The financial services market remains rife with opportunities and potential, but today’s registered investment advisors face significant challenges:

Increased Competition

Competition has grown even fiercer as more financial professionals become registered investment advisors.

It seems that no matter where you look, everyone and their brother is certified to offer “portfolio management” or “holistic financial advice.” This makes it harder than ever to attract the limited pool of high net-worth investors interested in these services.

The number of registered investment advisors and RIA firms has experienced healthy growth (4.3% and 5.4% increases from last year, respectively). Some of this can be explained by increasing demand as more baby boomers retire and seek financial advice. This years, advisors are serving 2,000,000 additional clients.

Changing Customer Preferences and Behavior

Successful companies like Square, Kickstarter, and Wealthfront have: 1) shown consumers that novel approaches to entrenched financial processes can be sustainable, and 2) accustomed them to use and trust these products and services.

Younger investors (millenials, in particular) tend to have more flexible perspectives about financial transactions are supposed to work and try new offerings. A survey from LinkedIn and market research firm Ipsos found that nearly 70% of millenials were open to trying financial products/services from non-financial brands – like Google or Apple.

Pressure to Distinguish Yourself Through Alternate Investments

As competition among RIAs intensifies, it’s becoming increasingly important to distinguish your advisory services from everyone else.

Approaches that rely almost exclusively on public investments like index funds and blue-chip stocks won’t separate yourself or attract investors – especially now that it’s easier for clients to invest in those assets on their own.

Offering private equity opportunities, on the other hand, is an excellent way to distinguish yourself from other RIAs, as well as create diverse, profitable portfolios.

Yet most registered investment advisors hesitate to allocate an adequate percentage of their portfolios into private equity, even after expressing a belief that it’s essential.


What Keeps RIAs from Embracing Private Equity Investments?

Here are some of the most common obstacles that prevent RIAs from delving into the private equity realm:

  • Underwriting and due diligence requirements. Without assurances these things are handled properly, RIAs worry about spending precious time and resources separating good investments from the bad.
  • Lack of centralized reporting. Unlike publicly-traded assets, which trigger extensive disclosure requirements, it can be harder to assess the performance and financial health of alternative investments.
  • Lack of adequate and timely reporting. Out-of-date or incomplete information makes it difficult for RIAs to accurately assess the value of private investments and respond accordingly.
  • Heavy administrative burdens and restrictions. Some RIAs avoid private opportunities out of a fear that investing in them will require more paperwork, oversight, and expenses.
  • Reputation risk. Private investments offer the potential for higher rewards than public assets, but also more potential risk. Some RIAs are not willing to take that chance.
  • Inertia. Many RIAs are simply used to advising their clients in a certain way and rationalize not changing course.
  • Inadequate compensation for the additional burden and risk. Some RIAs determine that the potential increase in returns just isn’t worth the effort required to assess, choose, and manage alternative investments.
  • Inability to monitor investments closely. Tracking the performance of private investments in real-time can be more difficult than following public exchanges like the NYSE or Nasdaq.
  • Lack of liquidity. Because marketplaces for private equity investments are smaller and companies often take years to IPO, some RIAs are concerned about liquidity.
  • Regulatory and compliance factors. Offering equity in a private company triggers compliance requirements. RIAs are diligent that each issuing company meets these requirements to protect their clients’ investments.

Private Investments Help You “Speak Clients’ Language” and Deliver Higher Returns

With the help of innovative FinTech companies and equity crowdfunding platforms, RIAs can now overcome the obstacles above and confidently allocate more funds to private equity opportunities – even if they’ve never done so before.

These opportunities are extremely attractive to high net-worth investors, who are overwhelmingly self-made.

Consider that:

  • 84% of high net-worth investors are self-made
  • 75%  made their money through private equity and real estate
  • A mere 9% made their money through publicly-traded assets

Offering more of these opportunities changes the conversation. It attracts potential clients because you’re “speaking their language” by presenting them with the kinds of opportunities with which they are comfortable.

While it makes financial sense to maintain positions in publicly-traded assets, that alone isn’t going to impress anyone or distinguish you because only 9% made their money that way

Private equity investments also give RIAs the chance to increase client returns. The Private Equity Growth Capital Council (PEGCC) reported that as of June 2014, returns on private equity funds (net of fees) beat the S&P 500 (including dividends) over a 10-year period by 6.5%.

What is your firm’s current approach and philosophy to alternative investments?

How do you consider direct investing – particularly in private equity – in your value proposition?

A slight change of course, leveraging the power of the latest innovations in FinTech, could increase portfolio performance and create sustainable growth.

If you’ve considered private equity but let some of the common hurdles above slow you down, here’s how working with the right partner and equity crowdfunding portal can hel