Thoughts on Process and What the Courts Have Been Up To

I hope your long weekend was filled with only the good stuff. Just outside Boston, we enjoyed a little neighborly fun run. You won’t be surprised to learn that many people here are pretty competitive about running. I logged a PR (7:07’s) and had a fantastic time with the family too.

Here’s an overview of what I’ll be covering in this month’s Alternative Universe Newsletter:

1. When the Process Is Bumpy

2. From the Courts

3. Podcast Highlight

When the Process Is Bumpy

Last month I traveled to England for a conference, on behalf of a non-profit I’m on the board of. We had an outdoor booth and the set up required a gazebo. Instead of hauling one from the US, I decided to purchase one from the aptly named UK store, Go Outdoors.

It was a straightforward purchase - add to cart, select in-store pick up, buy. I figured the pick up would be just as simple - rental car to store, show my receipt, leave for the venue. The store experience, however, was less than great.

I touched down in Heathrow, grabbed a rental car, and headed north to the store. I found it with ease and walked in expecting a quick pick-up, but when I showed my receipt to the clerk, I hit a snag. They didn’t know what to do with it at all. The concept of an online purchase with an in-store pick-up seemed to throw them completely. They couldn’t match the SKU. They were flummoxed.

I was both amused and annoyed. It seemed so obvious. Finally, 20 minutes later, I walked 10 feet to a large display of gazebos (the one I had ordered), grabbed one, and said, “I’m just going to take this one, okay?” They reluctantly agreed and I went on my way.

It was the kind of scene you’d find in a movie when a writer is attempting to show how a character deals with adversity. We’ve all had moments like these both personally and at work. When we build our businesses, we attempt to remove the friction of bad service, unclear processes, or anything that might cause a client to be annoyed.

The lesson: Let’s not let our problems, become our customer’s problems.

Our processes and standard operating procedures are designed to remove the confusion and provide clarity to our teams and our clients. The more complicated the process, the more we need documentation and communication. Of course, our teams have a much higher tolerance for the pain of process, and new clients generally have the least.

Each step when onboarding a new client is an opportunity to either build trust, or erode it. I hope we all agree that we want to built trust.

Onboarding clients into alternative investments has so often created the unfortunate back-and-forth communications that lead to eroding trust and your client thinking “Have you ever done this before?”

This business of private investing is messy and unpredictable, there is no standardized processes from fund to fund, admin to admin, custodian to custodian. The process feels new and different every single time.

How do we keep this problem from becoming our clients?

At Mammoth, we create a uniform process that is predictable for Advisory firms to use when onboarding clients into Alternative Investment programs. We work with Fund Managers to verify their offering documents, map those to the Mammoth investor profiles which financial advisors can prepare before ever engaging this client. By the time the client is involved we know what we need for KYC, AML and Accreditation verification and have confidence the manager, admin and custodian will accept all the docs as In Good Order.

Every party benefits from a standard process and the easier it is for your clients to build trust in your services and our industry.

If you’d like us to review your alternative investment process, my team is available to consult yours and provide you with a 360 look at your alternative investing offer. We’ll prepare a report that details your next best actions whether they include partnering with us long term or not. Let’s talk.

From the Courts

PFAR Overturned

Last month, a federal appeals court in New Orleans unanimously decided to overturn the Private Fund Advisers Rules (PFAR) that the Securities and Exchange Commission (SEC) that was introduced last August. These rules aimed to increase transparency by requiring private equity funds, hedge funds, venture capital funds, and managers of funds for institutional investors like pension funds and endowments to disclose quarterly expenses and fees to investors.

Industry associations argued that the SEC overstepped its authority with PFAR, claiming the rules were designed for retail customers such as mutual funds, not private equity and hedge fund investors. The court agreed, ruling that the law was intended to protect mutual fund and public securities investors, not those in private equity and hedge funds.

The ruling took immediate effect, although, the SEC is currently reviewing the decision and considering its options, including a potential appeal to the U.S. Supreme Court within 90 days. It seems unlikely they’ll appeal given our next topic….

Chevron Deference

The Supreme Court overturned the 40-year-old Chevron deference decision, which had allowed federal agencies to interpret laws and which many considered the backbone of administrative law. This will impact multiple industries, including finance, who are accustomed to federal agencies being the final interpreter of ambiguous language in laws, rules and regulations. This reversal restricts how agencies like the SEC, DOL, and EPA make and enforce regulations. Chevron had created the baseline for agencies like the SEC to leverage their in-house financial expertise for rule making.

This new decision takes away the power from agency experts and requires Congress to write laws with additional nuance or give the power to the judiciary. For the average financial firm, the ripple effects are not yet known.

However, with the demise of Chevron we may see the SEC and other agencies taking more measured approaches where their source of authorization is unclear. We may also see more litigation against federal agencies where plaintiffs feel an agency has operated beyond their legal authority. This appears particularly likely as the SEC has already faced multiple losses in litigation challenging rulemakings already, including the Private Fund Advisor Rule.

Podcast Highlight

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As always, thanks for reading. See you next month!

Steve, for the Mammoth Team