To successfully launch retail alternative strategies, asset managers must focus on enhancing their distribution capabilities. This involves several key distribution imperatives.
Fostering investor education and trust to attract new clients
To successfully distribute alternative products, educating retail clients is a critical component of engaging with the retail channel. Many retail clients and their intermediaries, such as the registered investment advisors (RIAs) and wealth managers, are not as familiar with the benefits and the risks of alternative products. In addition, not all RIAs require the same level of education, with smaller independent advisors needing more support than larger ones. As a result, asset managers should plan to publish and provide more tailored educational resources and tools for retail clients and their advisors.
For example, if the manager has historically published only private equity or credit content for closed-end funds, launching regulated funds will mean creating new types of content for a new retail client base that may not have an intimate understanding of the risks and opportunities associated with private equity or credit. It will be crucial to provide clear, easily accessible information about the investment, focusing on details like liquidity, risk, tax reporting, redemption limitations and cash flows. This will help build initial trust while ongoing investor support and transparent performance reporting will help maintain that trust.
Reorganizing the distribution function to improve effectiveness
Targeting retail clients requires a fundamentally different distribution function and strategy than targeting institutional clients, so managers will need to assess the alignment and gaps in their existing capabilities. When it comes to organizing the distribution function, asset managers should consider factors such as channels, regions and products to determine the best approach. This diversity in practice reflects the fact that no one model will suit all. Rather, the function should be aligned based on your investor profile and ultimate strategy. In new global markets, for example, this may include establishing a physical presence (i.e a “voice of the region”), and with intermediaries it will mean a team that maintains ongoing engagement with a focus on building relationships, which can include intermediaries of RIAs, rather than relying solely on fundraising cycles.
Additionally, it is important to ensure seamless information sharing between product specialists and investment teams, regardless of where they are positioned within the distribution function. This promotes effective collaboration and enhances the overall distribution process. Finally, as managers think about the organization of the distribution function they should also consider how technology (e.g., customer relationship management [CRM] platforms) can be leveraged for efficient distribution and investor engagement and how functional teams can support increased work volumes during capital fundraising.
Enhancing the investor experience to retain clients
Building a systematic approach to enhancing the investor experience will become increasingly important as firms move into retail. Workload volumes will inevitably increase with the rise in the number of clients. This increasing complexity will require commonality and consistency. Managers seeking to enhance the investor experience will need to address the unique needs and increasing demands of individuals, such as life events, liquidity and personalization. Establishing dedicated private wealth fundraising and operational teams, launching multichannel educational programs, developing retail CRM systems, and developing investor onboarding and servicing capabilities integrated with key intermediaries will be key focus areas.
Technology alone will not be enough, however, as managers will have to consider how they can provide a “white glove” experience for clients. One option is to build a sizable internal team to support this experience. Alternatively, managers can opt for a lower-touch investor experience model and rely on third-party service providers to provide that experience. In recent years, there has been significant progress as fintechs have sought to improve operational processing efficiency in the alternatives space by acting as intermediaries to clients.
While these third-party solutions do not address all pain points and do not achieve the ultimate goal of straight-through processing that we are used to in more traditional asset classes, they do provide significant improvements that can improve the experience for asset and wealth managers, their employees and clients, and, as a result, enable alternative platforms to be more scalable.