Advisors want simple, flexible alternative investment products, but the market is lagging

Alternative investments may need a rebrand at some point, because they are becoming less ‘alternative’ and more mainstream, especially among younger investors.

But even as demand in areas such as private markets grows, advisors are often left scrambling for clear information and education, and a lack of suitable products for a retail client base. Something the alts industry needs to address.

Investment News caught up with Tim Kresl, managing principal and head of US client success at Broadridge, to find out more about where the gaps are in knowledge and product and how they can be plugged.

“While an increasing number of resources exist, education around alternatives is fragmented,” he says. “Advisors are stitching together resources from home offices, asset managers, and third parties — with most programs and certifications being highly specialized to a specific platform, vehicle, and/or asset class.”

Broadridge’s research shows that 70% of advisors feel they lack access to the right education on alts/private markets and Kresl says that more broad-based materials and those that specifically address key concerns (liquidity, fees, transparency, etc.) would help.

“Client-ready educational programs and materials would bridge the investor educational gap,” he says. “Over time this will become more integrated into existing training and onboarding programs but today is often standalone and somewhat siloed. According to our research approximately 26% of advisors stated that they’re going to increase their allocation to semi-liquid and illiquid alternatives in the next two years. These advisors are increasingly integrating private markets into their core value proposition to investors, which underscores the need for more integrated training in this area.”

With advisors lacking the knowledge they need, clients are also left wanting. Kresl says once advisors are brought up to speed, the industry needs to educate clients by wealth tier.

“Start with the wealthier investors that are more likely to be familiar with alternatives given the heightened suitability for this audience,” he suggests.  “The question is, how far down market should these education efforts go and how do they change as you go down market?”

As well as education, the right products are also in demand with liquidity constraints, high fees, complex paperwork, lock-up periods and lack of transparency topping the list of barriers according to the research.

“Advisors want simplicity and flexibility, the market hasn’t caught up yet,” says Kresl.

Technology has a role to play in growing knowledge and adoption of alternative investments and Kresl says digital platforms are already helping to provide transparency and access to products.

“That said, in some cases they also put the onus on investors to both consume and internalize the information responsibly and accurately which introduces risk,” he notes. “We’ve also seen a number of fintech providers who continue to disrupt this space, helping to streamline both implementation and education for advisors and investors.”

Given the current gaps in knowledge and product provision, how does Kresl see the alts space evolving over the next 3-5 years?

“Advisors consistently tell us that they are looking for more liquid and evergreen solutions in this area with lower barriers to entry (cost and administrative),” he says. “Therefore, I would expect that product innovation will continue to push the marketplace in this direction. Additionally, wealth platform enhancements will also reduce complexity though better workflow tools and integrations.”

He also sees opportunity from the flood of new entrants into the marketplace and alternative specialists being added by traditional asset managers.

“I would expect significantly more resources will be available to advisors and investors to further reduce the training burden in the private market ecosystem,” he concludes.