The Protocol Newsletter is an inside examination of accomplishments within the digital securities industry. The Protocol Newsletter features issuers, issuance platforms, marketplaces, broker-dealers, custodians, marketers, and more, with a specific interest in their real-life stories about what it takes to issue and manage digital securities on public and permission-based blockchains. Our goal is to provide the digital securities industry with invaluable insights and to serve as a resource for those looking to issue digital securities in the future.
In this issue, we will be taking a closer look at Alto.
We spoke with Eric Satz, Founder and CEO of Alto about the alternative investment space and why he's chosen a focus on digital securities.
1. What is Alto IRA and how does it work?
Alto is a self-directed IRA provider and online investment platform that makes it easy and cost-effective for individuals to invest their IRA funds in alternative asset investments, such as private company stock (private equity and venture capital), funds, credit products, cryptocurrency, securitized art, and other unregistered investment products and securities.
You can use your Alto IRA to invest in an alternative asset opportunity directly or via one of Alto’s platform partners, like Securitize.
2. Before Alto IRA, how hard was it for someone to invest in alternative assets using their IRA?
Prior to Alto, it seemed like most self-directed IRA custodians hadn’t altered their people- and paper-burdened processes since ERISA was created in the early 1970s. Investors were required to do all the work while the custodians collected fat fees. From beginning to end, the process could take you between 4 to 8 weeks. It was unnecessarily complicated. It was expensive. And the rules and requirements seemed to change depending on who answered the phone at your custodian.
In contrast, we built Alto’s technology platform from the ground up to remove the frustrations and roadblocks traditionally associated with the self-directed IRA industry. It is meant to be easy, straightforward, and cost-effective for every investor. And, of course, fast.
3. What is compelling about alternative investments and why have you chosen to focus on them?
Even though ERISA allows for it, traditional 401(k) and IRA custodians (Fidelity, Schwab, etc.) do not readily offer support when it comes to investing in most alternative assets, and as a result, most investors are left with commodity, over-sold investment choices in their retirement accounts, such as index and mutual funds and a decreasing number of public companies that have been shown to underperform alternative asset portfolios over time. Because savings in retirement accounts accumulate tax-free, they are perfect for long-term, high returning illiquid assets that require time to grow in value.
In addition, because access to alternatives has been limited and, historically, investment execution with a self-directed IRA has been difficult, alternatives currently represent less than 2% of Americans’ retirement portfolios, as compared to 40-50% of professional, institutional investors like pension fund and endowment managers.
Retirement funds represent a majority of savings in this country, and we need them to work harder for us if we are actually going to have a retirement choice. Alto’s mission is to help see that happen.
4. Do you help people make the right investment decisions with their IRA or protect them from making bad ones? If so, how?
At Alto, we let you invest in what you want without imposing investment criteria or advice. Using a self-directed IRA means you choose your investments. We have built-in features to the platform to help ensure you don’t invest in a transaction that is prohibited by the IRS, but we don’t offer investment advice.
5. Why have you put an emphasis on digital securities?
We believe digital securities are the future of investment compliance and record keeping. Digital securities will allow for efficient proof of ownership, which may lead to attractive secondary market exchanges and significantly greater investment liquidity. We are big believers in investment portfolio diversification, and digital securities have the potential to streamline the entire investment process -- from identity verification, suitability requirements, accreditation checks, subscription, and custody to third party exchange -- irrespective of asset class.
6. What factors do you think are most important for the success of the digital securities market?
Just one: continued regulatory support and approval. So long as this continues, together with industry leaders like Securitize, mass adoption will follow in due time because the economics of doing so cannot be ignored.
7. How does integrating with companies like Securitize serve your customer base?
Our goal is to custody the alternative assets our customers want to invest in, and if they want to invest in assets evidenced by digital securities then we need to be able to custody digital securities. It is really that simple. Longer-term, as secondary markets develop on a digital security backbone, we will be positioned to improve our customers’ access to liquidity.
8. Take us 10 years into the future and describe the alternative investment landscape and Alto’s place in it.
In the future we envision, all investors have the right, with an appropriate level of protectionary measures, to invest in all asset classes, and the random limitations around the number of participating investors in a privately-held vehicle are eliminated. In addition, all 401(k) plans are required to have a self-directed alternative asset investment option. As such, everyone with a retirement account will have the same opportunity for outsized returns that, to date, have only been accessible to the uber-wealthy.
Interested in learning more about the Securitize <> Alto integration? Join the waitlist.
Alto gives individual investors the ability to access and execute alternative investments with their retirement funds. Alto provides custody for a wide array of alternative assets, including private companies, real estate, cryptocurrency, loans and securitized collectibles. Alto's cost-effective and hassle-free platform streamlines the process for companies, funds, and SEC-registered investment platforms to include IRA investors in their offerings. Some of Alto's current investment partners include: AngelList, EquityZen, Masterworks, and Wefunder. Launched in 2018, the Nashville-based firm provides investors with an opportunity to achieve true asset diversification in their portfolios while maintaining the tax advantages of investing with their retirement funds.
For more information, please visit www.altoira.com or follow us on LinkedIn and Twitter.
Securitize delivers trusted global solutions for creating compliant digital securities. The Securitize compliance platform and protocol provide a proven, full-stack solution for issuing and managing digital securities (security tokens). Securitize’s innovative DS Protocol has the highest adoption rate in the industry and enables seamless, fully compliant trading across multiple markets simultaneously. Multiple Securitize powered digital securities are already trading globally on public marketplaces with many more in the pipeline.
To learn more, please visit our website.
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