5. What are the newest innovations coming from fund managers through the alternative space?
As funds look to access the rapidly growing HNW markets, we will see innovations around the different needs of these individual investors versus their existing institutional clients. Two of the most important distinctions between these groups are tax treatment and time horizon. For example, an institution may have a 200+ year investment time horizon while that of individuals and families is typically shorter. We’ve already seen this demand for increased liquidity result in the development of liquid alternatives. This is just one example. Other products, such as those optimized for individual tax treatment, will continue to surface as HNW demand continues to grow.
Another trend is the increased sophistication of the HNW space and the resulting development of niche needs. For example, we’ve seen an increased demand for co-investments as individuals either understand individual investments better or have portfolio needs specific to their own risk profile or financial situation. As we remove the inefficiencies associated with one-off deals, we will see granular choices become more and more economically feasible. We are excited to play a part in driving these innovations in the HNW market. As our scale increases and we wring out more inefficiencies we can encourage and bring more innovation to this space.
6. Can that be a challenge for your due-diligence process in dealing with a wider range of new investment strategies?
Yes, due diligence can be challenging when dealing with innovative investment strategies, but we think this is a good thing. Due diligence and manager selection are what separate exceptional from average. Artivest is constantly investing in smarter due-diligence processes. For example, we recently brought on a new head of investment research who formerly helped manage the Juilliard School’s endowment. In addition to our focus on traditional diligence functions, as we scale, we have the ability to leverage our unique perspective, being at the crossroads between investors and managers. We are continuously building our data and analysis capabilities to be able to find unique insights across a range of innovative strategies that benefit our fund partners and investors.
Suitability is also an important consideration. It’s obvious that private equity funds are not for everyone. They are highly illiquid. In addition, not all private equity funds are the same. As we bring these products to the HNW market, we’ve been very focused on providing a carefully vetted selection of funds. We’ve worked with regulators to build comprehensive know-your-customer and compliance infrastructure to ensure that these products are only made available to suitable investors.
7. You started your firm with a limited group of investors, managers and financial advisors that you stated that you could best “co-create” with. What are the best practices for “co-creating” that financial advisors can use with their clients?
Early on, we created an Artivest Early Access program with a select group of our clients -- registered investment advisors at firms large and small. We worked with this group to learn about their investment interests, understand existing operational pain points and identify what Artivest could provide to meet their needs. Leveraging these interactions, we successfully built and released the early versions of our platform.
Artivest continues to maintain a close relationship with our early access participants and are active in broadening the network. We firmly believe that the best way to provide great investment opportunities and technology is to regularly spend time speaking with our clients and understand what they need.
In terms of best practices, we find that co-creation works best with many interactions and constant iteration. We tend to shy away from the “focus group” process. We use quick, independent interactions with our customers during various stages of development. This means that instead of drawn-out meetings, we opt for 10- to 15-minute conversations where we discuss prospective fund strategies, solicit feedback on potential feature-sets or demonstrate prototypes. Approaching a feedback cycle with this strategy helps us do three things: 1) not take up too much of any individual’s time, 2) constantly improve, and 3) confidently deliver a product that will be attractive and useful to our customers.
8. Many financial advisors believe that they cannot innovate because of the industry’s heavy regulatory and compliance environment. You have stated that you are using technology to “innovate with compliance.” How exactly do you do that?
If you think about playing the blues, it’s a genre characterized by a lot of rules, a lot of traditional approaches, a lot of repetition. Sometimes it’s the most rule-bounded forms that lead to the most surprising and innovative improvisations, all within the confines of the form. Artivest innovates by working within the rules and applying them to novel situations. The rules remain the same, but the distribution methods have shifted, and Artivest uses technology to improve access.
Expertise in the rules of our industry is paramount to our success. Artivest leverages our expertise in the nuances of the regulations that apply to our industry to develop new approaches and products. Through research, counsel, and experience, we’ve developed a thorough understanding of the regulatory and compliance environment, which we continue to closely monitor. Developing this expertise has enabled us to provide a compliant platform that continues to innovate to meet the evolving needs of our clients.
9. In one of your blog posts, you mention that your firm is dedicated to innovation that's “beyond investing.” Why do you feel that a focus on innovation is important for all financial advisors to employ in their day-to-day decisions and workplace?
I believe innovation is more culture than tactics. We’ve strived to create a culture of innovation at Artivest. This means that in addition to expanding access to private funds, we are constantly finding ways to improve everything we do, from hiring to coding. We don’t plan to move “beyond” the vertical of investing, in terms of what we actually offer, but we do believe that by building a company with a culture of innovation, we’ll create something much more powerful and effective than a specific investment solution. Ultimately, a culture of innovation translates into a continuously improving experience for our customers and industry.
The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, MeridianIQ/AdviceIQ, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines). For more information click here.