A Financial Advisor IQ article recently reported that FA client allocations to alternative investments have grown by close to 20% across wire houses over the past three years.  Seems like pretty strong growth, right?

Until you look at the data showing that alternatives still represent only around 5% of most FA client portfolios. Investment News warns that’s not enough to control portfolio risk, according to industry experts.  Among them:

“Ed Butowsky of Chapwood Capital Investment Management tells Investment News tepid allocations to alts do little to control risk. To make a difference, he says, you need 20% or more…’”

The article notes that alternatives (such as hedge funds that can offer portfolio protection against down markets) “will come screaming back in vogue” in the next market correction, but in the meantime advisers appear cautious about suggesting fee-laden products that have underperformed in the current bull market.

The Navatar View:

Investment News rightly points out that when markets ultimately correct, advisors may wish they had been braver in suggesting bigger allocations to alternatives.

But that’s easier said than done.

To effectively alter individual asset allocations across a large client base is a sophisticated operation.  Advisors who aim to lead not lag their competition need to be on top of their game when it comes to knowing each client’s needs, their risk appetite, their varied personal situations, etc.  And they need airtight compliance processes to move client portfolios into private capital markets.

In addition, they will need new and better ways to connect to — and evaluate — alternative products and investment opportunities.  Navatar has hundreds of alternative asset funds as customers and we know how difficult it can be to stay close to opportunities to invest in these (one of our soon-to-be-launched products will make this easier).

The bottom line: Winning in this environment requires ever-increasing sophistication. Advisors need to expertly leverage tools and technologies that establish them as leaders as well as open up the right opportunities.  We get it.  As the #1 connected growth platform in the industry, we’re regularly adding functionality to help our clients drive their growth agenda.