As market volatility continues to raise client concerns, alternative investments are gaining traction as a way to smooth out the highs and lows for investors. That means financial advisors are bringing investments like long-short funds, real estate, tax liens, precious metals and non-traded REITs into their portfolios. 

Slightly more than 81% of financial advisors and other investment specialists are now using alternative investments for their clients, up from 74% a year ago, and nearly 69% plan to increase their use of these investments during the coming year.

The growing popularity of these vehicles was reflected in a recent survey conducted by Financial Advisor and Private Wealth magazines and SkyBridge Capital, an alternative asset manager with $6.3 billion in assets under advisement or management. The survey included 925 registered investment advisors, registered representatives and other wealth managers.

Although it seems everyone's definition of an alternative investment is slightly different, most advisors who are enthusiastic about them say they come to this space because of its non-correlation to the rest of the market.

"Stocks, bonds, cash and alternatives are becoming the four-legged stool for ultra-high-net-worth investors," says Gerald Dubey, the co-founder, along with Richard Cyphers, of the Cyphers Dubey Group in Hartford, Conn. The group is affiliated with UBS, and most of its clients have between $25 million and $75 million in assets.

"Alternatives and managed funds of hedge funds take the volatility out of the market," says Dubey. "You have to get over the three layers of fees, and we put that on the table for the client in the very beginning."

Dubey will use alternatives for as much as 20% of his clients' portfolios, and even go higher if short-term liquidity is not an issue, which is often the case.

Most of the survey respondents were RIAs or reps for broker-dealers. Nearly 38% of the respondents handle accounts of less than $500,000, but others deal with high-net-worth and ultra-high-net-worth clients. Most respondents (60%) have been in the financial business for more than 15 years.

A majority of the respondents (65%) said the market's volatility has them looking for ways to diversify their clients' portfolios, while 25% of them said the diversification depends on the needs of each client.

A minority, slightly more than 18%, do not use alternative investments; 55% of those respondents say they have achieved good returns on investments without these vehicles.