Financial advisors plan to increase their use of alternative investments this year, according to Jackson National Life Insurance Co. One big challenge: they need to understand the asset class better.
More than nine in 10 advisors (95%) said they expect to increase their use of alternative asset classes over the next year. Of those, more than half said they would increase their use by 15% or more. Among the holdouts who have never used alternative asset classes in the past, more than 90% said they are now considering using them.
“The trend toward alternative asset classes among retail investors has been growing steadily for the past several years and this survey highlights the growing demand for new strategies,” Clifford Jack, executive vice president and head of retail for Jackson, said in a statement.
Nearly two-thirds of the advisors (61%) cited diversification as the primary reason for using alternatives in client portfolios. In addition to enhancing portfolio diversification, alternatives allow advisors to differentiate themselves as investors would have difficulty accessing them on their own, says Sophie Schmitt, an analyst at Aite Group. Investors can easily buy mutual funds and other traditional asset classes through bank online capabilities, she says.
Advisors, however, did have concerns as they increased their use of alternatives, the top being “understanding of the asset classes” and “clarity on how an alt strategy can work within a client portfolio.”
Schmitt understood their concerns. Not understanding the asset class, she said, “poses a tremendous amount of legal burden” on advisors. “Risk is part of every conversation,” she said, and with alternatives “it’s much harder to measure that risk.”
The survey found that advisors value guided strategies from product providers. More than 95% said that the availability of guided strategies would be very or somewhat important when utilizing alternative asset classes. Nearly eight in 10 (78%) said they would be more likely to use alternatives if offered within a guided strategy.
Jackson distributed the survey to advisers at more than 100 road shows across the country throughout March. Responses were received from 2,190 advisors.