Alts Provide Practice Differentiation. Why Aren’t More Advisors Using Them?

Cerulli Associates, Invesco, and the Investment & Wealth Institute have written a new ‘playbook’ for advisors about alternative investments.


Illustration by RIA Intel

The majority of advisors believe that alternative investing allows advisors to differentiate their practices from their competitors, attract high-net-worth clients, and consolidate and retain assets under management, according to a new report by Cerulli Associates, Invesco, and the Investment & Wealth Institute.

However, half of the 200 advisors surveyed by Cerulli report an alternative allocation of 5 percent or less. Advisors surveyed said that 13.3 percent was the optimal alternative asset allocation.

Advisors remain the main driver of alternative investments from retail.

“Alternative investments are generally advisor-sold. So, it’s up to the financial advisor to have that conversation with a client and to get them interested in the alternative investment,” Daniil Shapiro, director at Cerulli, told RIA Intel.

Shapiro said investors without advisors have a hard time making quality alternative investments because they often must rely on crowd funding. “From that perspective, the fact that financial advisors are able to act to offer alternative investments to their clients is actually a tremendous benefit,” he said.

Private companies are an outsized driver of wealth, but one that has been historically limited to a small group of ultra-wealthy or institutional investors.

However, in recent years, advancements in product development have increased accessibility to alternatives and lowered some of the barriers investors and advisors have faced.

According to the report, 56 percent of advisors said the enhanced liquidity of alternative investments would drive increased allocations. Fifty-two percent said the same thing about increased transparency.

The report highlights the ways adding private market investing can help grow an advisor’s practice.

According to Cerulli, advisors can use alternative investments to enhance return potential, grow income potential, and add diversification for clients. This helps advisors differentiate their practices.

Still, alternatives have high barriers to entry.

They’re complex, illiquid, and require advisors to do comprehensive due diligence and evaluate their client’s suitability.

This is not an easy asset class to invest in, it requires a commitment on behalf of the advisors to educate themselves and their clients, said John McDonough, head of U.S. wealth management Intermediaries distribution at Invesco, which manages $180 billion in alternatives.

McDonough said that Invesco, like other asset managers, has invested in creating resources to educate advisors.

“It’s really just the desire of the advisor to create the time and energy to follow through on the whole educational ecosystem or journey that they’re going to need to embark on,” McDonough said.

McDonough said this report is the first step in Invesco’s effort to launch a private markets playbook platform for advisors, which includes a place to connect with clients. The company hopes to launch the platform in the next year.

According to Cerulli, retail assets are growing faster than institutional.

“This is a rapidly shifting landscape,” said Shapiro. “We find it important to provide this kind of information to the market and we want to make sure that it’s balanced information. These products are complex and alternative investments can also be expensive, but there are often good reasons for those expenses.”

Related Articles