Advisor Difficulties with Managing Private Placements

2018 has been full of news stories, surveys, and client reviews about enhancing the client-advisor relationship, specifically regarding the offering of alternative investments. Clients are frustrated by the declining variety of publicly traded stocks, repackaged in a record number of exchange-traded funds and investment products. Recent market volatility has had some clients emphasize their need for uncorrelated or less correlated returns. And many clients see increased investor value absorbed in the private capital markets as a greater number of companies fund more of their development with private capital. Yet advisors still cite many barriers to incorporating alternative investments in client portfolios, especially private placements  

Technology and partnerships have been key drivers in helping independent advisors to access, review, and subscribe investors into private placements. Join the upcoming webinar “Managing Private Investments” to ask questions and hear solutions to the following pain points.  

 Some of the top cited reasons we’ve read about and hear from our advisor clients have been:

1. Due Diligence 

Some independent advisor firms do not currently have an investment committee process for managing due diligence of private investments. The offering materials provided from issuers are not standardized, in contrast with public investments. Further, advisors are likely to review numerous deals to find any that are suitable to recommend. How can advisors be compensated for the added time and education necessary without paying commissions or layering on additional fees?

2. Administrative Burden 

Beyond the time and resources necessary to conduct due diligence, there is additional paperwork and organization required around the subscription process and post-investment reporting. Issuers send quarterly and annual investor reports in different formats, which often must be standardized to calculate returns and for your clients to digest. 

3. Transparency & Education 

In order to ascertain suitability and fit for your unique client needs, you must be able to further your education in new asset classes, investment vehicles and tax benefits. This education takes time. That education also must be relayed to your clients, which some advisors state is “painful”. Further, many managers of private investments do not offer transparency into operational activities in the way that managers of public investments are required to do by law. What is the appropriate level of insight you should have into an investment, and ongoing disclosure? and how can you determine whether that will be feasible before working directly with that manager?

4. Valuations 

Quite simply, many advisors look at private equity valuations as a mystery. How can you determine when a valuation is appropriate?

5. Investment Minimums 

Institutional-quality offerings often come with institutional-size investment minimums. Some broker-dealers offer custom funds for advisors in order to distribute their clients’ funds across a diversified range of offerings at a reasonable investment minimum. However, these funds add on further management fees, which can reduce the value that your clients seek in the first place. Clients are especially sensitive to the layering of fees. How can advisors find the right size offerings without compromising net return?

6. Access to Quality Sponsors 

Because of the issues above, advisors must be able to source, identify, and access high-quality sponsors and issuers. Lack of full transparency into operational activities makes insight into sponsor track record especially important. With the rise of investment portals and crowdfunding offerings, it can be difficult to cut through the noise to identify the right sponsors. 

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