ByAllAccounts: most advisors now use alternative investments in portfolios

Photo credit: Stuart Miles Photo credit: Stuart Miles

Nearly 7 in 10 financial advisors now recommend alternative investments to their clients and a majority plan to use them in 2013, according to a new report.

ByAllAccounts, Woburn, Mass., published this finding in a fourth quarter survey, “2013: A New Era of Transparency for Alternative Investments?” The report examines usage, manual data collection challenges and regulatory/privacy laws in respect to alternative investments.

ByAllAccounts conducted the survey with Millennium Trust in November. More than 250 advisors responded to the survey, including registered investment advisors (28 percent of the total), as well as broker-dealers and wirehouse reps (33 percent).

The survey reveals that three-fourths (75 percent) of advisors have increased their use of alternative investments over the past three years. Currently, 68 percent incorporate the products into client portfolios. And two thirds (67 percent) plan to increase their use in 2013.

The top five alternative investments, the report discloses, include private real estate investment trusts (REITs), used by 53 percent of respondents, limited partnerships/limited liability companies (53 percent), private equity/capital commitment funds (49 percent), fund of funds (49 percent) and precious metals (46 percent).

More than one-third of advisors (36.6%) also use at least from one to five hedge funds. And four in ten (40.5%) use from one to five private equity or capital commitments funds, the report shows.

Respondents who don’t use alternative investments cite several reasons, among them their own lack of experience or knowledge, cost/liquidity and transparency issues, risk associated with alternative investments and clients unwillingness to invest in the products.

When asked about data collection in respect to alternative investments, the report notes that the current reporting process remains inefficient. Nearly two-thirds (65%) of hedge fund users spend 3-4 hours on an individual hedge fund. And 67% of private equity users spend 3-4 hours on an individual private equity fund.

More than half of those polled (51%) say they would increase their use of alternative investments if they could reduce the time they spend on its reporting cycle.

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