The surge in fintech and the plethora of new digital financial service products out there may at first seem new and intimidating for some wealth managers and independent financial advisors. In regards to online investment platforms that enable investors to directly access alternative investment opportunities, independent wealth managers and financial advisors may find themselves wondering how this new development affects their business and relationships with current clients. After all, the alternative investment industry, previously plagued by opacity, is opening up with the help with technology. Below are the opportunities we see for wealth managers and independent financial advisors that adopt and use online investment platforms.
Why Online Alternative Investment Platforms Present an Opportunity for Independent Financial Advisors and Wealth Managers
- Platforms Allow Independent Financial Advisor & Wealth Managers to Offer a Larger Pool of Investment Opportunities
The alternative investment industry was previously seen as obscure and opaque, with investment opportunities only available to those with access and the connections to the right people and firms. However, with alternative investments making up what is now a $6.9 trillion industry, it is hardly a secret that investors continue to seek alternative asset classes due to their ability to potentially diversify portfolios, enhance risk return profiles, and feature less correlation to the market. Therefore, online investment platforms allow independent financial advisors and wealth managers to offer their clients a much wider pool of investment opportunities. By tapping into a much larger and diverse pool of investment opportunities, financial advisors are able to provide extensive customized plans for their clients based on their specific needs.
- Alternative Investment Platforms Level the Playing Field for Independent Financial Advisors and Wealth Managers
While larger financial advisory firms might already have access to these private funds, it has always been more difficult for the independent financial advisor or wealth manager to find a seat at the table as a result of natural barriers to entry. However, technology is now leveling the playing field for independent financial advisors and wealth managers, allowing them to access private investment opportunities in hedge funds, private equity funds, venture capital funds and more. Now, independent advisors have this additional resource to access these types of private opportunities for their clients.
Moreover, advisors who receive commission-based compensation for selling certain type of financial products are limited to a subset of opportunities they can discuss with their clients. Therefore, some investors prefer working with independent, fee-only advisors that are not restricted by the types of financial products they can recommend. As technology platforms, such as DarcMatter level the playing field for independent financial advisors and enable them to access alternative investments, they now potentially have access to the entire gamut of investment opportunities to recommend to their clients.
- Platforms Provide Avenues to Attract a More Diverse Clientele and Better Serve Clients’ Needs
Clients have different reasons to entrust their capital with their financial advisors or wealth managers. With today’s market volatility, however, many are looking for investment opportunities that are not directly correlated to the market as a way of managing market volatility. Since many alternative investments display low correlation to the market compared to traditional investments, investors are naturally open to including alternative investments in their portfolio. A McKinsey & Co. report (Exhibit 1, page 7) shared that the global AUM of alternative investments rose by 119% from 2005 to 2013, growing twice as fast as non-alternatives since 2005. With independent financial advisors and wealth managers having access to these alternative investments online, there may be a bigger opportunity not only to better serve clients’ investment goals, but also to attract a new type of clientele looking for investments outside of the typical 60/40 portfolio model.
Overall, alternative investment platforms such as DarcMatter represent additional tools and resources that independent financial advisors and wealth managers can utilize for portfolio diversification purposes as clients are increasingly seeking ways to weather the volatile markets today.
Securities offered through North Capital Private Securities, Member FINRA/SIPC.
DarcMatter (“DM”) is a global fintech platform that streamlines the capital raising process for asset managers and provides investors with transparent and direct access to funds in the asset management industry.
DM’s mission is to enhance capital flow through fintech to create transparency and efficiency by providing direct access to funds in the Asset Management industry for Accredited Investors, Advisors, and Asset Managers.