Considering Alternatives

Today’s insurance and financial advisors are vetting “alternatives” as the hot new thing, the exciting opportunity, or the way to go for people on the cutting edge.

This strategy is not something to be undertaken without thinking or planning.

Here are some examples of how it’s playing out:

Insurance professionals are promoting not just life, annuity, disability, long term care and related insurance products and services. Depending on their licenses, some are also offering “alternative solutions”: reverse mortgages, life settlements, separately managed accounts, and more.

Banks reps are talking up not just checking, savings and certificate of deposit accounts, but also alternatives like private banking arrangements, insurance, wealth management, investment strategies. Again, this depends on the licenses they hold.

Securities reps are offering not only the traditional stocks, bonds, and mutual funds but also–depending on licensure–insurance, private investments and a host of so-called “alternative investments” like hedge funds, commodities, real estate, currencies, private equity funds, etc. In fact, alternative investing has become so entrenched that there are websites and publications devoted to the concept, and serious minds routinely weigh in on whether this is a fad or a trend.

Many offer “advice” as an alternative/adjunct to products.

There are reasons for this blossoming of financial alternatives. One is the Gramm-Leach-Bliley Act of 1999, which allows insurance, banking and securities firms to sell one another’s products. Financial professionals, taking this to heart, now often offer products and services previously out of their ken–as alternatives to their primary business focus.

Other reasons: The American preference for having choice, which has created an almost insatiable demand for options; a highly diverse society, which has fostered need for tailored solutions, not one-size-fits-all; the recession of the early 2000s, which all but forced advisors and reps to offer services and products previously ignored; advancing technology, which has made ever more complex designs and innovations possible and popular; and growth in fee-based financial planning, which has made exploring alternatives a matter of routine.

Where “alternative investing” is concerned, a key stimulus has been the search for investments that produce greater returns than more traditional options (ideally with less downside risk). This has given rise to products that blend risk exposures in unique ways.

The alternatives trend involves more than offering one type of product beside another. It’s also integrative, as is very apparent in the insurance sector.