Connect with us

Investing in Life

How to Talk to Your Clients About Alternatives

Published

How to Talk to Your Clients About Alternatives

Written by: Jason Plucinak 

Alternatives, the diverse class of investments that flies below the radar of analysts and media, has quietly grown to total $6.5 trillion worldwide, a ten percent increase from 2015 to 2016, according to research from Willis Towers Watson.

Ironically, if you’ve been advising clients for more than a decade, alternative investments probably haven’t been on the list of options you’ve discussed with most of them. Is now the time?

As the growth has shown, these less-than-traditional options have delivered on their promise of generating return on investment. Additionally, many of these alternative investments are not correlated with the broader market of stocks and bonds. The Great Recession drove home the need for greater diversification, and an extended low-interest-rate environment has nearly wiped out expected returns on bonds and cash investments. In the wake of such a shift, advisors are looking to reallocate client portfolios from a traditional 60/40 model to include at least 20% in alternatives. The question is this: How can you introduce alternatives to clients to get them on board? Here are three tips to help you guide the conversation with even the most traditional investors:

1. Present alternatives that are easy to understand.

When considering anything new, investors need to understand where their money is going and how it will deliver a return on investment. That means complexity is your enemy. By presenting options that have a story your clients can understand and hopefully relate to, you can help them feel more attached to what they are investing in. Present easy-to-understand options and your clients are much more likely to feel at ease.

Related: What’s an Investor to Do When History Doesn’t Repeat Itself?

2. Focus on transparency.

Even the most trusting clients aren’t (and shouldn’t be) willing to invest their hard-earned dollars in something that isn’t completely transparent. Get to know investment offerings that are publicly registered and have public, audited financials. If you like an offering that is structured as a Private Placement, use only those with public, audited financials. Transparency allows you to “look under the hood” to easily understand and explain the fundamentals of the offering. What is the risk exposure? How are assets invested? What is the source of the return on investment? When full transparency is a given, your clients know what they’re investing in and are much less likely to end up on the next episode of American Greed.

3. Follow up with written details — online or off.

Talking through the details of an alternative investment is a great start, but following up with details can support your client’s decision by confirming what they heard in your meeting. Always provide the investment’s prospectus and be sure you are following your firm’s compliance guidelines. Use only FINRA-reviewed marketing collateral or brochures (Creating your own is rarely a good idea). Offer up third party articles or links to relevant education on the investment product or asset class. Regardless of how you deliver the information, be an educator rather than a salesperson; simply provide the research and information your client needs to make a well-informed decision.

Of course, recommending alternative investments to your clients should always be based on your own clear understanding of the value and risks of each offering, and how it fits into each client’s portfolio and overall financial goals. To be sure you know the facts yourself, the Alternative & Direct Investment Securities Association offers a broad array of information about a variety of alternative investment options.

Once you have the knowledge you need, remember to keep it simple when walking through your recommendations with your clients. The result: your clients will not only have a clear picture of how alternative investments can be a diversifying part of their portfolio, they will also have the confidence that you’re exploring all of the options as their trusted advisor.

Jason Plucinak, Sr. Vice President of Business Development, focuses on Broker Dealer due diligence and education for selling group growth. He is a financial professional with 13 years of experience in the life insurance, securities, and alternative investment industry. With GWG Life since 2007, Mr. Plucinak has helped structure, launch, and distribute six product offerings for the independent broker dealer & RIA channels.  Prior to his tenure at GWG Life, he held licensed registered representative positions at Northwestern Mutual Life Insurance Co. and Ameriprise Financial Services.  He currently holds a FINRA Series 7 and Series 63 and earned a Bachelor of Science degree in Finance from St. Cloud State University in Minnesota.
Continue Reading

Trending