3 Reasons Alternative Investments May Be Your New Key to Success in Changing Times

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.

Bill Acheson
Investing in Life
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Bill Acheson is the Chief Financial Officer of GWG Holdings, Inc. Mr. Acheson has over 25 years of sophisticated financial services expertise. Mr. Acheson has extensive experi ... Click for full bio

An Advisor's Guide to Helping Women Become Savvy Investors

An Advisor's Guide to Helping Women Become Savvy Investors

Today, more women than ever are involved in managing their personal and household finances. In a recent study, nearly half of the women surveyed (44%) stated that they are solely responsible for their household financial decisions, compared to 35% of men1. But the study wasn’t all good news. While women may be taking the lead when it comes to their finances, they also reported that they are not confident in doing so. In fact, in every financial category included in the survey, men reported much greater confidence than women. Where was the biggest gap? You guessed it: investing.

For advisors, this presents a challenge and an opportunity. There is a 90% likelihood that a woman will be financially self-reliant at some point in her life due to divorce, becoming a widow, or choosing to marry later in life or not at all2. By taking steps to help your female clients become confident, savvy investors, you’ll not only be more effective at serving in the best interests of these women and their families, but you’ll also be able to build much stronger, more trusted relationships to help ensure each family’s assets remain in your care for decades to come.

Follow these five steps to help your female clients invest with greater confidence:


1. Urge every woman to put her financial needs first. 


Women do have a weakness when it comes to planning for the future, but it has nothing to do with a lack of knowledge, skill, or smarts. Their primary weakness is a willingness to put others’ needs first. This is a huge mistake when it comes to planning for the future. Investing for retirement simply can’t wait until the kids are grown or aging parents no longer need care. In fact, based on average life expectancies, women should plan to accumulate enough funds to last at least 20 years after retirement. The following chart illustrates the power of compounding based on an 8% rate of return to help bring that point home:

This hypothetical example assumes an annual 8% rate of return and does not take into account income taxes or investment fees and expenses. This example is for illustrative purposes only and does not represent the performance of any specific investment. An investor’s actual return is not likely to be consistent from year to year, and there is no guarantee that a specific rate of return will be achieved.

2. Educate women about the power of investing.


Security about any topic is rooted in confidence and knowledge. Educating your female clients about investment basics can help drive more confident decisions and more positive long-term outcomes. From the basics of compounding to the nuts and bolts of researching options and understanding the pros and cons of different asset classes, make it your job to help every client understand what she is buying—and why.

3. Dive into the details of asset allocation.


Asset allocation is by far the largest determinant of a portfolio’s success—even more important than the individual securities selected and timing of an investment. This is critical information for your client to understand as she pursues her financial goals.

Related: Need More Referrals? 5 Steps to Building Stronger Word-Of-Mouth Influence

4. Discuss how her investment strategy needs to evolve over time.


Part of every client’s financial education should be to understand how financial needs and goals change with each stage of life stage. Because a shorter investment time horizon creates greater vulnerability to market volatility, she needs to understand the impact of shifting a portion of her investment portfolio to more income-oriented investments as she moves closer to retirement. This Life Stages Guide can help you paint a clear picture of how allocation strategies need to evolve to fit her changing needs.

5. Be sure she’s covering all the financial bases.


Smart investing is vital, but missteps in other areas of financial planning can thwart even the best investment plan. Offer every client a basic planning checklist that includes these three important steps:

  • Focus on the big picture. Organize your important financial papers and schedule an annual review of your investment strategy with your advisor. Regularly monitor your net worth—including your assets (all investments and savings) and liabilities (mortgage, credit cards, and other debts) to be sure you’re always moving toward your end goal of a secure retirement.
  • Pay down any outstanding debt. Debt reduces your net worth, threatens your financial security today, and reduces your ability to invest for the future. Do whatever you can to minimize debt, and build an emergency fund to help pay for any unexpected expenses.
  • Make estate planning a priority. Once a year, review your will and your beneficiary designations for every account to be sure they continue to reflect your wishes. If you have children under 18, work with your advisor or estate planner to establish a trust and select a trustee to ensure your assets are managed for the benefit of your children.
     

As a trusted advisor, make it your mission to provide your female clients with the education and guidance they need to become savvy investors and make the smart, educated financial decisions. By doing so, you can help every woman you work with not only enhance her financial security, but also gain the confidence to take greater control of every aspect of her financial life.

Click here to learn more about IndexIQ.

[1] Survey conducted by Regions Financial Corp. in partnership with Vanderbilt University, 2015.

[2] The Simple Dollar, “Guide to Financial Independence for Women,” 2014. 

Disclosure: The information and opinions herein are for general information use only. The opinions reflect those of the writers but not necessarily those of New York Life Investment Management LLC (NYLIM). NYLIM does not guarantee their accuracy or completeness, nor does New York Life Investment Management LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice and are not intended as an offer or solicitation with respect to the purchase or sale of any security or as personalized investment advice. 
Laura McCarron
Building Smarter Portfolios
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Laura joined New York Life & MainStay Investments in 2009, and is currently the Director of Value Add Marketing. She is responsible for the development of investor educati ... Click for full bio