Financial advisors can provide a lot of value to their clients, and they can also offer access to investments that might not be easily accessible, if at all, otherwise. While many investors stick to publicly traded stocks and bonds, others turn to alternative assets that may offer strong returns.
“Alternative assets have gained popularity in recent years due to their potential for high returns and diversification benefits, especially in times of market volatility,” says David M. McInnis, CFP, CIMA, wealth advisor, Aristîa Wealth Management.
Alternative investments may make sense for investors who already have substantial traditional assets and are looking for more diversification. A good financial advisor can help you access alternative investments and help you decide whether they make sense for your financial needs.
One of the benefits of working with a financial advisor is easier access to certain financial products — and importantly, detailed advice on whether they work for your goals. Some of these alternative investments may require you to be an accredited investor, with a certain level of assets or income, which can help you navigate the extra risk in some alternative investments.
Some types of alternative assets that advisors can help you access include:
Private equity
Private equity could be an investment in a private company or one that’s been taken private, and that will likely conduct an IPO and be returned to the market.
Real estate
A real estate investment could involve taking an equity stake in privately sourced deals or perhaps a debt stake, and also includes REITs.
Hedge funds
Hedge funds let you hire professional managers to trade a portfolio of stocks actively, and the best can deliver excellent returns.
Venture capital
Venture capital invests in early-stage (read: risky) companies that may go on to become large companies, and can be thought of as a subset of private equity.
Annuities
Annuities are a kind of insurance contract that can offer guaranteed income and other benefits for life.
Infrastructure
An infrastructure investment could involve taking an equity or debt stake in privately sourced infrastructure investments.
These alternative investments may offer the potential for greater returns than publicly available investments. They also can offer greater diversification to a portfolio, reducing your risk and the correlation of your portfolio’s performance with those of traditional assets such as stocks and bonds.
“Private equity, private credit/direct lending, private real estate and private infrastructure are among the growing number of alternative investments that a financial advisor can help individuals access,” says Mark E. McCarron, CFA, CIO, Wescott Financial Advisory Group.
These alternative investments may often be sold as shares in a fund, making it easier for many individuals to participate in them. But even popular alternative investments may be complex, charge higher fees and have lower liquidity, meaning it may be harder to exit the investment.
“Previously these asset classes were only available to institutions such as pension funds, endowments and the ultra-high-net-worth individual, but more high-quality funds offered by leading firms are becoming available via wealth management firms to accredited investors,” says McCarron. He notes that more funds have lower investment minimums and friendlier tax treatment, making them easier to invest in for individuals without multimillion-dollar portfolios.
While financial advisors can get you access to these financial products, do you really need them?
Financial advisors can help you get access to alternative investments but — importantly — they can help you decide whether you need them. Investors can already buy publicly traded stocks and stock funds, which can build real wealth. The S&P 500 stock index has returned about 10 percent on average over time, and is easily accessible to investors with any amount of money. So an advisor’s “value add” is helping you decide which investments work best for your needs.
“While alternative investments can offer the potential for higher returns, they also come with unique risks and complexities,” says McInnis.
Need an advisor?
Need expert guidance when it comes to managing your investments or planning for retirement?
Bankrate’s AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals.
These risks and complexities are why it’s so vital that you work with an advisor who understands them, as well as how and when they can benefit you.
“A financial advisor plays a critical role in assessing the suitability and appropriateness of the alternative fund’s strategy in the context of a client’s risk profile, liquidity budget, return objectives and tax situation, ultimately advising in which strategy to invest and how much to allocate,” says McCarron.
So if you’re considering alternative investments, you’ll want to understand how they fit into your overall investment strategy and why they work for you and your family. To do so, you’ll need an advisor who’s knowledgeable about alternative assets and is aligned with your interests.
It’s important to choose a financial advisor who’s aligned with your financial interests. If you work with a “free” advisor from a financial firm, you’re likely working with a paid salesperson. Their interest is more likely to be selling you a product rather than making sure you’re making the right decision for your needs — which may not involve buying a product at all.
To find a financial advisor who’s aligned with your interests, look for the following:
-
A fiduciary: A fiduciary advisor is tasked with always doing what’s in your best interests. Ask any potential advisor to put it in writing — the fiduciaries will do so.
-
Fee-only: A fee-only advisor helps align the advisor’s financial interests with your own. Since they’re being paid by you, and not by a financial company selling products, they’re incentivized to make decisions in your best interests.
-
Credentialed: It can also be valuable to have a financial advisor with a credential, such as the certified financial planner (CFP) credential, which also tasks holders with being a fiduciary.
Here are other top tips for finding a great financial advisor and what you need to look for.
Financial advisors can help get you access to these alternative investments and can help you decide whether they’re right for you. However, it’s important that you work with a financial advisor that works in your best interests, and here are some key steps to finding one who will.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
