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Options Usage Means More High-Net-Worth Clients, Study Finds: RIS 2011

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Advisors who use options have larger books of business and tend to be more experienced than advisors that do not use options.

That’s the takeaway from a standing-room only breakout session Monday in Boston at the 4th annual Retirement Income Symposium. The session was presented by Eric Cott of the Options Industry Council, an organization created to educate investors and their financial advisors about the benefits and risks of exchange-traded equity options. He was joined by Margaret Rorick, vice president of financial services research for Bellomy Research, whom Cott commissioned for a comprehensive study of how advisors use options, and their contribution to client recruitment and retention.

“The results correlate with Harris Interactive studies of individual investors that find options users are more affluent and more knowledgeable than investors who don’t use options,” he said.

Cott noted that nearly half (48%) of advisors used options last year, more than one-third increased their use of options over the past few years and one in three say they intend to increase their use going forward.

However, he did add that options users are more likely than nonusers to be found in wirehouses and regional broker-dealers, which he said suggests those brokers and advisors receive more product support than in other advisor channels.

“The reason the use of options by advisors is on the rise is because of current market conditions and because of a shift in client attitudes,” Cott said. “Clients are asking for ways to avoid the losses of the past few years and enhance their returns in the current market. It’s important that much of this activity is client driven.”

Options strategies are most commonly used for income generation and hedging, which he said “busts the myth of speculation as the primary attraction of options.”

“They are mainly used to generate, usually with covered calls,” he said. “That is followed by hedging an existing portfolio. After that, they are mainly used to acquire stock at a later date and diversify a portfolio; locking in profits on existing investments and lastly speculation then round out the top five uses.”

Cott concluded that half of all advisors feel confident in their knowledge of options and 80% of advisors who use options feel confident in the level of their knowledge.

“Nearly all options users who are not confident in their ability to explain options would be interested in learning more about options, as would half of nonusers,” he said. “These are the advisors OIC’s educational efforts are intended for and OIC will work to fill that need.”


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