Thinking Beyond the Marketplace Model: Evaluating Technologies

The alternative investments industry has embarked on a path of growth by focusing on ways to streamline processing for sponsors, broker-dealers, registered investment advisors and high net worth investors, like the mutual fund industry did in the 1980s. At the center of the industry’s effort to become more user-friendly and efficient is technology – often referred to as straight-through processing.

Capabilities-Based Tech Helps Companies Grow Over Time

With several technology providers now serving the alternative investments industry, it’s important to understand how each helps your firm as well as how well they are positioned to grow with your company over time. Some technology providers take a platform approach, offering one solution to one problem or a simple marketplace. Others focus on helping build long-term business capabilities for clients, allowing them to leverage and expand their technology investment for the long-term and own their own data. So how can you tell the difference between a platform-oriented and a capabilities-oriented technology provider? Consider these three questions.

Is the Technology Provider Focused on Your Business or Their Own?

A key indicator that you’re looking at a platform vs. capabilities-building technology is if your purchase of the software means more to the provider’s business than it does to your own. For example, providers focusing on a marketplace approach rely on aggregating a high number of clients on their platform to build their own business. Many technologies designed for the alternative investments industry fall into this camp. On the other end of the spectrum are technology providers focused first on building your business, providing you with the capabilities needed to expand your distribution of alternative investments. Capabilities-focused providers aren’t client aggregators. Instead, they partner with clients interested in a technology solution that can be configured to meet their needs today and into the future.

How Well Is the Technology Designed and How Easy Is It to Implement?

When considering a new technology, it’s common to gloss over details on the inner workings of it, focusing on how its marketed and its front-end user interface. However, the way the technology is designed on the backend can make a big difference in how far it can go in helping build capabilities for your business. It’s key to understand how well the technology integrates with other technologies used at your firm and within the alternative investments industry, how effectively it can exchange data with fund administrators and transfer agents, as well as how easily the technology can expand with your firm’s changing needs. Also be sure to get a good understanding of how long it takes to get the software set up to start using it. Is it a days-long process or will it take weeks? When evaluating technology options, involve your IT team to dig into the technical details to be sure the option you choose is going to work well for your firm over the long-term and through changing strategies.

What’s the Fee Structure?

Technology that helps businesses build capabilities offers predictable expense models that encourage a higher level of use. Clients typically pay an implementation fee and then a predictable monthly charge for the software whether they process one transaction or a thousand. As a streamlined offering process becomes the norm, it will be key for business growth at sponsors, broker-dealers and RIAs to invest in technology on a fixed-cost basis. On the other end of the spectrum are technology platforms that increase in cost as usage increases – and base fees on commissions from transactions processed through the software. This type of model poses two threats to the alternative investments industry. One, it can negatively affect the adoption of the technology as the fee structure can encourage people to work around the system to lower costs. Two, it eats into the often already narrow – and often scrutinized – commission margins on alternative investments.

Platform or Capability?

As you determine how to invest in technology to better offer, manage and process alternative investments, think beyond today and a simple platform approach to consider where you want to take your overall technology strategy and business in the future.

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VENTURE.co offers broker-dealers, advisors and sponsors the opportunity to expand alternative investment offering capabilities – beyond a technology platform. Our solution is built to integrate data and meet your firm’s configuration needs – from straight-through processing to risk mitigation to sales management. Our license-based fee structure remains constant as transactions – and adoption – increases.