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Arman Salavitabar

Arman Salavitabar

Founding Partner, FundFront

Knowledge

Streamlining Investor Onboarding: The Role of Bankable Alternative Investments

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Investor onboarding is a critical process for funds, impacting everything from regulatory compliance to investor satisfaction. Despite its importance, it remains a significant pain point for many firms in the alternative investment space. This paper explores the challenges of investor onboarding and highlights how making alternative investments bankable can address these issues, leading to a more efficient and scalable process.

The Challenges of Investor Onboarding

Regulatory Compliance

One of the primary challenges in investor onboarding is managing the complex web of regulatory compliance. Different jurisdictions have varying requirements for anti-money laundering (AML), know-your-customer (KYC), and other due diligence processes. Ensuring that all documentation is accurate, complete, and up-to-date can be a time-consuming and resource-intensive task.

Operational Inefficiencies

Investor onboarding often involves numerous manual processes, from collecting and verifying documents to data entry and record-keeping. These tasks are prone to human error, leading to delays and potential compliance issues. Moreover, the lack of standardized procedures can create inconsistencies and inefficiencies across different stakeholders and service providers.

Investor Experience

A smooth and efficient onboarding process is crucial for maintaining investor satisfaction. Lengthy and cumbersome procedures can frustrate investors, potentially leading to lost business. Additionally, investors need to wire their investments to different accounts rather than seeing them on their bank or brokerage statements. Ensuring a seamless experience while maintaining compliance adds an additional layer of complexity for fund managers.

Data Security

The onboarding process involves handling sensitive personal and financial information, making data security a top priority. Funds must ensure that their systems and processes protect investor data from breaches and unauthorized access. This requires robust cybersecurity measures and continuous monitoring to mitigate risks.

Costs

The cost of onboarding new investors can be substantial, especially when considering the resources required for compliance, data management, and administrative tasks. These expenses can be a significant burden, particularly for mid-sized firms looking to grow. Reducing onboarding costs without compromising on quality and compliance is a major challenge.

How Making Alternative Investments Bankable Addresses Onboarding Challenges

Bankability, in this context, involves making funds available to be transacted, cleared, and settled through bank and brokerage accounts. This approach offers a compelling solution to the pains of investor onboarding. Here’s how:

Streamlined Compliance

Making alternative investments bankable allows for the standardization of compliance processes, making it easier to meet regulatory requirements across different jurisdictions. KYC/AML procedures are managed by the bank performing the transaction. While fund managers still need to comply and ensure they are marketing to the right investors, the funds undergo a one-time setup such that many of the investor processes don’t need to be repeated for each fund but rather through the account they want to transact through. This reduces the administrative burden and ensures consistency in compliance efforts.

Enhanced Operational Efficiency

By making funds available to be transacted, cleared, and settled, the process simplifies investor onboarding. Automated systems can be implemented to handle the lifecycle management of these transactions with minimal manual intervention. This leads to faster processing times, fewer errors, and a more efficient overall operation.

Improved Investor Experience

Making alternative investments bankable provides a more transparent and straightforward investment process, enhancing the investor experience. With clear and standardized documentation, investors can easily understand the terms and benefits of their investments. Additionally, they can see the investments on their bank statements, significantly improving investor satisfaction and retention.

Robust Data Security

Sensitive investor data doesn’t need to be shared extensively; it’s simply a transaction that takes place through the investor’s bank or broker. This reduces the risk of data breaches and unauthorized access, enhancing overall data security and building investor trust in the fund’s processes.

Cost Reduction

By streamlining and automating the onboarding process, making funds bankable can significantly reduce the costs associated with onboarding new investors. The efficiencies gained from automated compliance, transaction processing, and data management translate into lower operational expenses. This makes it easier for mid-sized firms to scale their operations without incurring prohibitive costs.

Hypothetical Scenario: Bankable Alternative Investments in Action

Consider a mid-sized alternative investment fund looking to expand its investor base. The fund faces significant challenges with its current onboarding process, including regulatory compliance issues, operational inefficiencies, high costs, and poor investor experience.

By adopting a strategy to make its investments bankable, the fund can streamline its onboarding process in the following ways:

  • Standardized Compliance: The fund creates a vehicle that integrates with banking and brokerage systems, enabling it to develop uniform documentation for all investors. This simplifies the KYC and AML procedures, ensuring compliance across various jurisdictions.
  • Automated Processes: Implementing an automated platform allows the fund to handle the lifecycle management of transactions with minimal manual intervention. This reduces errors and speeds up the onboarding process.
  • Enhanced Investor Experience: The clear and consistent documentation provided through bankable investments makes it easier for investors to understand their investments. The faster, more efficient onboarding process improves overall investor satisfaction. Moreover, investors can see their investments on their bank statements, enhancing transparency and trust.
  • Advanced Data Security: The platform ensures that sensitive investor data doesn’t need to be shared extensively, securing investor data and maintaining its confidentiality. This builds trust with investors and protects sensitive information from breaches.
  • Cost Reduction: The efficiencies gained from automated processes and streamlined compliance reduce the overall costs of onboarding new investors, making it easier for the fund to scale its operations.
  • Better Distribution Partnerships: The ability to make investments bankable enhances the fund’s ability to create distribution partnerships. The distribution agreements become standardized and centralized, facilitating smoother collaborations with banks and brokerage firms.

Conclusion

The pains of investor onboarding are a significant hurdle for many funds, but transforming alternative investments into bankable assets offers a viable solution. By streamlining compliance, enhancing operational efficiency, improving the investor experience, ensuring robust data security, reducing costs, and fostering better distribution partnerships, this approach can transform the onboarding process.

If your firm is grappling with onboarding inefficiencies, consider exploring the potential of making your investments bankable as a pathway to a more streamlined and effective process. FundFront specializes in helping firms implement these solutions, offering bespoke services tailored to your unique needs. Reach out to us to learn how we can assist in transforming your onboarding process.

Written by:

Arman Salavitabar

Arman Salavitabar

Founding Partner, FundFront

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