Registered investment advisors have a huge opportunity to develop client relationships using alternative investments with two demographic groups: baby boomers and the millennial generation, young adults born between the 1980s and the 2000s.
Baby boomers may be looking to alternatives to help manage risk. Millennials may be looking to them for their cutting-edge investment options. Alternative investments have an important role to play in both groups, a role that RIAs can help direct.
First the baby boomers. The newspaper columnist Russell Baker memorably described baby boomers as “the pig in the python.” As they have moved through linear time, they have attracted attention, causing society a certain amount of indigestion along the way. Now they are retiring at the rate of 10,000 a day, according to the Pew Research Center.
As the CEO of an alternative investments firm, I have seen this demographic group’s goals change dramatically in 10 years. They want to make money, but they really don’t want to lose money.
Maybe it’s the cumulative effect of their 50 years’ of exposure to the markets—the Dow sinking to 577 in 1974, the prime rate at a debilitating 21% in 1980, the October 1987 crash, the dot-com bust, the 2008 financial crisis—or maybe it’s better explained by behavioral finance and the notion that investors suffer the pain of loss more than they feel the joy of gains. Whatever the reason, they are no longer interested in swinging for the fences.
Alternative investments, with their potential to profit or lose less in down markets, as well as provide non-correlated returns, have obvious appeal to this group. Even more appealing are liquid alternatives, now the fastest growing part of the asset management business.