Lack of Knowledge a Barrier to Using Alts

Nearly three-quarters of advisers use alternatives, but many would still like deeper knowledge about them.

According to Cogent Research, 47% of advisers said adding diversification is the primary objective when using alternative investments (AI), followed by 25% who said downside protection and 13% who cited absolute returns. Of those using alternatives, half said they would be interested in learning more about them.

Those do not use alternatives said the top barriers were clients’ lack of knowledge about AI (49%), lack of track record (44%), clients not being comfortable with investing in them (43%), and a lack of knowledge about them (36%).

Rick Lake, portfolio manager for The ASTON/Lake Partners LASSO Alternatives Fund, said during an alternatives media event that the learning curve for alternatives is among the biggest obstacles advisers must face when using them. It’s important for advisers to understand the pros and cons of alternatives in order to best serve their clients, he added.

When adding alternatives to a traditional portfolio, Ed Egilinsky, managing director of alternative investments at Direxion, suggests allocating at least 10% of the portfolio to alternatives, such as managed futures—which have a low correlation to stocks and bonds, and they also perform well in bear markets, he added.



Fifty-six percent of advisers who use alternatives said they view them as playing an important role in their clients’ portfolios. Lake said alternatives can give clients more tools for retirement by lowering volatility. “You want to smooth out the overall ride,” Egilinksy echoed.

Jeremy Radcliffe, co-founder and managing director of Salient Partners, suggested advisers find a level of volatility the investor is comfortable with and then maneuver the portfolio accordingly to try and keep the volatility consistent. “It’s not perfect,” he said. “It’s not a crystal ball,” but volatility does seem more predictable than returns.

Cogent’s Web survey was conducted among 1,741 financial advisers with an active book of business of at least $5 million in assets under management.