Advisors are increasingly turning to alternative investments, not as a source of outsized returns, but rather to provide true diversification to clients’ portfolios, according to a new Rydex|SGI survey of registered investment advisors, broker/dealer reps, and wirehouse brokers. In fact, 81% of RIAs and 78% of brokers surveyed cite diversification as the main reason for adding alternatives to the investment mix.

Although the majority of RIAs (96%) and brokers (95%) said they already employ alternatives in their client portfolios, the Rydex|SGI study found that alternative investment usage and awareness is in the “adolescent” stage for RIAs versus the “infancy” stage for brokers. Only 8% of RIAs say that they have “little familiarity” with alternatives compared to 16% of brokers. Overall, advisors indicate a significant appetite for additional education regarding alternative investments, with RIAs universally wanting to enhance their knowledge and 86% of brokers saying they would carve out time to learn more about using alternatives.

“This is not a fad,” said Richard Goldman, Rydex|SGI’s CEO, at a press briefing on the study. “There is a burning need, because of the acceleration in the use of alternatives for education.” Sanjay Yodh, Rydex|SGI’s managing director for alternative strategies and the executive spearheading Rydex|SGI’s advisor education effort, added that the proper use of alternatives in a portfolio is to provide investments that do not move in lockstep with stocks and bonds. “It’s about managing risk,” he said.

To meet varying levels of advisor sophistication regarding alternative investments, the firm plans to introduce a four-tiered educational program that addresses a range of issues. The first step provides an introduction to the world of alternatives, while step two deals with crafting a portfolio, followed by a discussion on selecting investment products. The final level deals with advanced topics such as, “How do these strategies really work?” and “What other issues should be considered?”

Rydex|SGI currently conducts ongoing educational roundtables and workshops, and recently introduced, an interactive Web site geared toward helping investors better understand alternative investments.