As volatility rises, United Capital gives advisers crash course in alts, options

Firm wants to add to advisers' tool kit so they can minimize client risk

Feb 25, 2019 @ 2:08 pm

By Jeff Benjamin

As volatility surges back into the stock market, United Capital Financial Advisers is arming its troops with more sophisticated hedging strategies, including access to options trading in client portfolios.

Building out its investing platform with recently added strategies from SpiderRock Advisors and iCapital Network, United Capital has spent the past two months hosting two-day symposiums in Dallas to teach advisers ways to use alternative strategies to hedge market risks.

"There's a lot of concern about the increased level of volatility in the markets, so we started looking at some defensive strategies, and ways to be innovative," said Kara Murphy, who took over as United Capital's chief investment officer nine months ago.

By mid-March, United Capital will have trained 120 of its 200 advisers in the two-day symposiums. Some additional training is required for options trading.

Since the first training session during the third week of January, "we've had over $180 million worth of client proposals on the platform, and half have been executed so far," Ms. Murphy said.

In April, the program will be extended to independent financial advisers accessing the United Capital platform through the affiliated FinLife Partners, which combine to manage more than $20 billion.

"The genesis for this was to provide a clearer investment path with a more defined set of outcomes," said Ms. Murphy, who emphasized that options introduce a host of new strategies, including income streams, downside protection, and reduced market exposure.

In addition to the options trading, the United Capital platform has an alternative investing overlay strategy and provides access to a dozen hedge funds.

"I don't care which of our tools a client uses, I just want to make sure it's appropriate and that we have a full set of tools, so we can react to their needs," Ms. Murphy said. "Prior to this, what we offered was pretty straightforward."

Options-trading experts say it should be a part of every adviser's tool kit.

"I'm a big believer in the product, because they can be used by investors and advisers at any level," said John Smollen, executive vice president at the options exchange Miami International Holdings.

Steve Williams, president of Blackstone Wealth Management, said, "Anyone not using options is leaving money on the table."

"It's a good way to hedge your portfolio," he added.

The general appeal of options strategies is that they allow for customized risk exposure and investment objectives in virtually any market environment.

A basic option collar strategy, for example, could be used by a financial adviser to move risk-averse clients toward more equity exposure.

A collar strategy might involve selling a call option for a "strike price" above the market price of an underlying security and simultaneously buying a put option at a below-market price.

The call option piece of the collar will limit the upside gain, but it also provides income to cover the cost of the put option, which limits investment loss.

"You sell calls against a stock you own to create an income stream," Mr. Smollen said. "And a put option is essentially an insurance policy."

However, according to Paul Schatz, president of Heritage Capital, options trading goes beyond plain-vanilla investing, and is not for everyone.

"Very few advisers use options either from a speculative position or for hedging, although the latter is more popular," he said. "I have used options to hedge in the past with varying degrees of success, and they are not part of my normal routine. I prefer the ETF and/or mutual fund route to hedge risk."


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