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How to streamline onboarding and attract new investors with tech

23 Feb 2023 | 5 minute read

Over the last decade, the world of private equity and debt has undergone a transformation. Once accessible only to institutional investors and asset managers, private markets have become increasingly popular with family offices in recent years. The 2022 Global Family Office Report from UBS found that eight out of ten family offices currently invest in private equity to diversify risk and achieve higher returns.

What are the implications of this shift for asset managers who want to attract this private capital, and—more specifically—what are the ramifications for investor onboarding processes? In general, private investors are unused to the time-consuming and manual onboarding processes associated with private markets. Many of them have grown accustomed to the streamlined onboarding processes of their personal bank or public markets portfolio.

Investor expectations around the customer experience have also shifted in recent years. Roubini ThoughtLab’s Wealth and Asset Management 2022 report shows that investors want to manage their money the same way they shop, socialise, communicate, and learn: with user-friendly digital tools. And it isn’t just Millennials and Gen Z who feel this way; seasoned investors care even more about digital access than their next-generation counterparts.

Now more than ever, it behoves asset managers to streamline their onboarding process, offering new investors the accuracy and efficiency of cutting-edge technology while keeping pace with the regulatory environment.

How should asset managers attract new high-net-worth investors?

As simple as it may seem, one powerful approach is to offer investors a streamlined experience with modern onboarding technology. Cutting-edge software solutions can scan, mine and learn from large quantities of data, reducing onboarding time while mitigating risk. This software may even flag gaps in compliance, easing the burden on compliance officers, fund managers and investors.

Why is digital leadership so important to investors? Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations are a necessary part of onboarding, but they are also a common stumbling block. These regulations exist to prevent financial crimes like money laundering, financing terrorism and fraud—but traditional onboarding methods, particularly for private markets, have been time-consuming and tedious.

Fortunately, with recent advances in technology, automated AML/KYC solutions now offer a customer- and compliance-friendly means of streamlining the process. This software can be customised to meet the specific needs of each asset manager or fund and can be integrated easily into an existing onboarding process.

By automating new investor onboarding, asset managers can save time, reduce costs and increase the efficiency of their onboarding process, all while mitigating risk. Beyond driving efficiencies, onboarding technology can (and does) help asset managers penetrate new customer segments, deepen client relationships, and expand distribution.

The true cost of manual onboarding

Manual onboarding processes like signing physical forms and manually entering customer information into databases have persisted in financial services firms long past their expiration date. This is especially true in Europe, which has been widely criticised for lagging behind the United States and China in adopting compliance technology—thanks in part to the complexity of Europe’s regulatory environment.

In writing about Europe’s technology gap, McKinsey authors observed, “Although Europe has many high-performing companies, in aggregate European companies underperform relative to those in other major regions: they are growing more slowly, creating lower returns, and investing less in R&D than their U.S. counterparts. This largely reflects the fact that Europe missed the boat on the last technology revolution.”

The risk of getting left behind by global competitors is no small one, regardless of jurisdiction; it is only a matter of time before firms still rooted in traditional processes find it difficult to attract investors and adhere to compliance regulations.

And there are other risks, too:

  • The time cost of slow and repetitive tasks
  • Increased exposure to corruption and fraud
  • Lost documents and incomplete audit trails
  • The inability to track and analyse trends over time
  • Slow onboarding resulting in customer churn
  • Inaccuracies created by human error

This last is perhaps the most significant, as every manual touchpoint is another opportunity to introduce mistakes—and, by extension, non-compliance. And the time cost of outdated processes cannot be overemphasised; average investor onboarding takes about 41 days to complete. With this delay come significant downstream complications, including investor churn and missed investment opportunities.

If you haven’t yet made the transition to automated investor onboarding, don’t despair; there’s still time to catch up. Today’s technologies boast a proven track record of keeping firms compliant while impressing new investors with painless onboarding.

Frictionless onboarding is the first step toward a satisfied investor

The benefits of automating your investor onboarding processes in general—and AML/KYC in particular—are extensive. To name a few:

Streamlined investor experience

Investors have high expectations, as set by contact with everyday tech providers like Google and Apple. The appetite for a smooth, seamless onboarding experience is more powerful than ever, leaving private investors in particular apt to abandon onboarding processes that feel too cumbersome.

Attract tech-savvy investors

As access to private equity increases, so does the number of potential investors. Capture the interest of new market segments and access increased investor capital by providing an onboarding experience that leaves investors confident in your skill and attention to detail.

Accurate client risk profiles

Technology can automate the creation and maintenance of client risk profiles, assigning numerical risk scores based on data and monitoring changes over time. This level of accuracy enhances due diligence and ensures continued compliance throughout the investor lifecycle.

Fewer false positives

An abundance of alerts does not support an effective and efficient compliance programme; in fact, false positives are a significant pain point for compliance teams. Attaching alerts to high-quality data reduces volume and ensures thorough investigation into cases where such investigation is warranted. Smart technology can even recommend next steps based on past actions and predicted risk.

Improved beneficial ownership

Today’s software-as-a-service (SaaS) products can “read” data from both databases and scanned documents that previously required manual entry. For compliance teams working their way through massive piles of data, technology improves the ability to draw accurate conclusions for a risk-based approach. Due diligence on beneficial owners is a point of increasing focus worldwide, and technology supports firms’ efforts to comply without overwhelming staff.

Automated audit trails

When onboarding is completed within a compliance technology, there’s no need to maintain manual records or search for misplaced documents. Adaptive technology tracks every interaction automatically, so you’ll always know who completed which actions and when. When regulators ask for an audit trail, firms who have invested in tech can easily supply one with the click of a button.

Managing regulatory change across markets

The regulatory environment is ever-changing, particularly as organisations navigate international borders. Technology can adapt to changing requirements in real time, automatically identifying information gaps and generating corresponding alerts. This reduces the burden on compliance teams to hit a constantly moving target.

The time to embrace onboarding technology is now

Historically, many firms have been reluctant to implement new technology that touches AML/KYC protocols because they weren’t sure how regulators would react. In Europe, new remote customer onboarding guidelines demonstrate a growing and continued interest in financial services technology and how firms can leverage it to mutual advantage.

Why risk getting left behind? IQ-EQ’s MaxComply provides firms with the accuracy, efficiency and flexibility to keep pace with compliance requirements and meet market demands, offering investors a frictionless onboarding experience that maximises both comfort and returns. Get in touch today to learn more.

Working with IQ-EQ has been seamless – you and your team understand our business, advise us appropriately, and handle your side of our collective partnership so that we can focus on making good investment decisions. Evan Gibson SVP, Merchants Capital

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