Jim Dowd, CEO  of North Capital. Jim Dowd, CEO of North Capital.

Technology firms in the advisor space follow a pattern common to all entrepreneurs. They see inefficiencies or other shortcomings among existing products, services or marketplaces and then build an application that more efficiently serves the needs of the consumer or the professional and, ideally, serves them both.

That’s the pattern followed by broker-dealer North Capital Private Securities (NCPS) founder and CEO, Jim Dowd, in building a a suite of technology tools that, he says, brings greater efficiency and scale to the exempt securities market.

That efficiency and scale, Dowd further suggests, will help to not only meet end-client desires to add alternative investments to their portfolios but also grow that market. That’s because North Capital’s suite of tools, comprising cloud-based software offerings called TransactAPI, Marketplace as  a Service (MAAS) and the DirectInvest Button, more efficiently meet the investing needs of end clients, the funding needs of both one-off and serial private offering originators and the heavy compliance needs of intermediaries like broker-dealers including suitability, Know Your Customer (KYC) and Anti-Money Laundering (AML), along with verifying the accredited status of those end investors.

NCPS and its technology firm—North Capital Investment Technology—is part of Salt Lake City-based North Capital, a 10-year old firm that includes an RIA, a CTA, the broker-dealer and the tech firm.

Dowd, a 33-year veteran of the sell and buy sides in the derivatives, hedge fund and banking markets, calls NCPS a “technology enabled broker-dealer” that focuses only on the exempt securities market. Following the path of other entrepreneurs, he argues that the exempt securities market is one part of the industry that has “very little technology, very little standardization” but where good technology can make a “huge marginal difference in outcomes for investors and intermediaries.”

Dowd says that the biggest benefit of North Capital’s products to exempt offering originators is making the raising of capital more efficient by helping to “compress” the offering and subscription process for those offerings.

For advisors and broker-dealers the biggest benefit is providing access to these products. and “ultimately there will be benefits in reporting, and consolidation of information.”

The settlement and reporting benefits that North Capital will deliver will be felt by both intermediaries and end clients, such as in providing K1 documents in a more timely manner. Right now, Dowd says, “for individual investors it’s kind of a nightmare to be outside the standard system” of settlement and reporting that’s taken for granted by mutual fund and individual stock and bond investors.

The timing is right for this platform, Dowd suggests, since he sees industry and investor interest in alternative investments now reaching a third wave. In the first wave, end investors were introduced to the idea of alternatives and how they fit into portfolios. The second wave was marked by the introduction of liquid, transparent products meant to replace investing in direct alternative strategies, such as managed futures mutual funds. In the third wave, he believes end investors will want to invest in alternative products “in their native forms but with more modernized. standardized settlement systems.”

So why use North Capital to meet that third wave of interest from your clients? Why not wait until some larger, industry-wide organization such as DTCC steps in to provide clearing and settlement for alternatives as it did for stocks and mutual funds? Dowd admits that some other firms “are looking at this problem” but argues that North Capital “is further along than most because we’ve done a lot of transactions” in originating and distributing private offerings through its broker-dealer. Moreover, he believes that “to get innovation in this market you need an outsider with insider’s knowledge,” and further that “you need to know the demand is there before you can afford to build a single system to do it.”

About that third wave, Dowd believes there are “significant tailwinds for what we’re trying to do” that will be driven by end investor interest in alternatives. After the financial crisis, many observers thought investors would return to the basics of investing and away from private funds.

“That didn’t really happen,” Dowd says, because with interest rates so low, and with limited traditional risk investment opportunities outside of stocks, it wasn’t advisors pushing these investments to their clients, but rather clients asking for them. “’What can I do to boost my yield? How can I add risk to my portfolio that isn’t stocks?’” Dowd says flatly that there is serious end investor interest in alternatives, with those investors prudently looking “to add alternatives for maybe 10% of their portfolios.”