Diversification isn’t just for client portfolios. New research shows wealth managers are embracing options to enhance and supplement their clients’ portfolios, as nearly half of all advisors have used options for at least one of their clients in the past year. The Options Industry Council-sponsored Bellomy quantitative benchmark study on advisors’ use of options demonstrates more widespread use by wealth managers across all channels. Financial advisors who use options tend to have larger books of business and are more experienced than those who do not use options.
Options Volume Continues to Grow
Options volume for the month of July was over 348 million contracts, which is a 26% increase over July of last year; year-to-date volume through July 2011 stood at 2.6 billion contracts, up 13% over the same period last year. Additionally, options trading volume has set a new annual record for the last eight consecutive years and is currently on pace for another record year.
Option use among advisors is a response both to current market conditions and to a shift in client attitudes. Clients are asking for ways to avoid the losses of the past few years and to enhance their returns in the current market. Jennifer Hartmann, CIMA senior portfolio manager at Morgan Stanley Smith Barney-The Pelican Bay Group, views portfolio allocation in a third dimension. “We need to not only monitor and be tactical for both the long and short dimension of the client’s portfolio in this current low-interest rate environment, but also seek to provide protection of any downside risk—options are uniquely suited to respond to both.”
Technology is Key
Many advisors express concern over the time commitment and intricacy associated with implementing an options strategy for one client, let alone several. Hartmann acknowledges the concerns of financial advisors that options require additional time and monitoring, but asks, “How else do you expect to stay ahead of the competitors on the street?” Additionally, she points out that, “Technology has been the key that enables our team to manage 930 option accounts across multiple stocks.” The Pelican Group has been managing three distinct covered call strategies through Portfolio Management, an advisory program in which the client’s financial advisor invests the client’s assets on a discretionary basis in a wide range of securities, the most popular among its clients (and the most common options strategy used among financial advisors) for 10 years now.