3 Reasons Alternative Investments May Be Your New Key to Success in Changing Times
For some, recent headlines have been unwelcome harbingers of changing tides in the advisory business, many of which are rooted in the DOL fiduciary rule.
News has finally been trickling out about how the new rules will actually impact “business as usual” for commission-based firms, and major brokerages have announced huge policy changes as a result. Some are opting to maintain commissions for retirement accounts. Others are shifting to a 100% fee-based environment. Some are even taking commission IRAs off the menu completely and banning the use of mutual funds in IRAs altogether. Another fallout is that broker-dealers and product distributors are already dramatically reducing the numbers of products available to advisors, and some are eliminating all commission-based products.
It’s a radical transformation that’s bound to impact not only your business model and how you work with your clients—but also your ability to compete in a playing field where an unprecedented number of advisors are abandoning the stability of working for a large wirehouse and opening up shop as independent advisors. As the industry as we know it continues to shift, there are three big questions to answer: How can you adapt your business model to deliver solutions that support your clients’ needs; how can you set yourself apart from your competition; and, on top of it all, how can you ensure the profitability and sustainability of your practice?
The answers are not simple, and while there’s no single solution, many advisors are finding that there is one approach that can help address —at least to some degree—all three challenges: Alternative investments. Here’s why alternative investments may be an answer you’ve been looking for:
1: Alternatives can help you stand out in a crowded playing field.
Whether you are battling brokerage firms, the “guy down the street,” or robo-advisors, one way to stand out from the crowd is to deliver clear, tangible value to your clients. First, alternative investments are an important diversification tool within your clients’ portfolios. Second, they’re simply not on the menu at most larger brokerage firms—or on robo-advisor platforms. Plus, many of the advisors you compete against may shy away from the research required to analyze and select appropriate alternatives. If you’re willing to do your homework, alternatives may just be the differentiator you’ve been looking for.
2: Alternatives are well suited to today’s market environment.
Low interest rates, high volatility, and an aging bull market have many investors wondering if it’s time to rethink a passive, equities-based approach to retirement planning—especially if higher yields are needed to reach their investment objectives. Because alternatives are positioned to generate returns in rising and falling market environments, a more active approach to portfolio management that leverages alternatives has the potential to help increase returns. Plus, when combined with multiple asset classes such as stocks, bonds, currencies, and commodities, alternatives may help provide the all-important diversification element that your client’s portfolios require.
3: Alternatives can open the door to conversations with your clients.
The days are gone when you could “set and forget” your client relationships—much less your clients’ portfolios. Alternatives offer a great reason to reach out to existing clients and have a new conversation. And initiating that conversation is one of the most important actions you can take to re-establish yourself as your clients’ trusted advisor. It can assure them that lower-cost or even free investment advice that they may be considering does not provide the guidance they need to achieve their goals.
For tips on talking to your clients about alternative investments, please read my colleague Jason Plucinak’s article, “3 Tips for Talking to Clients about Alternative Investments.”
Of course, alternative investments aren’t the only answer to managing the storm of change across the industry, but by including alternatives into your client portfolios, you may be able to create the portfolio return and the client differentiation you need to stand out in a ever more crowded playing field. Now is the time to research the options, determine which alternatives make the most sense, and then start the conversation with your clients. Your clients will value your active guidance and, ultimately, your proven dedication to helping them achieve their investment goals. That, in the end, is every advisor’s key to success.
Most Read IRIS Articles of the Week: April 17-21
Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, April 17-21, 2017
Click the headline to read the full article. Enjoy!
Like so many others in the industry, I was wrong. For years, I was certain that the bull market was nearing its end. I thought the market was over-extended, and that, surely, the wild equities run was coming to an end. But everyone else was bullish, and perhaps rightfully so. And while I’ve watched equities continue on their spectacular rise, I do think now is the time (really!) to put a hedge in place. Here’s why. Here’s how. — Adam Patti
The realities for fixed income investors have changed. How is this being reflected in markets? Bond investing has become increasingly difficult over the past decade. Markets have been heavily distorted by ultra-low interest rates and quantitative easing, as well as by extreme risk aversion in response to the global economic crisis and the eurozone debt crisis. — Nick Gartside
Is being a financial advisor worth it? I am an optimistic person and I encourage other people to keep a positive mental attitude (shout-out to Napoleon Hill and W. Clement Stone). However, by taking a good, hard look at the negatives in life, we can successfully pivot towards the positive aspects that will help us achieve our goals. — James Pollard
How do you treat one of your most valued, existing clients? Here’s a list of some things that come to mind. — Andrew Sobel
According to many advisors I speak with, the only clients that leave are those who have died. And while attrition may not be a big problem in this industry, I have to assume that at least a few clients change advisors without doing so via the funeral home. — Julie Littlechild
I was talking with an advisor last week about how to get into conversations about what he does. He was relaying the story of going jogging with a friend who could be a good client but is, more importantly, connected to a large network of people who fit this advisors ideal client description. — Stephen Wershing
Big picture thinkers are not unicorns - rare and mystical. And they were not born with the innate ability to think big. They do, however, pay attention to the broader landscape and take the time to think, analyze and evaluate. — Jill Houtman and Danny Domenighini
Your reputation is who you are and how you show up, Monday to Monday®. Many of us take our image and reputation for granted. Give careful thought to the kind of reputation that you would be proud of Monday to Monday® and that would resonate with your purpose and priorities. — Stacey Hanke
The generational changing of the guard is a fact of life as old as time. Young replaces old in responsibility, importance, control and culture. Outside of the family, the workplace is perhaps where this is seen most regularly by most people. — Shirley Engelmeier
Next time you hear your prospects give you price objections, it’s not because of the price. The give price objections because they don’t know the full value proposition that they’d be paying for. And it’s not based on their need, or your features and functions. It’s based on the buying criteria they want to meet internally. — Sofia Carter
Last week we wrote about the economic rationale behind going independent vs. moving to another major firm as an employee. As a follow-up topic, we thought it prudent to analyze transition packages attached to big firm moves and peel back the layers of the onion to show the components of these deals. — Louis Diamond
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