Some firms are making lofty claims about their retail alternative investment products
For advisors planning to move from one independent broker-dealer to another, proper diligence must be observed especially with firms claiming that their retail alternative investment products are of institutional quality.
According to Jeff Nash, president and CEO of Nash Consulting Group, the huge difference between institutional products and institutional quality products is often overlooked by transitioning advisors. This could lead to undesirable risks not just to the advisors themselves but also to their clients.
Nash wrote on Barron's Asia that there is a proliferation of retail investment product sponsors touting that their solutions are of institutional quality.
For advisors to avoid possible risks, Nash suggests that they ask each firm for a list of its top 10 retail alternative product sponsors. The next step is to query whether these sponsors possess experience and qualified track records in the institutional space.
"Another good question to ask: What do you know about the sub-advisors? Certain institutional product sponsors have been willing to lend their brands to expansion in the retail space, but have delegated significant parts of the heavy lifting to sub-advisors that either don’t come from an institutional background, or are otherwise not operating at the highest possible standards," Nash said.
In the same way, advisors have to be wary of product sponsors which may credibly assume an institutional quality offering due to institutional strategists acting as sub-advisors. The key in such cases is to know how long these sub-advisors have been on board and how their strategies align to the product performance.
In a nutshell, there is a need for advisors to clearly scrutinise such retail alternatives that assert to operate at the same level as institutional products.
"Ultimately, educated transitions are successful transitions, and it’s up to advisors who are thinking of moving to another firm to take a holistic look—with third-party experts, if necessary—across their business and determine how product strategies could be impacted by moving to a different platform," Nash concluded.
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According to Jeff Nash, president and CEO of Nash Consulting Group, the huge difference between institutional products and institutional quality products is often overlooked by transitioning advisors. This could lead to undesirable risks not just to the advisors themselves but also to their clients.
Nash wrote on Barron's Asia that there is a proliferation of retail investment product sponsors touting that their solutions are of institutional quality.
For advisors to avoid possible risks, Nash suggests that they ask each firm for a list of its top 10 retail alternative product sponsors. The next step is to query whether these sponsors possess experience and qualified track records in the institutional space.
"Another good question to ask: What do you know about the sub-advisors? Certain institutional product sponsors have been willing to lend their brands to expansion in the retail space, but have delegated significant parts of the heavy lifting to sub-advisors that either don’t come from an institutional background, or are otherwise not operating at the highest possible standards," Nash said.
In the same way, advisors have to be wary of product sponsors which may credibly assume an institutional quality offering due to institutional strategists acting as sub-advisors. The key in such cases is to know how long these sub-advisors have been on board and how their strategies align to the product performance.
In a nutshell, there is a need for advisors to clearly scrutinise such retail alternatives that assert to operate at the same level as institutional products.
"Ultimately, educated transitions are successful transitions, and it’s up to advisors who are thinking of moving to another firm to take a holistic look—with third-party experts, if necessary—across their business and determine how product strategies could be impacted by moving to a different platform," Nash concluded.
For more of Wealth Professional's latest industry news, click here.
Related stories:
Why wealth firms are working hard to woo advisors
Are advisors ready to embrace the robos?
