Remembering our Core Principles

Let’s just get this out of the way. Yes, we believe most of your clients could benefit from an allocation to alternative investments. No, we don’t think many of the new entrants in this industry take your clients’ best interests into account when they pitch you whatever it is they’re selling—we cite as evidence the increasing number of times in recent weeks we’ve seen firms pushing the ‘Ivy League Endowment Model’ for individuals. 

Today’s marketplace is flush with alternative investment offerings for your clients. On the one hand, this is a testament to the industry’s evolution and the increasing avenues now available for you to responsibly include non-traditional assets in client portfolios—something Third Wire and our partners have spent the bulk of our careers working to improve. On the other, it’s bringing a fresh round of noobs to the industry, mostly focused on pushing self-serving agendas and good old-fashioned asset gathering. As far as we can see, your client’s financial well-being is about the furthest thing from most of their minds. 

On the other, it’s bringing a fresh round of noobs to the industry, mostly focused on pushing self-serving agendas and good old-fashioned asset gathering.

As the industry continues to evolve, your role as an educator, guide, and advocate for clients has never been more critical or sought after.

Learning from Institutional Models

Look, we can learn a lot about alternative investments from institutional investors. They typically have extensive resources, broad networks, and access to many industry-leading fund managers and thinkers. However—mixed metaphor alert—the leap from institutional to individual investing is night and day. The investment objectives, liquidity needs, and basic risk profiles of private clients differ completely from those of endowments. So, while the principles of diversification and risk management remain constant, their application for individuals requires the careful consideration and individualized planning that advisors do best.

The investment objectives, liquidity needs, and basic risk profiles of private clients differ completely from those of endowments.

An Objectives-Based Approach

Whether we’re talking about an institution or an individual, the essence of a sound investment strategy lies in its foundation: a clear understanding of the investment goals, needs, and circumstances. Adopting alternatives for your clients really only works when it’s tempered with a rigorous assessment of how these investments fit within the broader context of their life goals and financial plans. Whether it’s seeking inflation protection, generating income, or achieving growth, each investment decision must be grounded in purpose and prudence, just like it is with every other investment decision—alternative investments are not somehow different in this regard.

Navigating Alternative Investments

The allure of alternative investments is undeniable, offering the potential for increased diversification, reduced portfolio volatility, and enhanced returns. Yet, the industry can be tricky to navigate—complex strategies, lack of transparency, and lack of access, to name a few. And the difference between alternative investment success and failure is almost entirely determined by which managers you choose to invest with. 

We don’t believe going it alone is the best strategy for most individuals, particularly when it comes to alternatives.

This means you need to be prepared to play a critical role in guiding clients through the intricacies of alternative investments, or you may find more and more clients attempting to strike out on their own—something we’ve seen happening increasingly as online platforms and emerging firms target your clients directly. We don’t believe going it alone is the best strategy for most individuals, particularly when it comes to alternatives.

The Path Forward

The evolution of investment options, marked by a growing interest in alternative investments, represents both an opportunity and a challenge for financial advisors. There is a broad opportunity to not only help your existing clients and deepen relationships but also grow your book of business by offering expertise and access to alternative investments. The challenge is sorting through all the noise and finding partners you can trust.

…as the industry continues to evolve, the role of the financial advisor as an educator, guide, and advocate has never been more critical for your clients.

So important we’re saying it twice; as the industry continues to evolve, the role of the financial advisor as an educator, guide, and advocate has never been more critical for your clients. Contact us to learn how we can help you navigate the alternative investment industry successfully. 

Disclaimer:

This article is for informational and educational purposes only and should not be construed as providing tax or legal advice. It does not take into account the specific investment objectives, financial situation, or particular needs of any reader. Readers should consult with their own tax, legal, and financial advisors to determine the appropriateness of any investment strategy or approach mentioned herein. Investing involves risk, including the possible loss of principal. 

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.