CONSHOHOCKEN, Pa., April 9, 2018 /PRNewswire/ -- A survey of the nation's top RIAs by PPB Capital Partners found that firms are encouraged to provide customized alternative investment solutions for high net-worth clients but such funds are unwieldy and expensive to operate.
Among respondents, 62% described operating private illiquid funds in their wealth management practice as moderately difficult, while 33% described the funds as highly challenging to administer. Five percent reported alternative assets easy to manage.
Respondents pointed to several operational areas that presented challenges including paperwork processing, reporting, compliance and complex tax issues. Others identified the time required to diligence an offering, pitch it and explain it to clients as "painful".
When asked to select "all that apply", 52% of respondents identified underlying investment valuations as the most frustrating area. Compliance ranked a close second with 50% of respondents citing it as the top area of difficulty, followed by tax reporting/k1s at 48% and subscription/redemption paperwork at 40%.
"Our survey reveals that RIAs are hamstrung with the level of difficulty administrating and operating alternative funds as opposed to spending time with clients," said PPB Capital Partner's EVP and COO Adam Stern. "We know from our previous survey that RIAs are allocating more to alternative investments and now we understand where the operational pain points exist."
Fees are a sensitive issue
When asked whether clients questioned fees for managing a private internal fund, RIAs said that "double-dipping" was a chief concern. Among the respondents, 35% noted that clients were sensitive to any appearance of charging two fees for investing in an alternative fund. Twenty-nine percent of respondents were concerned with fund operating expenses. Research and diligence fees and audit and tax fees accounted for 7% and 5% of responses respectively. Slightly more than 24% of respondents selected "all of the above".
Feeder funds most popular
Approximately 34% of RIAs identified feeder funds as their preferred vehicle for offering clients access to alternative investments, followed closely by customized fund of funds at 29%. RIAs citied the ability to customize an investment vehicle for clients with respect to fees, terms and minimum/maximum investment levels, as an attractive feature. Private interval funds and public interval funds ranked third and fourth at 20% and 17% respectively.
SOURCE PPB Capital Partners