With remote work becoming more prevalent, many wealth management firms are looking into technology solutions that digitize paper-based processes. For firms that deal in alternative investments, the pain of paper subscriptions is even greater, as the industry has not adopted a standard digital option. While there are platforms that offer straight through processing, some firms are opting to create their own solutions with electronic signature providers like DocuSign. However, there are some major differences between straight through processing and stand-alone electronic signature that firms should be aware of in order to choose a solution that works best for them.
Straight through processing solutions have the ability to create a “marketplace” experience for alternative investments. For registered investment advisors, this means that a wide range of alternatives are more easily accessible on one platform. For broker-dealers who already have a stable of approved products, this type of feature could allow reps to more easily compare investments to find the one best suited for their client. Standard electronic signature solutions do not aid in product discovery. Firms that are developing their own solutions will have to find other means of identifying, comparing, and analyzing investment opportunities.
Subscription Order Entry
One of the biggest complaints we hear about alternative investments is that the paper subscription documents are lengthy and confusing. Both electronic signature and full straight through processing take steps to alleviate some of that frustration. With electronic signature, the documents can be mapped into form-fillable PDFs, allowing wealth managers to complete the subscriptions on their computers and send digitally to investors through email or, in the case of DocuSign, a secure portal. On the investor side, signature fields can be bookmarked so they can quickly and easily skim through the document and sign where needed.
Electronic signature’s process improvements help reduce NIGO errors that result from illegible handwriting or missed signature fields, however it fails to address more prevalent causes of errors and frustration. Straight through processing solutions, like Altigo, offer more comprehensive improvements, addressing convoluted document structure and incorrect calculations and typos, in order to nearly eliminate NIGO errors and hours of administrative rework.
Product offerings that are set up for multiple investor or investment types may have entire sections that are not relevant to the investor at hand. And yet, with paper documents and electronic signature solutions, there is no way to automatically eliminate unnecessary sections. Straight through processing solutions have reimagined the order-entry process, taking wealth managers through an online information collection workflow that only presents relevant fields based on the investor and investment type, eliminating the need for users to parse what is and isn’t relevant.
During this intelligent interview process, number fields like “investment amount” and “commission amount” are calculated automatically, and fields like “address” or “routing number” can be verified in real time to prevent typos or other errors that could trigger NIGO status. More sophisticated solutions allow wealth managers to skip the bulk of order entry altogether by importing saved investor data from a previously completed subscription or CRM system.
After the workflow is completed, the information is mapped to a pre-filled subscription document that can be sent for secure electronic signature, simplifying the investor experience.
In order to begin the subscription process, sponsor subscription documents and firm required supporting documents need to be mapped in order to make them electronically fillable. DIY electronic signature solutions require firms to do all of that mapping themselves, which takes several hours per document and a high level of understanding of sub-document structure and mapping technology. Firms that have a large stable of product offerings could spend several weeks of internal resources time mapping documents before their reps could even begin to utilize the new system. It may also prove difficult to keep up with popular investment types such as 1031 Exchange DSTs that fully subscribe quickly. The time it takes to map those documents can leave investors vulnerable to missing out on equity.
Straight through processing solutions are designed to serve numerous wealth management firms and therefore already have many investment offerings mapped and ready to invest in on day one. WealthForge in particular offers an added service of mapping firm required documents as well as any products that are not already on the platform, taking that work off of the firm’s plate.
Connections and Routing
Once the subscription process is completed, the benefit of electronic signature comes to an end. Review by a principal, custodian, transfer agent, or sponsor is handled in much the same way that paper subscriptions have been for years, with documents sent to each party and data manually re-entered from system to system.
Alternatively, straight through processing allows for the seamless flow of data from one party to another in sequence. Industry participants like custodians and transfer agents are feeling the need for a unified process and are opening up their systems to integration with straight through processing providers. And DTCC’s AIP system is helping to provide an on-ramp for funding, closing, value reporting, and corporate actions, like redemptions and exchanges.
With straight through processing there is also unprecedented transparency into these processes. Dashboards are available to track investments as they progress from one stakeholder to another, allowing firms to monitor activity and increase their first-call resolution for investor questions.
Electronic signature solutions only provides an added layer of security when it comes to the signing process. Once the documents leave the electronic process, they are subject to the same risks as paper documents. With straight through processing, investor information is encrypted throughout the process.
While electronic signature may seem attractive in the short-term, the internal resource requirement and incomplete automation prevent it from being a scalable solution. As digital processing of alternative investments becomes the standard, firms that are still clinging to outdated processes and partial solutions will be a step behind those who have embraced a full-scale reimagining of the entire process that connects all stakeholders and creates a frictionless path to ownership for alternative investments. That is our vision for Altigo. To learn more, visit www.wealthforge.com/altigo.
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Disclaimer: WealthForge provides this information for educational purposes only. It should not be construed or relied upon as legal or tax advice.