Fee-based financial advisors are asked to do much more for their clients that manage their money.
And yet building, monitoring, and adjusting an investment portfolio remains core to an advisor’s value proposition—at least in the clients’ eyes. It remains the top service that clients think of when asked what their financial advisor does for them. Budgeting is for maximizing the efficacy of money needed today. Investment strategies maximize the money needed for the future—the balance of risk and return, unique to each client, to increase the probability they will be able to meet their financial goals in the future.
That must go beyond the traditional 60/40 portfolio of stocks and bonds. Consider that in the 1990s, there were some 8,000 companies whose shares were tradable on the stock exchanges. Today, there are less than 4,000. Fewer firms are going public, and those that do are taking longer to do so—meaning much of a company’s value has already been created and realized by insiders and early investors before the they sell shares to the wider public.
Not to say an advisor cannot put together a serviceable portfolio out of publicly traded securities. But increasingly, limiting an advisors’ options to only what’s available on the public exchanges is, potentially, doing the client a disservice.
That’s one reason advisors are increasing their use of alternative investments—according to advisor surveys fielded through WMIQ, the research arm of WealthManagement.com, some 69% of advisors said that alternatives were “definitely” or “probably” a good investment for their clients. and that offering advice on alternatives has helped their business. How? Bringing clients non-traded investment options increased satisfaction with the advisor’s service (61%), helped retain clients that may have gone elsewhere for the investments (57%) and increased client involvement in the investment decision making discussions (37%). More than half of advisors surveyed said they were going to “definitely” or “positively” expand the use of alternative assets.
Of course, “alternatives” is a broad term, and likely used by advisors to mean “anything that is not a stock or a bond.” Not just private equity or hedge funds, but structured products, BDCs, direct debt, even collectibles and cryptocurrency. And yes, investments in real estate beyond a client’s primary residence, made either directly, through REITs or via a crowdsourced platform.
That’s one reason we are expanding our Wealth Management Real Estate news channel and newsletter. We’ll include a broader swath of investment options, asset managers and alternatives, as well as portraits of how advisors and investment committees at wealth management firms are investing now— how they make their decisions, what platforms, and managers, they use, and how they report on the portfolios for their clients.
ETFs, model portfolios, SMAs, direct indexing— the options for advisors to create personalized investment portfolios—at scale—has never been greater, nor has the universe of investment options, strategies, and portfolios available inside those wrappers.
It’s gotten much more complicated to invest, particularly for an advisory firm creating portfolios for broad swaths of clients. We hope to do a small part in helping financial advisors figure out what is best for their clients. Look for the channel to debut soon and let us know how we can be of most use to you.
Director of Editorial and Content Strategies
Informa Wealth Management