Options for Growth

According to Jon Najarian, co-founder of optionMONSTER (which provides stock market insight, option trade ideas and options education) and CNBC commentator, “More and more RIAs are contacting us to learn about income-oriented options strategies and are looking for services that are specifically designed to assist RIAs and FAs in locating opportunities that bring in extra income for their client’s stock holdings.” Hence, he says “there are a number of individuals in the advisor community who subscribe to our services that assist with this, such as our Covered Call Investor and InsideOptions Pro.”

Further developments in technology include the rollout by Interactive Brokers (IB) of a new product offering for their SMA accounts, which underscore the growth in options interest from the wealth management community. Steve Sanders, senior vice president of business development and marketing for IB, explains that the platform will ultimately have a “community portal” that allows wealth managers easier access to risk manager relationships via a single separately managed account structure where they can review the performance metrics and fees of options managers they do not currently employ. In real time and through a single login, a wealth manager can immediately allocate funds to each manger. He adds, “While IB has historically designed product offerings on a ‘build it and they will come’ approach, this innovation has been completely built by the requests of the advisory community.”

Another way to incorporate options strategies into client portfolios is to outsource to a group that provides options-based investing solutions. Stephen Solaka, co-founder and managing partner of Belmont Capital, which manages hedged ETF portfolios (Dynamic Collar ETF) and offers single stock risk management solutions for independent wealth managers through Schwab and Fidelity separate account platforms, added that there is trepidation from financial advisors in placing the orders as they don’t want to make a mistake. “That’s why they use Belmont Capital (and similar firms or funds) as the intermediary to implement options strategies,” he said.

Getting Started
More than a third of financial advisors who use options increased their use of options over the past few years and one in three say they intend to increase it going forward, the Bellomy study found. Also, nearly all options users who feel confident in their ability to explain options would be interested in learning more. Solaka thinks more financial advisors will be using options in the next three to five years because “they allow the advisor to directly manage risk,” and the growth in options with financial advisors would be coming from the independent side. Finally, Hartmann of The Pelican Bay Group believes that the fixed income asset class is currently unable to meet the income targets of its clients and says, “Financial advisors need to start getting comfortable with the process and the solutions.”