CapIntel’s Founder and CEO James Rockwood on the demand for alts in client proposals
In 2019, CapIntel was started with a simple goal — making the selection of investments easier for financial advisors and more understandable for retail investors. In the years since, the firm has supported more than 10,000 advisors as they developed and delivered customized client proposals that streamlines and automates one of the more labor-intensive aspects of pre-engagement client work.
CapIntel works closely with its clients — asset managers and wealth management firms — to provide exactly what those firm’s advisors need to build compelling proposals. Increasingly, their need is access to information about alternative investments that fit within their firm’s compliance framework.
James Rockwood built this company to serve as the backbone for sales teams at innovative wealth management firms. And more than ever, these innovative firms want something different to set them apart within a very crowded field. We spoke with Rockwood to get a better understanding of this shifting demand and what advisors need to provide clients at this early stage of engagement.
AW: Based on your experience, are retail wealth management enterprises and their financial advisors increasingly interested in including alternative assets for new client proposals? If so, why?
Rockwood: When it comes to ultra-high-net-worth clients, there’s definitely a growing interest in alts, private equity and ESG as a non-traditional way to build wealth compared to the traditional stock, ETF, mutual fund and fixed income vehicles. Financial advisors are increasingly interested in including alternative assets in new client proposals to help diversify portfolios and generate higher returns. However, it is important to note that alternative assets are not without risk and should only be considered by investors who have a high-risk tolerance and are willing to accept the constraints of illiquidity.
AW: From a compliance and regulatory perspective, what are the key guardrails for wealth management firms to bear in mind for new client proposals when it comes to alts?
Rockwood: Compliance guardrails that CapIntel already has in place, including performance reporting, client consent, suitability assessment, due diligence, risk disclosure, record keeping, and conflict of interest mitigation apply to alternative investments, given that they fall under the Dodd-Frank act and can be examined by the SEC. However, it’s important to know that despite being regulated by the SEC, alts don’t need to be registered with the SEC and are not as strictly regulated as mutual funds or ETFs. As a result, most alts are only available to institutions or HNW accredited investors. That being said, transparency and education are important to ensure an alt investment is in a client’s best interests.
AW: What are the most important items for a financial advisor to capture in a new client proposal as it relates to alternative investments?
Rockwood: Given that alts tend to be less regulated than more traditional financial products, it’s important to ensure that financial advisors provide their clients with a clear investment strategy and rationale for making an alt recommendation. The advisor should explicitly outline how the alt aligns with the client’s goals, risk profile and return objectives, while highlighting the standard performance/horizon/benchmark/allocation/scenario analyses in any new client proposal.
