Alternative products will see increasing use by financial advisors with greater utilization of existing favorites and expansion into a wider range of options.
Over the next two years, products such as cryptocurrencies and other digital assets, interval and tender-offer funds, and hedge funds will be among those that are less commonly used by advisors today but will see growth of 15% or more.
The report from Fuse Research reveals that some of the most used alternative products will see decreased use in the next two years including publicly traded REITs with a 25% drop compared to today. Liquid alternative mutual funds and liquid alternative ETFs, which complete the top 3 most uses today, will also have less prominence in the years to come but will both overtake publicly traded REITS in the usage league table.
“Advisors are aggressively planning to increase their use of alternatives, especially in the illiquid and semiliquid space. This will take time as underlying issues will complicate its implementation,” said Mike Evans, Director of BenchMark Research at FUSE Research. “Liquidity concerns, limited accessibility beyond wirehouse advisors and advisors with large books of business, client suitability as well as operational and compliance challenges will all hinder the speed of adoption across the broader retail investor market.”
Advisors’ use of alternative products in the next two years, if the report is realized, will be led by cryptos/digital assets at almost 50%, followed by private equity, hedge funds, and private debt.
The research is based on a survey of financial advisors across all channels.
While the intention of advisors may be to increase their usage of alternatives, a report last year highlighted how a lack of knowledge can be a significant barrier to recommending certain products to clients. Cerulli’s research said that asset managers have work to do to ensure that advisors fully understand the products that are available.
The need to educate advisors on alternatives was identified in the report as among the top challenges that asset managers face in expanding the alternatives opportunity to the retail market, along with low allocations through home offices and an inadequate distribution force.
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