Advisors Maintain Faith in Alternatives

Terry Flanagan

The majority of financial advisors intend to continue recommending alternative investments over the next year, despite the underperformance of the asset class in the half-decade since the economic crisis, according to a new survey from Pershing, a BNY Mellon company.

The study, which was released today at Pershing’s InSite 2015 conference, is based on a recent survey of 1,200 advisors conducted by Pershing in conjunction with Beacon Strategies, along with interviews with advisors, broker-dealer firms, registered investment advisors and alternative investment managers.

“Alternative investments continue to interest all investors, from ultra-high-net-worth and high-net-worth investors to the mass affluent,” said Justin Fay, vice president of investment solutions at Pershing. “Though some lingering skepticism exists about alternatives, largely due to recent lukewarm performance, we are seeing strong flows into this asset category. The findings of our study suggest that most advisors are optimistic about the ability of alternatives to deliver diversification benefits over time.”

According to the survey, most advisors’ primary goal in using alternative investments is to reduce volatility and diversify their client portfolios. Advisors who were surveyed indicated that 73 percent of their clients have at least one type of alternative investment in their portfolios.

The survey also found that 70 percent of advisors plan to maintain their current alternative investment allocation recommendation for clients over the next twelve months. However, almost half of advisors surveyed feel that alternative investments have underperformed since 2008, and more than half of advisors (55 percent) surveyed believe that clients should allocate 6 to 15 percent of their portfolios to alternative investments, and 56 percent of respondents see value in allocating illiquid alternatives to investor portfolios.

Broker-dealers and large RIAs who took part in the survey identified operational issues as an area of concern with regard to alternative investments–specifically with regard to processing, pricing/time to settlement, tax reporting and regulation.

“The findings of the study indicate that communication, product understanding and improvements to operational processes will be critical to mitigating these challenges,” said Fay.

Pershing and Beacon Strategies conducted the alternatives survey over the course of two months in the winter and spring of 2015. Simultaneously, expansive interviews with financial advisors, RIAs and broker-dealer firms and alternative investment fund managers addressed both quantitative and qualitative aspects of the underlying research.

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