Data & Research March 4, 2024

Advisers Face Obstacles to Incorporating Alternative Investments

Only one-quarter of advisers even have access to alts, according to Fidelity.

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Proper evaluation poses a significant obstacle to the adoption of alternative products, according to a series of recent Fidelity studies that found only 26% of financial advisers currently have exposure to alternative investments, compared with 86% of institutional investors.

The firm found that as alternative investment strategies evolve rapidly, advisers are seeking additional resources to evaluate these opportunities effectively before recommending alts to their clients. More than 54% of advisers highlighted investment manager research as their main reason for initiating or expanding their usage of alternative investments, Fidelity found in 2021.

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Advisers identified due diligence on underlying strategies and managers as obstacles when investing in alternative investments, specifically noting challenges with alternatives that offer intermittent liquidity (53%) and are illiquid (55%). In a separate 2023 study, more than half of advisers said they had difficulty communicating the investment strategy to clients when engaging in alternative investments.

With that in mind, Fidelity announced the expansion of its research offerings to include research notes on third-party registered alternative investment strategies. Available through Wealthscape, Fidelity’s platform for advisers, the alternative investment research portal enables advisers to review research on various private credit, private real assets and private equity funds.

“Alternative investments are becoming more widely accessible, but many advisors lack the resources to determine how to incorporate them in their portfolios,” said Darby Nielson, CIO of Fidelity’s institutional group, in a statement. “Fidelity is committed to providing advisers with the tools and resources they need to make informed decisions and excel in the alts space, helping investors reach their financial goals.”

When it comes to what allocations advisers should consider for alternatives, Nielson said in a video on Fidelity’s website that it should be personalized.

“The first thing I would say is: It depends on the investor,” Nielson said. “It depends on the investor’s time horizon, liquidity needs and eligibility for different alternative structures.”

Such personalization requires advisers understand the nuances of available options, underscoring the need for additional research.

Separate research from CAIS-Mercer, meanwhile, in the latest edition of its annual alternative investment survey, found some hurdles ahead for alts investing, but indicated financial advisers are extremely likely to boost client portfolio exposure to alternative investments.

In the survey of 260 financial advisers, 85% said they expected to increase allocations to alternative asset classes in 2024, as measured by CAIS Capital LLC, a firm that connects advisers to alternative asset managers, and consultancy Mercer, a Marsh McLennan company. Of that group of advisers, 62% already allocate between 6 and 25% of their clients’ portfolios to alternatives, according to the study.

The Fidelity studies referenced include “Fidelity Study of Allocations to Alternative Investments by Institutions and Financial Advisors” from June 2023; “Alternative Investment Survey” from April 2021; and “Alternative Investment Survey” from October 2023.

Data & Research March 4, 2024

More Than 21.9M People Will Qualify for Saver’s Match, EBRI Says

The Saver’s Match will replace the Saver’s Credit in 2027, making it a direct government matching contribution into an IRA or eligible retirement plan.

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The Employee Benefit Research Institute estimates that at least 21.9 million workers will qualify for the Saver’s Match, created under the SECURE 2.0 Act of 2022.

The Saver’s Match is scheduled to begin being paid in 2027. It converts the Saver’s Credit, a tax credit for lower-income workers who contribute to a defined contribution plan or individual retirement account, into a federal government match. The match has a maximum value of $1,000 at a rate of $0.50 per dollar contributed by a worker.

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Single workers making up to $20,000 qualify for the full amount, with the match amount gradually decreased in a phase-out range up to $35,000 in annual income. For married filers, those with combined income of up to $41,000 qualify for the full amount, with the phase-out range going up to $70,000. The match would be paid to eligible taxpayers’ retirement plan after the worker applied for it, according to the institute’s paper.

EBRI’s information is based on W-2 data published by the IRS and on data from the monthly Current Population Survey sponsored jointly by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics. The most recent taxpayer data available is from tax year 2018, filed in 2019. Using tax data, EBRI found that about 83.8 million people would qualify. But because the provision applies to income from earnings, EBRI narrowed its consideration to households filing W-2s with qualifying amounts of income, which reduced the number of potentially eligible taxpayers to 69 million.

From there, EBRI used W-2 data on contributions to a defined contribution plan, a traditional IRA or a Roth IRA. When accounting for taxpayers who contributed to more than one account type, EBRI found that 18.9 million eligible workers had contributed to a DC plan, 2 million to a Roth IRA and 1 million to a traditional IRA, totaling 21.9 million people.

Those eligible who contribute to a Roth IRA can still claim the match but must receive the match into a traditional IRA, since the federal matching contribution would be made using pre-tax dollars.

EBRI cautioned that the true number of eligible participants today is likely higher, and the figure 21.9 million should be interpreted as a lower bound. Since the data used for the estimate is from 2018, the true figure in 2024, and in 2027 when the match comes into effect, likely is and will be higher.

The report also did not account for anyone who may qualify due to 1099 income or taxpayers at the highest ends of the phase-out ranges who would be receiving very small amounts as a match.

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