February 28, 2023
What is Straight Through Processing for Alternative Investments?
Technology is reimagining front, middle, and back office processes for alternative investment firms.
Investment firms have been handling certain processes the same way for a very long time. These functions are often complicated and involve a large number of people and systems sharing information from one point to another. They can cause slowdowns, operational errors, and they break often, extending the length and cost of processes that could be done much faster.
What is Straight-Through Processing?
Straight-through processing (STP) describes the concept of leveraging automation and technology to ensure processes are done seamlessly and “straight through”. Oftentimes, firms play a balancing act when it comes to interjecting human touchpoints to make sure these processes are accomplished. STP doesn’t require stopping workflows to consider any individual contingencies, decision-making, or manual touchpoints, thereby removing the need for human intervention entirely.
Straight-through processing currently occurs in mutual funds, ETFs, and even direct purchases of stock. However, this concept has yet to become standardized in private investments, private equity, hedge funds, venture capital funds, unlisted real estate, and other types of alternative investing. Within these areas are many opportunities where manual interventions are still necessary to accomplish a task at hand. Right now there's minimal technology penetrating the alternative investment market, and that is why straight-through processing is such a game-changer for firms.
The History Behind Straight-Through Processing
Before automation and the internet, firms traditionally had to depend on private networks, faxes, and other legacy tools to transfer data and information. These processes were invented years ago and cannot be easily automated in their current state. They were tedious and broken, and it was evident that old-school processes that used outdated tools could not be expedited. It was time to take a step back and ask, how can we reinvent these processes with the benefit and advantage of the new technologies available today? To create a well-functioning STP software, it is equally as important to dig deep and analyze the business process engineering and the objectives of these processes to uncover how they could be optimized by new technology for more effective execution. Uncovering these operational slowdowns and focusing on their objectives prompts many benefits for today’s alternative investment firms.
The Benefits of Straight-Through Processing
Straight-through processing leverages cutting-edge technology to improve market outcomes for financial institutions. Firms focusing on optimizing their operations will see improvements in several key areas, including:
STP improves the standard of information shared between clients and advisors, oftentimes reducing NIGO rates from the industry standard of 30% to as 1% or less with technology providers like RealBlocks.
By focusing on expediting processes with automation that normally take multiple days to finish, STP improves turnaround time and accomplishes the same tasks in a matter of hours, if not minutes.
Having a mass amount of sensitive client information in different forms; i.e. paper, online, and in various systems is a cause of security concern. STP protects client data by housing it in a single system.
Both investors and clients will see the cost benefits of STP as processes improve and more time can get leveraged towards actual investments.
The Effect of Straight-Through Processing on Alternative Investment Firms
Straight-through processing has significant benefits for alternative investment firms. These include improving the quality of information and general processes, speeding up functions with automation, elevating security measures, and drastically reducing unnecessary costs. With straight-through processing, firms can improve their manual interventions and holistically cut right through their front, middle, and back-office processes. Anytime there are information handoffs between advisor, client, and technology, errors tend to creep in, timeframes extend, user frustration increases, and the number of efficiencies goes down. STP takes these manual interventions and analog processes and creates a digital roadway with automation and advanced technology.
Take onboarding for example. This process normally takes multiple days to finish and requires an enormous amount of paper and email traffic, causing significant disruption. But, with new systems and processes, the onboarding process can get accomplished in hours, if not faster. An important piece of this is digitizing the mapping of information from subdocuments, such as what needs to be filled in, followed by posing the needed information as a series of user-friendly questions that populate into a digital document. A tremendous amount of time is saved through this process while simultaneously reducing errors. After documents are filled out, signatures need to be applied to the subdocuments, oftentimes needing to be sent somewhere for counter signatures, like a transfer agency or elsewhere. Instead of printing off these documents or photocopying them, and sending them to various places, they will already be easily accessible in the digital document via the secure STP system. Once onboarded, the STP system securely stores the investor’s profile and data, enabling for streamlined subscription processes in the future, and calculating any information refreshes that may be needed to remain compliant.
With straight-through processing, firms can eliminate a lot of the issues mentioned to speed up operations, reduce errors, and create a more user-friendly type of experience.
Grow Your Firm With a Straight-Through Processing Platform
The most crucial piece to solving some of your firm's most essential function slowdowns is having the right software. Your STP platform must integrate with all systems and bring together all firms and institutions to form a marketplace for all your investments. It should give your advisors an easy-to-use way to manage the front, middle, and back processes for investments and enable them to operate better on behalf of their clients.
An effective platform will streamline laborious processes like onboarding clients, uploading documents, submitting forms, and increasing velocity and time-to-market speed. It creates a better user experience, allowing advisors to successfully get people who are interested in investing to actually finish the process and invest. STP software takes these processes and measurably reduces the time it takes to get them completed. This will allow your advisors to use that time in a more valuable way, focusing on their clients, their investments, and earning fees. Delays in information could very well be the difference between losing an entire quarter year of investment fees because of the slow nature of existing processes. Think of the effect it would make to take these month-long processes and speed them up to a matter of days.
STP software also reduces the number of errors firms must deal with, often referred to as NIGO (Not-In-Good-Order) rates. This allows firms to put more capital towards running their business and less capital towards risk protection. Keep in mind that firms are setting aside large amounts of capital to combat these standard process risks. The time and capital that is taken and reserved alongside accounts for breaks, errors, and legal claims can instead be used towards business growth rather than towards risk management. This creates a fundamentally more efficient process. Because STP software makes these processes cheaper, it allows firms to reduce the cost of their services so that they can sell products at cheaper rates to a greater number of people, thus growing the market. This is a great option for many firms that are trying to attract new clients and scale their operations.
The benefits of straight-through processing are threefold. By reducing the amount of time it takes to finish processes that firms have to do every day, much more time can then be leveraged on providing outstanding service to clients. RealBlocks provides a feature-rich straight-through processing platform to firms focused on alternative investments. For more information on how the RealBlocks STP system optimizes front, middle, and backend operations, request a platform demo!