The rise of alternative investments has gained significant attention and is becoming an increasingly popular topic among investors year after year – and for good reason. According to PwC, “Alternative asset classes – in particular, real assets, private equity and private debt – will more than double in size, reaching $21.1 trillion by 2025, accounting for 15% of global AuM.” With factors such as rising inflation, threats of potential looming economic recession and a global pandemic, the economic landscape has changed. Understandably, investors and the financial advisors that serve them are looking beyond the public markets.

As investors become more and more interested in what alternatives have to offer, the role of you, their financial advisor, becomes increasingly important. You are the person they turn to for expert advice on all things related to investments, after all.

Let’s walk through some of the most common pain points associated with alts that advisors face and learn how to overcome them, so you can keep offering fiduciary advice.

Common Alternative Investment Pain Points for Advisors

The world of alternative investing can be understandably overwhelming, even for the most experienced financial advisors. Between the terminology and regulations, learning the intricacies of alts can feel a lot like trying to learn a new language. Remember that there was once a time in your life when you didn’t know what a 60/40 portfolio was and now it’s second nature.

Risk & Due Diligence for Alternative Investments

Alts often involve  specialized strategies and it can be difficult to access great diligence reports. Understanding the nuances of these strategies can be challenging and time-consuming and you want to make sure that you’re compliant and informed.

Alternative investments have unique risk profiles and varying return expectations. Evaluating these potential risks and returns accurately requires in-depth knowledge and experience, and likely someone on your team holding a CAIA designation or engaging a research partner to prepare a diligence report, the price of which may be out of reach.

Loss of Operational Scale

While most advisory firms have either purchased software, partnered with outside firms or built their own systems from scratch to get scale in day to day operations, alternative assets haven’t been included. Traditional alternative assets do have an established ecosystem catering to them, but those solutions are primarily designed for institutional investors like endowments, pension funds, and large family offices. As advisors adjust portfolios to include 10-25% in alts, working with this infrastructure that is already outdated and limited in its ability to accommodate the growing scale and diversity of advisory clients isn’t easy.

As these alternative asset classes expand and attract a broader range of investors, there is a pressing need for a significant upgrade to modernize the experience for everyone involved with the funding process – fund managers (GPs), investors (LPs) and their advisors.

Currently, investment platforms in our space are patching together their operations, including sourcing, brokerage, reporting, and custody services, resulting in a fragmented and less streamlined experience for investors. Throughout their investment journey, from initial discovery to account creation, execution, and reporting, investors face inefficiencies and complexities due to the lack of a cohesive and seamless system.

Regulations & Compliance

While all investments require a certain level of care around regulations and reporting standards, alternative investments can be specifically stringent. It is the financial advisor’s responsibility to ensure compliance with these requirements, which can add complexity and administrative burden to their practices.

Additionally, the intricate nature of alternative investments, combined with potential complexities in documentation and structures, increases the risk of legal disputes or regulatory issues.

Overcoming the Hurdles of Alternatives Investments

The increasing interest and demand for private investments seems to be only going up from here. A 2022 Cerrulli Associates Study showed, “Alternative allocations were reported to be significantly higher in 2022, with polled advisors reporting allocating an average of 14.5% and seeking to increase this to 17.5% in two years.”

Since alternative investments aren’t going anywhere anytime soon, here are three paths advisors can navigate the hurdles of alternative investments.

Create Clarity

Staying ahead of the trends is important in many industries, but especially in financial services. You want to be offering the client experience that your clients and prospective clients are not only looking for but also expecting out of their financial advisor. Seek out relevant training opportunities, learn about new investment vehicles and stay on top of evolving regulatory requirements.

Collaborate

Expand your network and establish relationships with alternative investment specialists, such as fund managers or industry consultants. Through establishing these relationships, advisors can not only get on the ground floor of some investment opportunities that may prove to offer returns to their clients but can also gain invaluable insight and knowledge to make you a more informed advisor as your clients mature.

Leverage Technology

Technology changes the game and offers the potential to scale where humans can’t. One key is to find a technology that plays well with your current tech stack. Another key is for the platform to solve not just one piece of the alternative investing puzzle. Look for a provider that streamlines your entire process so that you can access the solutions you need. The best alts platforms will offer you a centralized hub to access a wide range of investments, research those opportunities, create paths for funding, help you service those investments through great integrations and statement processing and give you the data you need about your clients whenever you need it. 

Choose technology that can efficiently broaden your investment options and provide clients with an exceptional experience managing their alternative investments just like their public market counterparts. 

Mammoth Technology is bridging the gap between investors, financial advisors, and fund managers through an intuitive, integrated online platform branded to you. Our executive team is a group of professionals with diverse backgrounds in the industry. Whether it’s providing guidance to financial advisors navigating alternative investments or understanding the expectations of investors seeking profitable opportunities, our team is well-equipped to deliver the expertise and support necessary for success.

What are your biggest hurdles to incorporating alternatives in your clients portfolios?

• Research
• Statement Processing
• Compliance
• Planning
• Something Else

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