Seventy-eight percent of retail advisors are using alternative investments within client portfolios, according to a new report.
Cogent Research LLC, Cambridge, Mass., published this finding in a summary of results from an annual report, 2011 Advisor Brandscape, that is based on a nationally representative survey of 1,643 retail investment advisors. The report includes a new section on advisors’ usage and attitudes regarding alternatives.
The primary reasons that advisors are using alternatives, the study says, are to further diversify portfolios (83%), manage risk (80%) and achieve absolute returns (54%). By contrast, fewer advisors than in prior years are using alternatives to deliver returns above a benchmark (20%) or for tax management purposes (19%).
Cogent found that advisors now allocate an average of 11% of their book to alternatives spread across a variety of different products.
Independent advisors, the heaviest overall users of alternatives, show the strongest preference for venture capital, private equity, and hedge funds. Bank advisors have a greater appetite for limited partnerships and RIAs tend to use structured products/notes.
“It was somewhat surprising to us to see such broad and consistent use of alternatives, not only across channels, but also based on assets under management,” says John Meunier, Cogent principal and author of the report. “Clearly, advisors of all stripes and tenure have embraced the notion that managing client portfolios in today’s environment requires the tools to provide greater asset-class diversification and better risk management strategies.”
Among the 22% of advisors not currently using alternatives, almost half (47%) admit that their own lack of lack of knowledge is holding them back, the study concludes. Meanwhile, 52% of current alternative investment product users indicate that a lack of client knowledge and sophistication is
preventing them from embracing alternatives further.
Forty-one percent of advisors currently using alternatives indicate they will increase their use of ETFs and 28% will increase their use of mutual funds to access alternatives.
–Warren S. Hersch