Tech-led investment platforms provide a great tool for wealth managers to reach, engage and retain both existing and future clients.

Two recent news pieces caught my eye. The first was RBC’s Wealth Management unit in the US announcing it was working with New York-based alternative investment platform provider Artivest to launch a new digital alternative investment platform for clients.

Around the same time, JP Morgan announced a partnership with another Big Apple-based alternative investment financial platform, iCapital Network, to offer its clients access to sophisticated investments. In both cases, the institutions took the strategic step of partnering with relatively new specialist technology-enabled investment marketplaces to offer their clients something they themselves have not been very good at before – easier access to alternative investments.

The news reminded me of the success of fintech firm Delio on this side of the pond. The Cardiff-based company offers a white-label private asset platform to wealth managers and already works with three of the top five wealth managers in the UK.

Looking deeper, other players in the US include 280 CapMarkets, CBXmarket, DarcMatter and EquityZen, while in the UK other firms include Capitama, AtomInvest and CoInvestor.

Why are they here? A simple question with a simple answer: there is a clear industry need. Clients want wealth managers to do more for them, while wealth managers want to find new ways to engage and are navigating markets which have experienced a period of significant strain and low returns.

There is indeed a clear opportunity. These platforms are typically focused on alternative assets such as hedge funds, private equity and real estate or private assets – though others focus on more traditional asset classes –the type of illiquid investments which wealth managers have always struggled to serve up to the majority of their clients. 

The opportunity, however, is not about repeating the manual and human network processes of before. It is about wrapping an established process into a tech-led platform, to get investment opportunities and potential investors into one environment, to enable their engagement and experience with supporting tools, and add efficiency and potential to scale.

What is also clear is that while technology is core to the delivery and benefit of these platforms, technology is not the driver. It is the enabler. The driver is the industry need. 

What are the benefits?
The benefits are multiple but perhaps the most striking is how through a platform model they enable access to traditionally inaccessible asset classes at far lower investment minimums. Think $100,000 as opposed to $10m.

This is a huge difference and one that enables these products to reach much further into both existing and new client segments, including those that were simply excluded before. 

These platforms also offer the opportunity to drive consistent and personalised engagement because they allow deal-flow and can be set-up to match clients to specific types of opportunities. Deal-flow will also allow wealth managers more opportunities to engage with their clients.

With so many clients now being self-made, alternative and private assets may also fit better with their profile than standard asset classes. It at least allows a further means of diversification.

There is also the significant element of process. In bringing deal-flow, compliance, documentation governance, matching mechanisms and other tools into the process, these platforms are adding much-needed process to something that was historically manual, slow and labour-intensive. 

From the perspective of the people involved, the process element is huge. Imagine the old world where the investment bank might bring in a deal, a relationship manager would trawl for clients worth $20m who might potentially be interested in direct investing, documentation is manually prepared, shipped, clients need to sign multiple documents, compliance is burdensome, the process is ad-hoc and has a manual trail, and so on. That process needs putting into a platform.  

Potential downsides
As with any tech-led offering, you don’t just buy it and let it run itself. As an enabler, this technology needs to be integrated into the existing structure, process, people and technology of the business and be consistently used to create long-term impact. Firms need to think about consistent and quality deal-flow, distribution to clients, how they engage with third parties, and more. 

For the leaders, they also need to ensure the controls and processes to manage investment and reputational risk are to their existing standards. A platform can provide a great toolkit but firms still need to make sure the gatekeeping, governance, documentation and compliance processes are high quality.

This article was originally written for and published on the Financial Times' Professional Wealth Management website on September 7, 2018. A link to the original article is here: https://www.pwmnet.com/FinTech/The-rise-and-relevance-of-investment-marketplaces?ref=%2FFinTech%2FThe-rise-and-relevance-of-investment-marketplaces

The above highlighted firm profiles, and others, can be found within our Investment Platforms & Tools business need category.