More Advisers Using Alternative Investments, Study Shows

Nineteen percent of advisers have as many as half of their clients invested in alternatives. And according to the study, they have been correct in doing so.  The study revealed that firms using alternative investments are more likely to have a greater number of clients and assets under management (AUM) compared with those who use little to no alternative investments: firms that allocate at least 10% of client portfolios to alternatives had an average of 536 clients and $651 million in AUM, whereas those with less than 10% allocated to alternatives averaged 436 clients and $223 million in AUM.

“To truly compete with the larger and more sophisticated adviser practices, it is becoming increasingly important to offer alternative investment products,” said Maya Ivanova, research manager for the study.

Rydex|SGI also found that the reason advisers are deciding to use alternative investments more often is not because they want to generate the greatest returns for their clients, but rather to ensure a diversified portfolio.  In 2007, 60% of advisers surveyed said diversification was the primary reason for the use of alternative investments. In 2009, that percentage jumped to 76%.

This trend is not expected to change any time soon, the survey found.  More than half (61%) of advisers expect to increase their use of alternative investments in the next three years, and only 2% expect to decrease their current usage.

427 RIA firms were surveyed for the survey from February through April 2010.   

Alternative investments were discussed by a panel of experts at the PLANADVISER National conference recently.  See “PANC 2010: Moving Beyond Mutual Funds.”