An overwhelming majority of advisors who use alternative investments in clients' portfolios plan to increase their use in the next year. Of the small group that do not use alternatives, almost all are looking at them for the future, according to a recent survey.
At the same time, there appears to be a knowledge gap for advisors about the uses of alternatives and most say they would welcome guidance from the provider in putting together a portfolio that includes alternatives.
According to a survey of 2,190 financial advisors conducted by Jackson National Life Insurance Company, 95% of the advisors who include alternative investments in clients' portfolios plan to increase their use in the next 12 months. Only 3% of the respondents say their clients do not use alternatives.
The survey was taken at meetings across the country sponsored by Jackson to introduce advisors to Elite Access, a variable annuity designed to provide the potential for portfolio diversification through the use of alternative asset classes.
More than half (54%) of advisors who anticipate increasing their use of alternatives plan to do so by 15% or more. Of the few who do not now use alternatives, 91% are considering doing so in the future.
The primary purpose for using alternatives is for diversification, say 61% of respondents, while 16% use alternatives primarily for portfolio growth.
At the same time, 60% of the advisors said the first or second issue that needs to be addressed is developing an understanding of the asset classes in alternatives and almost as many (58%) say their first or second issue is how an alternative strategy can work within a portfolio.
"The trend toward alternative asset classes among retail investors has been growing steadily for the past several years and this survey highlights the growing demand for new strategies," says Clifford Jack, executive vice president and head of retail for Jackson. "Over the last decade, markets have experienced record volatility. We're entering a new era of diversification and alternative asset classes are becoming a significant part of that development."
However, "the contrast between the demand for alternatives and advisor confidence in their proper utilization highlights a specific knowledge gap for product providers to consider," says the study.
A majority of those surveyed (53%) say they feel it is very important for the third party asset manager to provide a strategy for the use of alternatives, while another 43% say it is somewhat important to have this guided strategy provided for them.
If a guided strategy were developed by the provider, 78% of advisors say they would be more likely to use alternatives. Most advisors say their first or second choice for learning more about alternatives would be one-on-one meetings with wholesalers. Equally as many say their first or second choice of what they need are presentations for the clients.
-Karen DeMasters