The volatile equity and bonds markets mean advisors are increasingly turning to other solutions but say there aren’t enough choices
The current volatility in the global equity and bond markets are driving financial advisors to seek other options for their clients.
But a new survey reveals that advisors want a greater choice of private funds and alternative investment products from asset managers.
The survey from Broadridge Financial Solutions shows that 67% of advisors report using such products today, up from 59% in the first quarter of 2022. Around half of current users report that they plan to increase usage over the next two years.
Diversification is the most named reason for this increased focus on these products – 76% of advisors cite it as their top reason – with non-correlation with the markets taking second spot.
Satisfaction though is lagging with only just over one quarter of advisors saying they are satisfied with the private funds and alternative investments products and resources available through their firm.
Matthew Schiffman, principal of distribution insight at Broadridge Financial Solutions, says that asset managers are not adequately meeting financial advisors’ needs.
"Advisors are acutely feeling the need for diversification in their clients' portfolios but remain dissatisfied with the private fund and alternative investment products and resources available to them, largely due to limited availability and restrictive options,” he said. "We see this as a strong, long-term opportunity for asset managers to showcase their value by providing product options that meet the growing demand for alternative investments among retail investors."
Is crypto the answer?
Looking at the products that could be the solution, 70% of advisors reported using real estate and real estate investment trusts (REITs), 39% use commodities, and 35% use private equity and venture capital.
Cryptocurrencies, while gaining ground as an asset class, are not widely used by the advisors polled; just 5% do so, unchanged from the first quarter of 2022.
The survey also found that many advisors are outsourcing the investment process to focus on financial planning.
Separately-managed accounts (SMAs) are increasingly used (69% of advisors are using SMAs now compared to 62% in the first quarter of 2022) and 53% of current SMA users plan to increase usage in the next 12 months.
Model portfolios account for 57% on average with in-house portfolios are on the rise among advisors (from 55% in Q3 2021 to 66% in the third quarter of 2022.)
Additionally, of advisors who have some awareness of direct indexing (85% of total), most have used or are considering it (only 32% have never used and are not considering using it).
