Investors new to alternative investments often balk at the overwhelming amount of paperwork and manual processes involved in completing an alts transaction. Dozens of documents must be diligently reviewed to ensure they are accurately filled out with all the required data and without missing a single signature. Some documents contain sections that may not apply to certain types of investors, leaving the uninitiated uncertain whether to fill that section in or not. It can be confusing.
The complexity of the process leads to widespread not-in-good-order (NIGO) errors—a big issue in the securities industry. Roughly 30% of new alts subscriptions are deemed NIGO, requiring wealth management firms to reject the submission or follow up with the applicant to correct or clarify errors, taking time away from multiple participants in the transaction.
For instance, when NIGO errors are identified, a client services professional within a broker-dealer firm must reach out to the investor to have them make the corrections and once more print, scan, and reprocess the documents. Frequently, these submissions and re-submissions still occur through the mail or delivery service. This back and forth clearly results in additional time and money to the investor, sponsor, and broker-dealer that could be saved or put to much better use.
Thankfully, straight-through alts subscription technology is swiftly upending this scenario, with wealth management firms increasingly adopting solutions that digitize complex paper-based processes.
Automating alts transactions greatly reduces NIGO errors to practically nil, allowing investors to input information once across multiple transactions. Instead of investors visually scanning documents for blank spaces, digital workflows can collect information and automatically share it to the end user. This technology can also be adapted to gather information in ways that comply with a broker-dealer firm’s unique business rules—ensuring the correct information is provided in a given field—and to omit any unnecessary fields.
This advance in technology comes amid evolving guidance and increased scrutiny of electronic signatures and other aspects of the digital subscription processes. For instance, the Financial Industry Regulatory Authority (FINRA), the self-regulatory organization that governs wealth managers, issued a regulatory notice in August last year warning about a potential rise in digital signature fraud. The agency is urging wealth management firms put controls in place. However, digital solutions like Altigo incorporate many security measures that go beyond basic electronic signature solutions.
We have seen the benefits that automated transaction processing has brought to our broker-dealer, RIA, and sponsor clients. The NIGO rate for our sponsor clients who employ paper subscription processes tracks at the industry standard of 30%. That error rate is drastically reduced to as low as 2-5% for firms that use online subscription platforms like Altigo.
In fact, digital solutions like Altigo can prevent many of the most basic input errors:
- Users aren’t allowed to skip required fields.
- Phone and Social Security number fields are formatted to avoid shortcuts.
- Email addresses must be verified before a user can move to the next field.
By using an effective technology-enabled system, an asset manager or broker-dealer can streamline the process in a legally acceptable manner, provide a more secure and efficient experience for all participants in an alts transaction, as well as save everyone time and money.
Have questions about how Altigo's electronic subscription technology works and whether it might help your firm reduce its NIGO rates for alternative investment transactions? Schedule a demo today to learn more:
Note: This is a previously published post that has been revised with updated information.