Physical exercise: Some of us do it regularly. We all know that we should. It's a lot like financial advisors' adoption of alternative investments. Alts make up a tiny percentage of client portfolio allocations even though 73% of the advisors we canvassed believe it should be higher. Why the big gap between belief and behavior? Because like exercising, adopting alternatives is not necessarily easy: it takes skill to select among myriad options, and alts are, on average, more expensive than vanilla investments.

The cost of not incorporating alternatives into one's practice goes far beyond a missed opportunity to improve client outcomes, though. Advisors who are still dragging their feet are missing a key business-building opportunity. Here's why:

  1. It's not 2013 anymore. When markets went up in a straight line, clients weren't necessarily appreciative of anything besides cheap beta, e.g. passive exposure to markets through ETFs. Alternatives were perceived as ho-hum— or worse. Today, of course, markets are volatile and yields are still abysmal. Investments with alternative return drivers have a clearer value proposition.
  2. In these markets, you need all the intellectual capital you can get. Top alternative investment managers employ some of the most innovative thinkers in the industry. Advisors who partner with them benefit from their networks, insights, and reputation.
  3. First mover advantage is up for grabs: Sure, alts writ large have seen explosive asset growth among individual investors, which means plenty of advisors have guided their clients to alternative strategies. But a lot of that money has gone into a fairly narrow set of traditional structures — mainly ETFs and '40 Act mutual funds. In contrast, not even 2% of Financial Advisor respondents to Morningstar's 2014-2015 Alternative Investments Survey listed private equity or venture capital among the fastest-growing components of their alternatives allocation. Advisors who make these more sophisticated offerings part of their solution set are in a position to differentiate themselves.
  4. People like to invest in what they know, and your most affluent clients know the private businesses and property deals that generated their original wealth. Members of TIGER 21, the peer-to-peer learning network of high-net-worth individuals, are allocating an average of 23% to private equity, the highest concentration in the club's history. TIGER 21 Founder and Chairman Michael Sonnenfeldt attributes the popularity of PE among his constituents to the prevalence of first-generation wealth creators in the group. So, whether your wealthy client is an early Snapchat employee about to realize an IPO windfall or her company is one of Marissa Mayer's lucky acquisition targets, someone who has recently divested from a successful enterprise will likely want to replace the rate of return they enjoyed and is apt to believe in getting there by similar means.
  5. Wealthy individuals have lots of cash to put to work. 22% of their portfolios, to be exact, according to CapGemini's 2016 World Wealth Report. In its most recent survey of affluent investors, U.S. Trust also notes a high cash allocation and observes that the motivation for staying liquid is not pessimism but a desire to be nimble and capitalize on opportunistic investments.

As we head into an uncertain year when public markets may seem less safe than private, investors are seeking worthwhile places to deploy capital. The ball is squarely in the advisor's court.

James Waldinger is CEO of Artivest, a tech-driven investment platform expanding access to private equity and hedge funds for financial advisors and their HNW clients.