The vast majority of advisors hold alternative investments in clients’ portfolios, at least occasionally. These advisors are looking to alternatives primarily for diversification and uncorrelated return, and to a lesser extent for risk mitigation/downside protection. Those reasons for investing in alternatives hold true across channels.
Fully half of advisors say they sometimes invest in alternatives at clients’ request, suggesting that clients are an important driver of the growth in this sector. Client requests are particularly important to advisors who work for insurance firms (73% always/sometimes use alternatives because of client direction) and wirehouses and regional/national firms (70%).
Click to EnlargeMeanwhile, just 5.57% of advisors say they never invest in alternatives. Although this minority is small, it is extremely vocal about its dislike for the asset class. For example, an RIA who has been in the industry for more than 25 years says “ignorance and delusion” are the main driving forces behind the use of alternative investments, while an RIA with 13 years of experience says “financial journalists bored with traditional investments” are the instigator. The latter advisor argues that alternatives offer “very little demonstrated historical benefit vs. traditional investments.”
Next Part 3 of 5: Obstacles to the Use of Alternatives
