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Using Alternatives to Retain Clients

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As markets become more challenging, advisors seeking to insulate client portfolios from market volatility are borrowing a page from the playbook of institutional investors, by increasingly turning to alternative investments. Defined as any investment outside of stocks, bonds and cash, alternatives are generally uncorrelated to the general market and are well-known for their potential to enhance portfolio diversification. But what you may not know is that alternatives can potentially differentiate your advisory practice from others–which could be key to retaining existing clients and acquiring new ones.

It’s no surprise that advisors are increasingly using alternative investment products to enhance returns and mitigate risks. In fact, more than half (55%) of advisors estimate they will increase their use of alternatives by up to 25%, while 13% believe they will boost their use of alternatives by more than 75% (see Practice Edge January, 2008). However, many investors are not familiar with these investment products. According to a recent Rydex survey of individual mutual fund and ETF investors, 75% of investors don’t know what alternative investments are and less than one percent consider themselves very knowledgeable about alternatives. What’s more, 40% of investors don’t feel that enough information on alternative investments is available to them. And the number one reason investors don’t invest in alternatives is that they don’t know enough about them.

But they want to know more. Half of investors surveyed (50%) indicate a desire to receive more information about alternative investments via an investment advisor. When presented with a description of alternative investments, 60% of investors said they would consider investing in alternatives if their advisor recommended it.

So what does this mean to you? Opportunity. You have the opportunity to educate your clients on these investment options and their potential benefits. By sharing this information, you’re allowing clients to better understand your investment approach and become more aligned with your practice.

Education is just as important with prospective clients. Given the potential benefits of alternative investments (greater diversification, reduction of overall portfolio risk and more consistent returns over time), it makes sense that nearly half (45%) of investors surveyed would be more interested to work with a financial professional who offers them than one who doesn’t.

A good starting point for talking about alternatives may be clarifying your clients’ expectations for their portfolios. The Rydex investor survey* revealed that 64% of individual investors expect returns of 5%-10% for the next year, with 24% expecting portfolio returns of 11%-15%, 4% expecting returns of 16%-20% and 7% expecting returns of 20% or more in 2008. Keeping in mind that, according to the survey, total return maximization is a top goal for 59% of investors, raising the subject of alternatives may be a nice lead-in to a discussion on which investments could help in reaching that goal.

The time is now as investors become increasingly sophisticated about investing and more interested in diversified products for their portfolio. Take the time to understand your clients’ knowledge level of alternative investments and their expectations of the market. Check with them often to see if these expectations have changed.

As you gain a clearer understanding of their expectations, you’ll be able to better explain how alternatives could play a role in meeting them. You should promote your alternatives expertise by the way you position and market your firm. Use your web site to highlight your use of alternatives, or focus an article in your firm’s newsletter on alternative investments.

Your efforts to educate existing and potential clients on how investing in alternatives may benefit their portfolios will not go unrewarded. And in the end you’ll have smarter, more satisfied clients. Can your business afford not to put the word out?

*(Rydex Investments and e-Rewards conducted this survey of individual investors in March 2008. The survey was conducted with 500 individual mutual fund investors. All participants had investable assets of more than $250,000, with 150 having investable assets of more than $500,000. e-Rewards is not an affiliate of Rydex Investments. These results are provided for information purposes only and should not be considered as investment advice or as a recommendation of any specific security or strategy. The information contained within is not an offer to sell or solicitation of an offer to buy any Rydex funds.)

For the complete alternative investor survey results, please contact Maya Ivanova at [email protected].

The 2008 Rydex AdvisorBenchmarking survey is now open. All advisors who take the survey will receive a $5 Starbucks gift card and a free copy of the 2008 study when it is published this summer. Visit to see how your firm stacks up to the rest of the industry by viewing dynamic charts that show industry sentiment compared to your firm.

Maya Ivanova is a research analyst with Rydex, an affiliate of Rydex Investments. She can be reached at [email protected].

If you would like to receive any of the following research reports via e-mail, please contact [email protected].

The Advisor Confidence Index monthly release;

AdvisorBenchmarking’s Comprehensive Analysis of the RIA Marketplace Study;

AdvisorBenchmarking Media Exposure Series.

To receive a customized benchmarking analysis of your practice, visit the free online tool

AdvisorBenchmarking, Inc., an affiliate of Rydex Investments, is a research and analysis center focused on the RIA marketplace Through its web site,, the firm conducts multiple advisor surveys every year covering a host of business management and investment-management practices. The findings and analysis of the data are then released to the marketplace in the form of annual studies, quarterly research notes and monthly newsletters. The service is aimed at helping advisors grow and enhance their firms by comparing how their businesses fare against other advisors, as well as learning best practices of the most successful advisors.


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