding and eliminating the manual data issue for alternative investments should become a priority for the wealth management industry in 2013.

As Scott points out, “Due to the significant rise in the use of alternatives within client portfolios, Millennium Trust is at the forefront of addressing the manual processing issue inherent to alternative investments and is working with ByAllAccounts to better understand this problem and develop a solution.”

Bear in mind that roughly two-thirds (67%) of respondents say they will increase their use of alternative investments next year.

Will 2013 usher a new era of transparency for alternative investments? Time will tell.

About the survey

ByAllAccounts, in conjunction with Millennium Trust Company, conducted this study via an online survey in November 2012. Findings are based on more than 250 limited partners, general partners and service providers. Respondents include: RIAs (28%), broker-dealers/wirehouses (33%), alternative investment asset managers (10%), family offices (7%) and other (22%).

Want more? Read the Executive Summary from the Q4 Alternative Investments Survey or learn how to maximize your investment options.

You Might Also Be Interested In…

Alternative Investments: A Custodian Speaks (Blog post by Cynthia Stephens, VP of Marketing, ByAllAccounts)

“Just in Time” is Too Late for Efficient Compliance (Blog post by Mark Wickersham, Director of Product Management, ByAllAccounts)

The Definitive Guide to Account Aggregation (Complimentary E-Book)

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