While many high-net-worth investors get advice from friends, family and sources on the internet, the majority — 72% — rely on financial professionals such as their advisors for investment information, according to research by Millennium Trust. In fact, financial professionals are over three times more relied on and trusted than the next trusted investment source: 51% of HNW investors trust financial professionals more than competing sources, including family, which is the most trusted source for only 13% of investors.
When advisors discuss potential investments with clients, they often focus on traditional options like stocks, bonds and mutual funds. As our research shows, however, many HNW investors are interested in alternative investments, such as hedge funds, private equity, real estate, commodities, marketplace lending and crowdfunding.
For example, 63% are moderately or extremely interested in investing in real estate and 46% report the same level of interest in private equity. But when it comes to discussing those investments with their broker or advisor, the numbers are significantly lower: Just 25% have discussed residential rental properties, 20% commercial rental properties, 23% real estate investment trusts, and 27% real estate limited partnerships, whereas 38% have discussed private equity.
The gap between investor interest in alternative investments and the level of discussion surrounding them presents an opportunity for advisors. Conversations about alternatives have the potential to deepen advisors’ dialogue with clients, adding value to the relationship for both parties.
One reason advisors may shy away from these discussions is a misconception of alternative investments as too risky or inefficient. In reality, however, these investments can enhance returns and add a valuable level of diversification to a portfolio, helping to decrease the impact of volatility and provide additional opportunities for tax-deferred growth potential, if invested using a retirement account.