Rather, clients generally have exposure to many funds, across different managers and asset classes. To enable financial advisors to manage all of this adequately, alts platforms must allow for consolidation of each of these items. While no advisor should have to tackle these items themselves, that’s precisely what some alternative investment platforms force them to do.
• Removing conflicts in how funds are selected for the alts platform. Ideally, alternative investment platforms only offer funds that have been fully vetted by a team of due diligence and investment professionals, therefore removing subjectivity, and providing access to managers that have a long-established track record of investing through multiple market cycles. Unfortunately, that’s not what always occurs.
It has become increasingly common for platforms to accept some sort of compensation from the funds in return for distribution, a practice that is conflictive in nature with providing objective advice. Indeed, it not only creates conflicts for the platform in terms of fund selection but ultimately dilutes the quality of products that advisors push to end clients. To minimize potential future headaches, financial advisors should kick the tires carefully with potential alts platform partners to ascertain whether their manager selection process is truly conflict free.
Due to their lack of access and understanding, many financial advisors have kept alternative investments at arm’s length. But with stocks taking a beating and the uncertainty surrounding the economic environment, they are increasing their appetite for such vehicles. If advisors are going to help their clients invest like their institutional peers, they should have access to the same sort of resources that they do. Sadly, most do not.
Steven Brod is CEO of Crystal Capital Partners, an alternative investments platform for financial advisors.