Why are more financial advisors using alternative investments? FactRight's Scott Smith answers this timely question.
The question of why financial advisors are using alternative investments is really a question of supply and demand. You are seeing more demand for alternative investments because more individuals are retiring and they need more income in their portfolios. You are seeing a higher supply because institutional-style asset managers are now seeking more capital from the retail channels within wealth managers.
Why are alternative investments useful for advisors?
Advisors are looking at alternative investments in the more traditional way, which has a low correlation to the general markets. This is commonly how alternatives have been used in portfolio construction. But now we are seeing so many different alternatives, that many of them can supplement and complement the traditional 60/40 equity bond type of portfolio construction.
As time goes on, we expect to see more alternative investments used by financial advisors. Their clients are aging, their wealth is increasing, but they still need access to income.
So then the question ultimately becomes: Will there be enough education and resources available to the financial advice community so that they can take full advantage of these alternative investments?
