Implementing compliant regulatory processes around cross-border promotion, data management and investor profiling are the main reasons eight out of ten wealth managers struggle to offer clients access to private markets, new data shows.
Almost two-thirds of wealth managers interviewed for Delio‘s Regulatory Governance in Private Markets report said cross-border promotion of investments to HNW clients remained a key challenge.
Many firms do not have suitable tools or internal processes in place to compliantly promote investment opportunities to internationally-based clients, it said, a challenge that is likely to become even more complex as firms adjust their post-Brexit operations.
David Newman, co-founder and chief commercial officer at Delio, said, “In an increasingly globalised sector, the cross-border promotion of investment opportunities is becoming one of the biggest regulatory headaches for wealth managers.
“In our survey, nearly two out of three wealth managers flagged cross-border promotion as a significant regulatory risk to their firm.
“This number rose to eight out of 10 if you only consider the views of wealth managers who are already active in private markets, making it the biggest governance challenge facing wealth managers.”
Delio said the widely discussed ‘democratisation of private markets’ was also likely to create greater investor access to alternative asset classes in the future, exacerbating the complexities of multi-jurisdictional processes.
Newman said, “As private market investments generate increasing interest from HNW individuals, wealth managers need to consider that these clients are likely to operate from several international locations.
“When combined with the fact that more and more financial institutions are also operating on a global scale, firms need to be acutely aware of where their clients are domiciled at any point in time, how this impacts the promotion of investment opportunities, and any restrictions this may place on their client engagement strategy.”
Other key challenges highlighted in the report include data management, investor profiling and the ability of wealth managers to offer appropriate investment opportunities to clients based on their regulatory profile.
A total of 82% of wealth managers said they see regulatory compliance as a barrier to offering their clients access to private market solutions, while one out of five senior financial executives reported that expenditure on regulatory governance was the biggest issue facing their firm.
While technology does not remove the need for regulatory controls, digitising compliance processes did make wealth managers feel more confident in offering access to alternative investments.
Nine out of ten wealth managers using digital compliance tools told Delio their private markets offering was governed ‘as well as or better than’ their traditional investment proposition. That number dropped to just six out of ten for firms that were not using technology.
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