Seeking to Take the Headache Out of Incorporating Alternatives into Your Client’s Portfolio

Alternative investments have been on the rise the past few years and the trend is expected to continue.* Institutional investors have used them for years and retail investors have taken notice. These asset classes are appealing because they may perform with low correlation to the stock and bond markets. An alternative investment strategy may be able to provide consistent income and balance out a portfolio’s overall allocation.

So why do so many advisors continue to feel wary about alternatives? The issues that may arise when considering alternatives include: the additional paperwork hassle; figuring out which alternative makes the most sense for the client; the risk profile; and the overall perception that they are complicated and hard to manage.


The big hassle and headache of carrying and executing an alternative investment can be enough to shy away from them. Advisors who recommend alternatives often end up saddling themselves with additional paperwork. Who has time for that?


Alternatives are not typically included in a brokerage account, and may be held “below the line” creating an added challenge of simply and efficiently portraying the overall portfolio’s performance to a client. Alternatives typically send out their own statements, and for this privilege, advisors and clients add to their paper pile. Additionally, clients run into issues with visibility of their assets because of the separation of alternatives from the rest of their investments. This can increase an advisor’s workload, fielding questions from clients trying to get a handle on where their money is.


Traditionally, alternative investments cost more to hold. Some custodians charge anywhere from $75 to $225 for each position annually simply to hold an alternative. While some clients may have the resources to cover that fee, it may erode yield, which is a checkmark in the negative column for all investors.


By their very nature, alternative investments are illiquid and carry a high risk profile. This often makes financial advisors and investors wary of including them in a portfolio.


Perception is a common reason advisors shy away from offering alternative investments. Alternatives have become associated with being complicated and hard to manage. This would seem to shrink the pool of investors with tolerance to alternative investments. Because the inner workings of many alternatives are not transparent, financial advisors won’t recommend them.


Now you can leave arduous paperwork and complicated alternatives firmly back in the 20th Century. Welcome to the Depository Trust and Clearing Corporation and DTC-eligible alternative investments. Once you have determined that alternatives are an appropriate asset class for your client, the big question becomes which one? The ability to clearly show clients where their money is allocated and how it is performing is a key customer service strategy. Finding viable alternatives that offer DTC-eligibility is an attractive option because it allows for:

  • Reduced paperwork for advisors
  • Increased transparency for clients with their alternative investments appearing on the brokerage statement
  • Reduced fees because of less manual processing
  • More security and visibility for the client, thus fewer client services issues.

*SOURCE: stratey&. “Alternative investments It’s time to pay attention.” 2015.

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