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.
Retirement Planning Has Its Limits: How to Prepare
Retirement planning is one of the issues that commonly leads clients to consult financial advisers. One of its essential aspects is creating a plan to save and invest in order to provide a comfortable retirement income. Ideally, this starts many years ahead of retirement, even as early as your first paycheck.
As retirement comes closer, planning for it expands to take in a host of other considerations, such as deciding when to retire, where to live, and what kind of lifestyle you hope to have. When retirement becomes a reality, the focus shifts to carrying out the plan.
All of this planning is crucial. Yet, for both financial advisers and clients, it's good to keep in mind that planning has its limits. In the post-retirement years, it may be helpful to think in terms of preparing for old age rather than planning for it.
The older we get, the more important this distinction between planning and preparing becomes. Too many life-changing things can happen without regard to our best-laid plans. Often they occur unexpectedly, resulting in emergency situations where urgent decisions have to be made. A stroke or a fall, a diagnosis of terminal illness, a broken hip that leaves someone unable to go back to independent living—and suddenly, right now, the family needs to find an assisted living facility, arrange for live-in help, or sell a home.
What are some of the ways to prepare for these contingencies?
- Explore housing options well ahead of time. Find out what assisted living, home care, and nursing home services and facilities are available where you live and whether they have waiting lists. Have family conversations about possibilities like relocating or sharing households.
- Research the financial side of these options. Investigate the cost of hiring help at home, assisted living facilities, and nursing care centers. Find out what is and is not covered by Medicare and long-term care insurance. For example, people are sometimes surprised to learn that Medicare does not pay for nursing home care other than short-term medical stays.
- Designate someone to take over decision-making, and do the paperwork. Execute documents like a living will, medical power of attorney, and contingent power of attorney. Update them as necessary, and give copies to your doctors, your financial planner, and appropriate family members.
- Start relatively early to downsize. Well before you're ready to let go of possessions or move into smaller housing, start considering what to do with your "stuff." Focus on the decisions rather than the distribution. There's no need to get rid of possessions prematurely, but decide what you want to do with them—and put in writing. Do this while it's still your choice, rather than something your family members do while you're in the hospital or nursing home
- Do your best to practice flexibility and acceptance. No matter how strongly you want to live in your own home until the end of your life, for example, it may not be possible. The physical limitations of aging can limit our choices, and even the best options available may not be what we would like them to be. It is a profound gift to yourself and your family members to accept these realities with as much grace as you can muster.
Finally, please don't underestimate the importance of planning financially for retirement. Because the bottom line is that you can't plan for all the things that might happen as you age, but you can prepare to deal with them. One of the most useful tools to cope with those contingencies is having enough money.
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