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Technology Solutions to Simplify Alternative Investing, Part 1: The Subscription Process

Post on: November 07, 2019 | Ryan Gunn | 0
CS Podcast - Part 1 The Subscription Process

 

Recently, our CEO, Bill Robbins, sat down with Damon Elder, Publisher at The DI Wire, and Louis Rogers, Founder & CEO at Capital Square 1031, to have a conversation about the barriers that alternative investments, and 1031 Exchange DST investments in particular, are facing when it comes to subscription and transaction processing, as well as how technology, such as WealthForge’s Altigo, can help overcome those challenges.

This is the first of a multi-part podcast that will be released over the coming weeks. Subscribe to our blog to keep up with future entries in this series.


DAMON ELDER: Today we’re going to discuss some of the systemic challenges in the alternative investment industry and how technology is beginning to provide solutions to these issues.

LOUIS ROGERS: Capital Square 1031 is a sponsor of Delaware Statutory Trusts, or DST interests. DST interests are somewhat of a hybrid. They’re real estate for tax purposes because they have to qualify for 1031 exchange treatment. But they are also a security.

And because they are a security, we have to go through the process of having accredited investors, suitability, concentration, all those sorts of things. And that leads to a paperwork process, purchaser questionnaires, subscription agreement. That can be fairly onerous and document intensive.

DAMON ELDER: Sounds like a lot of paperwork.

LOUIS ROGERS: It’s somewhat of a painful process. It takes time, it’s prone to errors, and it irritates investors.

DAMON ELDER: Bill, WealthForge provides a lot of broker-dealer services, so from your perspective, how is that process from the alternative investment space?

BILL ROBBINS: All alternative investments really share a common problem, which is the paper-based subscription process. The 1031 Exchange DSTs, in particular, are unique in that the exchanger has to identify a qualified intermediary, make sure that the accommodator is holding their funds, and we then go through this long, arduous process of getting a purchaser questionnaire filled out and returned.

A purchase agreement, a trust agreement, those documents need to be filled out by the advisor or the investor, they are mailed to the broker-dealer home office, then mailed to the sponsor, at which point a third to sometimes half of those are incorrect and have to be reworked in some way.

DAMON ELDER: How long does is typically take for an alternative investment to go through that paperwork process and be accepted and their money to be put in place in the investment?

BILL ROBBINS: In our experience that can easily be weeks particularly when you have rework where that process has to be done two or three times before it is finally all right.

LOUIS ROGERS: And time is money.

DAMON ELDER: Errors in this paperwork process seem to be a particularly troublesome part of the process.

LOUIS ROGERS: The documents are prone to errors because they are complicated. Some of the reps and advisors don’t see a lot of paperwork and so every time they have to reread the instructions and they struggle.

DAMON ELDER: Bill, from your perspective, being in that operational phase of things, how big of a problem are NIGOs in this industry? What is the rate of NIGOs and how long can that take to cure?

BILL ROBBINS: It’s a little bit different for each product, but our experience generally working with DST sponsors like Capital Square and others is that it is not uncommon to have 30 or 40 plus percent NIGO rates. So that is more than a third of all transactions that have to be reworked in some way by the advisor and their investor. So it is an astonishingly high number of all subscriptions are not-in-good-order the first time.


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About author

Ryan Gunn

Ryan leads content creation at WealthForge. He earned his bachelors from Virginia Tech and MBA from the College of William & Mary. His writings on fintech, alternative investments, and advisory best practices have been featured in Real Assets Advisor, Alternative Investments Quarterly, Equities, and other industry publications.
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