Alternative Investments Look Good to Advisors Amid Market Volatility
But few advisors in a Broadridge survey reported satisfaction with the alternative investment choices available to them.
Financial advisors are increasingly looking to alternative investments and private funds amid volatile equity and bond markets, according to results of a newly published survey by Broadridge Financial Solutions.
Despite this surge, advisors in the survey said they lack sufficient options and the right sources from asset managers they need to implement these products in their portfolios.
Sixty-seven percent of survey respondents reported that they use alternative investment products today, up from 59% in the first quarter, and 52% of current users said they plan to increase usage over the next two years.
The survey also found that diversification is the most common reason why advisors lean on these products, cited by 76%, followed by non-correlation with equity markets, cited by 69%.
Most advisors seeking diversification said they did not consider cryptocurrency a viable option. Instead, 70% reported using alternatives such as real estate and real estate investment trusts, 39% use commodities and 35% private equity and venture capital. Just 5% use cryptocurrency, unchanged since the first quarter.
According to the survey, only 27% of respondents who use or plan to use alternatives said they are very satisfied with the private funds and alternative investment products and resources available through their firm, while 16% reported dissatisfaction overall.
“Asset managers are not adequately meeting financial advisors’ needs, despite an understandable surge in demand against the backdrop of volatile public markets,” Matthew Schiffman, principal of distribution insight at Broadridge Financial Solutions, said in a statement.
“We see this as a strong, long-term opportunity for asset managers to showcase their value by providing product options that meet the growing demand for alternative investments among retail investors.”
The survey was fielded in September and completed by 400 registered financial advisors completed the survey.
Advisors Turn to Outsourcing
As the investment landscape becomes more complex and investors demand a high-touch customer experience, vehicles that allow advisors to outsource the investment process and focus on holistic planning continue to grow, according to the survey.
Sixty-nine percent of advisors said they use separately managed accounts today, up from 62% in the first quarter of 2021. Fifty-three percent of current SMA users said they plan to increase usage in the next 12 months.
Respondents also reported that, on average, 57% of their assets under management are in model portfolios. In-house portfolios are on the rise among advisors, with usage rising from 55% in the third quarter of 2021 to 66% in this year’s third quarter.
In addition, of the 85% of advisors who have some awareness of direct indexing, most have used or are considering it; only 32% have never used it and are not considering doing so.