Bank of America Merrill Lynch joins major firms jostling for the sweet spot to sell alternative investments

Financial advisors are selling alternative investments to clients in greater amounts than ever, with $200 billion in sales expected this year. A number of firms – LPL Financial, Edward Jones, Vanguard – have recently revamped their policies and programs to sell the high-risk, high-priced investments.

Add Bank of America Merrill Lynch to the list of firms making changes to their alternative investment programs, with the bank saying last month it was focusing a new effort on ultra-high-net-worth clients – or those with a net worth of $50 million or more – and including new private equity managers on its platform as an option for those rich clients.

“Over the last several years, this has accelerated and we are seeing meaningful growth in the alternative investment platform,” Mark Sutterlin, head of alternative investments, Bank of America Merrill Lynch, told InvestmentNews. Sutterlin started at the old Merrill Lynch as a financial advisor in 2008 during the mortgage crisis. “And it’s being driven by financial advisors.”

“There are more high quality products with lower investment minimums and simplified reporting,” Sutterlin said. “We believe most investors will have a better outcome with long-term allocation to alternatives.”

He declined to name specific investment managers offered in the new program, which will feature closed-end type funds that investors draw down from overtime.

“A high proportion of [the bank’s] financial advisors have some book of business with ultra-high-net-worth clients, while other advisors focus on that market,” Sutterlin said. “Regarding the larger market trend, it’s a positive thing to have broader access to such investments as long as there is diligence and selection criteria.”  

The number of clients using the bank’s alternative investment platform has more than doubled in the past five years, according to the company.

According to investment bank Robert A. Stanger & Co., fundraising – meaning sales – of alternative Investments totaled close to $102.3 billion through July and will likely hit $200 billion this year. That’s compared to close to $138 billion in sales of alternative investments last year and $84 billion in 2023.

Financial advisors routinely pitch such alternative assets to clients as a way to boost yields and diversify portfolios into investments that are not directly linked or correlated to the market.

But alternative investments such as nontraded BDCs and REITs are typically more expensive than plain vanilla stock and bond mutual funds and exchange-traded funds (ETFs). And there’s no guarantee that investors are getting access to the best money managers in fields such as private equity, which has exploded as an industry in the past 20 years.

Two fundamentals - product and technology - are driving that growth, said Alois Pirker, an industry consultant.

“This is a continuation of how an advisor and a firm differentiate from ETFs, which are cheap but not an exciting story, along with financial planning and advice,” Pirker told InvestmentNews. “And the focus on alternatives has been happening since the industry’s massive switch to passive from active investing, along with much better technology,” to support these products.