Ep. 120: Alternatives: the Final Frontier of Investing with Matt Brown, CAIS

“It’s a very competitive world out there right now and alternative investments are stepping in and filling the gap in client portfolios. Advisors are disappointed with traditional long only approach to investing, that broken 60/40 model. It’s never been about lack of desire to have access to these types of funds and products. It’s always about the how, and what we’ve been able to do is solve that problem. So we can bring these products and opportunities to the advisor in a more streamlined way and work within the protocols of the large enterprise firms, IBDs, broker dealers and, of course, the RIA community.”

— Matt Brown, Founder & CEO, CAIS

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The WealthTech Today podcast features interviews, news, and analysis on the trends and best practices in wealth and technology for wealth management, asset management, and related areas. This episode is part of our December focus on compliance. We’re talking to influential industry leaders who can provide technology solutions that help advisors build stronger relationships, improve outcomes, and enrich their clients’ lives. A quick shoutout to our sponsor, the Invest in Others Foundation, please go to InvestInOthers.org, and be sure to subscribe to our show wherever you listen to podcasts so you don’t miss future episodes.

Companies Mentioned

Topics Mentioned

  • How Broker-Dealers Can Expand Their Use of Alternatives
  • Alternatives Are the Final Frontier of Investing
  • Leveraging Data to Help Asset Managers Target The Right Advisors
  • Record Numbers of Advisors Are Jumping Onto the Platform
  • Product Roadmap for 2022

Episode Transcript

Craig: I’m excited to introduce our next guest on the program, Matt Brown, founder and CEO of CAIS, Matt welcome.

Matt: Thanks, Craig. Great to be on WealthTech Today.

Craig: Thanks for being here. I’m glad we could work it out. We’re getting towards the end of the year. Any big plans?

Matt: Yeah, finally going to spend a little time with my wife and four children. It’s been quite a hectic year. Very busy, exciting. But nevertheless, looking forward to some long overdue family time.

Craig: I hear you on the same way. I’ve got three kids myself, we got to got to fit those in while we can. So thanks for being here, I really appreciate it. CLet’s just jump right in. Can you give us the 30-second elevator pitch for CAIS?

Matt: Absolutely. CAIS is a financial technology platform. We connect two communities. One community is the alternative asset management community. So think hedge funds, private equity, private markets, overall private credit, real estate, those funds and products and of course structured notes to another community, which are financial advisors. We are a B2B2C platform. So our client is the financial advisor, who then of course serves their end client who’s their investor.

Craig: We’re seeing a lot of that it’s really changing the industry I think how firms like yours are making these assets, these different securities more available to advisors. So if I’m an enterprise wealth management firm, which is a lot of our listeners, how can they best use your product? Give me an example of how they would implement it.

Matt: Sure, the CAIS platform is is extremely flexible and customizable. But if you’re an enterprise wealth management firm, I you may want to either use the platform end to end in which case it’s a very easy integration. We’re cloud based, and you are having an experience where you’re coming into the platform, you are seeing menus of products, you’re engaging in our educational platform. You are seamlessly transacting in what used to be very complicated, private funds, and you’re having a pre-trade, trade, and posttrade experience that feels a lot more like a mutual funds and ETF and private markets or hedge fund.

Matt: If you are owning part of the value chain that I just described, and you only want to use pieces of CAIS for example, maybe you have fund selection or product selection internally, and you may want to put your funds on our platform for you. We can accommodate that. So your menu will be curated of our products. From an integration standpoint, we can integrate into all the compliance and existing workflows of an enterprise firm so that CAIS is now part of how you do your business. And of course, we can also appear in any of the existing desktop applications that are currently being used or other service providers that you work with. We call those our integration partners. So the platform is modular and very customizable to really meet the needs of the Enterprise client.

Craig: Yeah, I was surprised as we work with a lot of the biggest broker dealers, and a lot of them use your tools to power their alt platform.

Matt: Well, it’s a very competitive world out there right now and alternative investments just overall are stepping in and filling the gap or client portfolios. Advisors are getting disappointed with traditional long only approach to investing, that broken 60/40 model. It’s never been about lack of desire to have access to these types of funds and products. It’s always about the how, and what we’ve been able to do is just solve that problem. So we can bring these products and opportunities to the advisor in a much more streamlined way and work within the protocols of the large enterprise firms, IBDs broker dealers and of course the RIA community.

How Broker-Dealers Can Expand Their Use of Alternatives

Craig: It was interesting when you talked about how you’re making these very complicated securities, almost like trading an ETF, making it so simple. How does that increase the use of alts at some of these firms?alternative investment platforms

Matt: Well, we’ve done a lot of surveying with the advisor community at large. And we were surprised to find out very early on, we’ve been in business now 10 years trying to solve as many of these hurdles and problems as possible., but advisors are very busy. As you know, I used to be an advisor. We have a lot going on, we’re dealing with clients, we’re investing, we’re making decisions. If you put up too many structural barriers to anything, they’re just going to get avoided.

So what was happening with alternative investments and one of the main reasons why the allocation rates in the independent wealth channel, including the IBD space, are low single digits, as compared to even the large wirehouses or the institutional market where they’re double digit, 15, 20, 30% is because it’s very complicated, operationally intensive to actively allocate to alternative investments. So problem number one that we solve was just making sure they were easier to purchase. We then had to go to new frontiers like making sure that everyone understood the products, we invested tremendous amount of time, effort and capital in an artificial and machine learning, learning platform, educational platform to make sure advisors understand alternatives. Understand that were to implement them in client portfolios, both at the strategy level and also down to the product level.

Craig: You’re leading me right into my next topic. So looking at industry trends, you mentioned the final frontier or the the new frontier, and you’re sort of moving into those areas with your platform. One of the things you had mentioned about industry trends was what’s driving your data insights platform, and you mentioned a little bit about it with the AI, ML. Can you explain what that is and how it’s using artificial intelligence machine learning to understand advisor buying behavior?

Matt: Sure, we kind of call the next level, the next frontier at CAIS, which is many FinTech companies, and they’ve done a great job, have brought automation to really back office or middle office manual processes. And that’s important and we do too. But really the big jump is when we can automate the top of the funnel engagement, learning, buying patterns. Understanding what’s going on, and how do we break out of this traditional mold of white papers and conferences and human beings and salespeople to really use technology to drive demand in a thoughtful way.

Matt: So what we’ve done at CAIS is we’ve really invested in data, we use Snowflake, we use other vendors, our data warehouse. We have been able to understand the buying behavior, the interest level, predictive analytics, from advisors, and that informs us to build our menu of products or service offering overall. We’re kind of meeting the advisor or the asset manager where they need to be met in a predictive way.

Matt: In 2022, we’re excited to announce that we’re going to be able to bring that data to the advisor community in the asset manager community for their use. So not only will they have an experience of as a user of CAIS will now begin to see anonymized data that will inform potentially trends and other things that they may find to be useful.

Craig: That could be huge. We work with a lot of FinTech firms, and we’re always pushing them to do more with the data they have. And when you’re successful as your firm is you’ve got thousands and thousands of advisors interacting, why not bubble up the trends that you’re seeing and present that to other advisors saying, Hey, this is what your peers are doing, why aren’t you doing that as well?

Matt: Yeah, you can really index advisors. There’s definitely a community of financial advisors out there that we’ve been able to identify that are often ahead of the trend in investing and often right. I can give an example, qualified opportunity zones, it’s a big topic out there investing in qualified opportunity zones, who are the advisors that were early thinking about that, wanting to learn about that, how to implement those strategies, get access to those strategies. That’s just one example. But how about if we were able to bring those kind of leaderboard players in a way that would be trackable, whereas a financial advisor, you’re always seeing advisors or having access to advisors who are oftentimes kind of on their front foot when making investment decisions? Could that be useful data for them? So we’re always thinking about kind of creating that expert network and tracking them and of course, bringing those data insights at an anonymized basis. I want to be clear on that to the community.

Alternatives Are the Final Frontier of Investing

Craig: Oh, obviously, all of this data is anonymized. That’s kind of an expectation. But you were also talking about the last mile and the final frontier, and it’s more about understanding needs rather than just making manual processes more efficient.

Matt: Yes. When you think about an old fashioned roadshow riders typically break this down and you kind of you’re out there talking to a lot of people and sometimes you’re getting on a plane or a train and showing up in a city and taking 10 meetings, a couple cancel. Five aren’t interested. What’s your hit ratio there? What if you knew ahead of time that everyone you’re going to be speaking to or spending time with is interested. They are on their own time learning about the strategy so they’re up to speed, and maybe you use virtual communication to reach them. What ends up happening is that you just become much more efficient as a business and you’re not wasting time. And of course, you’re allowing the technology to really drive distribution. And for us, that’s kind of the magic, the magic sauce.

Craig: It’s all about distribution. I hear that so much. On the asset management side, do we work a lot of asset managers and that’s really their mantra, how do we improve distribution?

Matt: Yeah, I think distribution is sometimes considered not a positive word. When people think of distribution and think of product sales. Distribution is the expansion of a shareholder base with individual investors or advisors who want to be exposed to your strategy, and just doing it in an efficient way. So we think about helping asset managers right the other side of our platform, get better distribution, what we’re really saying is, hey, there’s a multi trillion dollar untapped market of investors that are being overseen by financial advisors who really want access to the strategies to improve the outcomes for their portfolios. So let’s work together., but let’s not waste time with those folks who aren’t interested. Let’s help people learn and then get exposure to your strategies., and that will result in asset managers growing their shareholder base with investors who are knowledgeable, and everyone wants a knowledgeable investor.

Leveraging Data to Help Asset Managers Target the Right Advisors

Craig: You talked about qualified opportunity zones, and avoiding roadshows, where you have a hit hit rate that’s kind of low but it’d be better if you know that the people you’re talking to are interested in your product. That’s something that your data is able to provide.

Matt: Yeah. I mean, I imagine if you and I started a Whole Foods together, and we knew every single person that was walking through our door was going to buy a certain product before they walked in. Like that’s kind of where we are and where we’re at least driving towards.

Matt: So because we work so intimately with the financial advisor and we use data, we understand what their buying behaviors and interests are, we understand what their clients portfolios look like. When we add a private equity fund as an example to our platform, we already know where the advisor community that has the highest probability of investing in that fund is. We don’t have to scour the universe starting at zero again, and that’s very effective. And the data that we use and gleaned to be able to do that allows everyone does save a tremendous amount of time and cost, even to the point where we can start to empower asset managers with that data, and even potentially allow them to self serve. And when I say self serve, really use the platform as a tool to really do their own distribution.

Craig: That’s that’s kind of revolutionary because most of the other firms out there, they have self serve but it’s very manual self serve, like go here, click this do this, you’re kind of using the platform on your own, but you have to be an expert how the platform works, as opposed to what you’re saying is they can use the platform but the platform is going to give them advice as to where they should be going and what they should be doing.

Matt: On the manager perspective., so there’s the financial advisor on one side of the asset manager and the other, on the on the asset manager perspective, many of them want to participate in their own distribution of product. And yes, other platforms out there kind of allow a self serve, but that’s often in the back and middle office functionality, that pre-trade, trade, post-trade experience, or we’re actually talking about is including the asset manager in the front end of the funnel in the engagement portion. And that really is driven by the efficiency and the data that we’re given. And that’s been very welcomed across the board by the asset management community.

Craig: I’m sure they would love that, who wouldn’t want to know exactly which advisor community will be most likely to be interested in your product? Out of all the hundreds of thousands of advisors out there, you can kind of micro target just the ones who based on your data will be most interested in it.

Matt: Absolutely. If you think about the budgets of these large asset management firms, the marketing and distribution budgets are enormous. And the vast majority of that is salaries. And humans are needed, but you may not need hundreds of people canvassing thousands of investors not knowing who’s interested, just to dumb it down, in their products or who has the highest probability based on interest or buying past buying behavior. So the ability for us to be able to be an effective partner to the asset manager allows them also to be more economical on their end on their marketing and distribution spend.

Craig: What I really like about this, we do a lot of research into not necessarily asset management, but distribution platforms such as model marketplaces, or TAMPs that are distributing asset management products. And what we’re seeing is the ones that can provide this type of information are way more successful than ones that say, well, we’ll just make you available, but then you need to go out and send teams of wholesalers out to knock on doors and make sales. And as you said, your software, while you still need people. It’s going to make them it’s going to push them up the value chain. They’re doing the grunt work of knocking on doors and making phone calls, they can really focus on building relationships with the right advisors.

Matt: And also, you’re absolutely right. But the other end of this is that advisors don’t want to be bothered with things they’re not interested in. So both communities want the value of this on the CAIS platform. It’s not just that the asset manager is now going to have more of a qualified, targeted approach to distribution raising assets, which clearly they are. But the advisor knows that if opportunities are being presented from the CAIS platform, it’s because there’s a high probability that they have an interest in it as well. So it’s kind of that both communities are invested in making that work, and so far, it really has been taking off and I think it’s going to be a big part of our 2022.

Matt: I also want to go back though, and just kind of take a half step back on this topic, which is just customization generally, not just with data. When we think about customization, many of the firms that we work with are complex. The least complex firm could be maybe a small RIA that would want to use our platform end to end but you also have very complex firms with thousands of advisors with compliance protocols and workflow. Our platform really has the ability to customize around all the individual needs, and now really be used in an unbundled format. Not end to end.

Matt: So for example, I’ll just isolate one thing or two things are transaction engine. Firms have their own products, they find their own funds and many advisory firms really do enjoy seeking out opportunities doing their due diligence, but they do want that operational efficiency. What our platform is able to do is really almost be wiped clean of the existing marketplace and menu and onboard all the ideas and products of a firm that they may have that are not organized, centralized or platformized. And that feature has been extremely popular of our platform. Basically, it’s a little bit like creating your CAIS, or your experience.

Matt: From the advisor side the ability to really personalize or customize our platform, isolate functionality that’s important to you and add what you want is important. We also see this in the educational area of our platform. We have a state of the art educational platform, I mentioned artificial intelligence and machine learning powered, and we see a lot of advisors firms now especially in the enterprise world are asking are asking our platform if they can create customized learning modules based on the products that they’ve selected. So now when you’re logging into the CAIS platform, you not only have products that you like, if you’re an advisor that you may have found yourself, but you have corresponding educational protocols, which need to be woven in especially in the more regulated firms like the broker dealers as a needed step before investing.

Record Numbers of Advisors Are Jumping Onto the Platform

Craig: I can see that all these tools have really driven growth at your firm, can you share any statistics run usage or volume that you have available?

Matt: Sure, we do. There’s billions of dollars a year that flow across our platform from the advisor community into the asset management community. But just to give you some stats, Q3 alone was our highest volume quarter. I think it was up 75% year over year. We’re seeing a record number of advisors adopt the platform, because they realized that they need to be competitive and have access to alternative investments in a streamlined fashion, if they want to retain or deepen wallet share for their clients. And we have adoption rates now, I think it’s over two firms per day, are making their first transaction on our platform. Effectively, first time users are averaging two a day will bring on over 500 new firms this year alone. That doesn’t include of course, firms that have already made their first transaction are now doubling down.

We see rates of adoption or use of alternatives growing exponentially once a firm plugs into the platform. There’s a bit of a pent up demand feeling that we see and many firms have this very steep curve. Once they’re on the platform, they start using it. Portfolios get diversified, the 60/40 model breaks it’s now adding alts into the equation. I think we’ve had over 100% year over year, just overall usage on the platform growth this year. It’s been a pretty pretty big year. I do want to mention also we talked a lot about funds, but we have the largest structured notes technology platform available as well, where financial advisors who like to buy structured notes, they’re the credits of the largest banks, and we do that enormous growth in that business.

Craig: Thanks for sharing that, you guys are just killing it. There’s so much need out there. As you mentioned, once you once your platform goes live, the use of alts grows exponentially because the advisors are used to a very difficult process. They’re used a lot of paperwork, they’re used a lot of manual effort. And your platform reduces a lot that friction. And I think that’s that’s really gonna be helping grow the use of alts across firms. A lot of these larger RIAs to work with, we work with some of the same ones, the $10 billion and up firms. They’re really targeting wirehouse advisors, and wirehouse advisors often have a high percentage of alts in their portfolios and they want that same ability when they move if they leave and go breakaway or they leave to join a big firm. So I think you can help facilitate a lot of that.

Matt: That’s our main bread and butter. There was a little bit of a David and Goliath story but CAIS that often gets talked about. Really our strength is kind of the IBD enterprise and the RIA community and, they’re often in competition with the largest 5-10 firms out there, what we often call the wirehouses. So our ability to deliver a platform solution for alternative investments, that feels a lot like a wirehouse platform solution, because of course those biggest firms have built businesses like CAIS. This is a real leveling of the playing field. We’ve had advisor advisor in the enterprise level and beyond, keep telling us that, you know what, I would never be able to have the wallet share from my client if I didn’t have the opportunity to have alts, I would never have the opportunity to win that client didn’t have access to alternative investments because they would have gone with JP Morgan or Goldman. And then of course, there’s just the firms that are growing and building through acquisition, they would never be able to attract a breakaway advisor out of UBS because they’re heavy alts users unless they had access to a platform like CAIS. So CAIS has been a real equalizer and giving everyone a fair shot to attract new business and grow their business.

Product Roadmap for 2022

Craig: I want to be cognizant of the time, we’re almost out, and I didn’t want to let you go before you talk about some new products and services that are coming down the pike. Can you tal about some things you’re doing for 2022?

Matt: Sure. Well, I mentioned the big one, the data insights platform, really allowing our community to get the benefit of all the data we’ve been collecting for over a decade.

Craig: So what does that mean? Because now you’re offering that data so that data is available on the platform, but you got to make it more of a DIY so they can can they plug into API’s? Is it more of a dashboard? How’s it gonna work?

Matt: Yeah it’ll be a dashboard. You know, so, again, I can’t do the big reveal just yet because it’s going to be great, but if you look at all the data we’ve collected and the way we can display it, and the way we can make it available and start to expose that data. It’s a big piece of our 2022 roadmap. With that, there’s also a huge need for deeper and engaging content in education. So as we think about the 2022 initiatives, data clearly one, and bringing that data to our community in a usable, thoughtful way. And we’ll start small like everything and grow big. And then of course, making sure that there’s enough digestible, thoughtful content for advisors so they can understand strategies they can understand implementation, and allow the end client to also get exposure to that content and educational material.

We can’t just load the adviser up with all the information and expect them to kind of carry the water themselves. Not to go into the trend but the democratization and the speed of information to the end investor, we see it in all different areas. Well, let’s try to help the financial advisor by bringing information to the to the end investor directly.

Craig: Will that dashboard be customizable or configurable?

Matt: Of course, everything we do at CAIS is customizable. We build it with intent, and just think of it more like an app store that you can customize each app. So if you want different views or different feeds or different comparisons, it’s going to be there.

Craig: Oh, I love the App Store. We can talk about that. I want to get on the App Store. How do I get in there? So how would firms work with that? I know we’re running up against the end here, but in just one more minute, how would firms work with that? That app store concept?

Matt: Well, when I say the app store concept, I mean this as an overall architecture for our platform, we view all the components of the functionality very much individualized, almost like an app, right? You can connect them all together. You can pick one or two or you can just pick one, and then within that functionality, call it data insights, you’ll be able to customize your journey and experience. So it’s a customized platform and a personalized experience.

Craig: That is awesome. I’m really looking forward to seeing that. Hopefully I can get a demo when you guys launch that.

Matt: You’ll be the first in the list, Craig.

Craig: All right, you heard it here, I’m going to be first. We’re gonna hold you to that. So Matt, we’re out of time. Tell everyone who’s listening how they can find out more about CAIS.

Matt: Go to our website, CAISgroup.com. CAIS stands for capital integration systems known as that question anymore but I thought I’d volunteer it, so go to CAISgroup.com and we will start your journey and get you as competitive as possible overnight.

Craig: I don’t want to insert myself into your branding, but CAI also stands for Craig Allen Iskowitz which is my name, so it’s a perfect combination.

Matt: Isn’t a natural fit. Let’s do more podcasts together.

Craig: That’s right. We will, we have to now. Cool, Matt, thanks so much for being here.

Matt: See ya.

Click here and schedule a Discovery Session to find out how Ezra Group can help your fintech firm grow revenue in the wealth management space.



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at craig@ezragroupllc.com