Financial advisors increasingly prefer to use liquid alternatives for their clients, but will require more effective sales support from product providers and distributors to grow the market beyond a small group of heavy users, according to a new report, titled Financial Advisors and Liquid Alternatives 2013 – Insights and Opportunities, published by Practical Perspectives.
The analysis reviews how advisors use mutual funds, ETFs, and variable annuity sub-accounts across a variety of alternative strategies including real estate, commodities/natural resources, managed futures, multi-strategy, global macro, absolute return, long short, market neutral, hedged equity, managed volatility, currency, and private equity strategies.
It also examines differences across key distribution channels including wirehouses, regionals, independents, banks and RIAs.
The report's findings on the subject include the following:
While more than 9 in 10 advisors using alternatives rely on liquid alternatives, most advisors have less than $10 million in total assets across liquid alternative strategies.
Real estate and commodities/natural resources are the specific approaches used most often by advisors but at least seven other alternative strategies including multi-strategy, global macro, and absolute return are used by more than 60% of advisors.
Mutual funds are the preferred way for advisors to access liquid alternative strategies, although many also use ETFs and a significant segment use VA sub-accounts.
According to the report, most advisors using alternatives prefer to use liquid alternatives to enhance portfolio diversification and to manage portfolio volatility and risk. The majority of advisors expect to continue to expand usage in the coming years. While alternatives are used by many advisors, their usage differs widely and provides a basis for targeting sales and communications efforts.
“Liquid alternatives are increasingly important to advisors in serving clients, especially retail investors. This growth has been spurred by the challenging capital markets environment and the expanded availability of these strategies in mutual fund, ETF and VA vehicles,” stated Howard Schneider, president of Practical Perspectives and co-author of the report.
However, Schneider added, "only a small number of advisors have significant assets in liquid alternatives, with many others needing enhanced sales support for these products and strategies. It’s critical for product providers and distributors to understand how advisor use of liquid alternatives is evolving and to focus resources on helping advisors apply these solutions for clients.”
Here is the press release:
Company Press Release
Advisor Use of Liquid Alternative Investments Projected to Increase but Greater Support Needed to Accelerate Growth
New study analyzes use of liquid alternatives among financial advisors
BOSTON, March 12, 2013 – Financial advisors increasingly prefer to use liquid alternatives for their clients, but will require more effective sales support from product providers and distributors to grow the market beyond a small group of heavy users, according to a new report released today by Practical Perspectives, an independent consulting, competitive intelligence, and research firm working with wealth management providers and distributors.
The 66 page report “Financial Advisors and Liquid Alternatives 2013 – Insights and Opportunities” examines the types of advisors using liquid alternatives and what advisors look for when selecting alternatives. The analysis reviews how advisors use mutual funds, ETFs, and variable annuity sub-accounts across a variety of alternative strategies including real estate, commodities/natural resources, managed futures, multi-strategy, global macro, absolute return, long short, market neutral, hedged equity, managed volatility, currency, and private equity strategies. It also examines differences across key distribution channels including Wirehouse, Regional, Independent, Bank and Registered Investment Advisors (RIAs).
Most advisors using alternatives prefer to use liquid alternatives to enhance portfolio diversification and to manage portfolio volatility and risk. The majority of advisors expect to continue to expand usage in the coming years. While alternatives are used by many advisors, their usage differs widely and provides a basis for targeting sales and communications efforts.
“Liquid alternatives are increasingly important to advisors in serving clients, especially retail investors. This growth has been spurred by the challenging capital markets environment and the expanded availability of these strategies in mutual fund, ETF and VA vehicles,” says Howard Schneider, President of Practical Perspectives co-author of the report. “Yet only a small number of advisors have significant assets in liquid alternatives, with many others needing enhanced sales support for these products and strategies. It’s critical for product providers and distributors to understand how advisor use of liquid alternatives is evolving and to focus resources on helping advisors apply these solutions for clients.”
“The audience for liquid alternatives is definitely expanding,” notes Richard Gauger of Practical Perspectives, the report co-author. “Yet many advisors still lack detailed familiarity with many of these strategies. We find that advisors satisfaction is lagging relative to the importance they place on factors such as sales support, product research, and due diligence. Since there is a direct correlation between satisfaction with support and advisor use of these strategies, product providers and platforms need to focus resources more effectively on differences that exist among users of liquid alternatives.”
The analysis is based on over 330 on-line surveys conducted in January 2013 with financial advisors and representatives, as well as interviews with advisors and industry executives. Those surveyed include full service brokers, independent brokers, financial planners, Registered Investment Advisors (RIAs), and bank/insurance representatives.
Other highlights of the report include:
· While more than 9 in 10 advisors using alternatives rely on liquid alternatives, most advisors have less than $10 million in total assets across liquid alternative strategies.
· Real estate and commodities/natural resources are the specific approaches used most often by advisors but at least seven other alternative strategies including multi-strategy, global macro, and absolute return are used by more than 60% of advisors.
· Mutual funds are the preferred way for advisors to access liquid alternative strategies, although many also use ETFs and a significant segment use VA sub-accounts.
· Advisors use a wide variety of firms to access liquid alternatives, with only a limited number of product providers having significant user “mindshare”.
· Many advisors express limited satisfaction with how alternatives performed in 2012, although most believe alternative asset classes are important in constructing portfolios.
Our report offers a unique, in-depth advisor driven view of liquid alternatives. Financial professionals are crucial to integrating liquid alternatives into retail portfolios, so it is important to have insight on the profile of advisors using these solutions” says Mr. Gauger.
Adds Mr. Schneider: “There is little doubt that product providers and distribution platforms are stepping up efforts to help advisors implement liquid alternative strategies. Our research suggests that advisors want more support, especially related to areas that are of high importance such as product training and research. We believe the opportunity for growth is significant for firms that step up efforts to satisfy advisors.”
The detailed report includes 47 Exhibits and is available for purchase by contacting: howard.schneider@practicalperspectives.com
About Practical Perspectives
Practical Perspectives provides customized strategic and tactical support to companies involved in the creation and distribution of asset management products and services. Our support is provided for a variety of challenges including marketing, competitive intelligence, product, and retirement issues.
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