Produced in partnership with Praemium as part of ‘The Adviser’s Guide to Investing in Alternatives’. Download the full guide here.
In the competitive world of wealth management, standing out from the crowd can be a challenge. Many wealth managers, family offices and private banks are vying for the same high-net-worth (HNW) clients, who typically have demanding expectations around personalised service, expertise, and investment returns. For forward-thinking advisers, building a sophisticated advice proposition that includes alternative investments can provide a compelling point of difference.
By incorporating alternatives into their service offering, advisers can build a comprehensive wealth management proposition that appeals to sophisticated, higher-value clients seeking specialised expertise and access to unique investment opportunities.
Our research with CoreData reveals that HNW investors typically allocate 17 per cent of their portfolios to alternatives; nearly double the 9 per cent allocation for average investors. The commitment to alternatives increases even further for ultra-high-net-worth investors, who are dedicating up to 20 per cent of their portfolios to these investments.
The research highlights a significant shift in HNW investor behaviour, with alternative investments playing an increasingly vital role in portfolio construction. This trend is particularly noteworthy given almost 70 per cent of HNW investors consider alternatives “essential” for future alpha generation.
As the alternative investment sector continues its growth trajectory, advisers who can effectively incorporate these assets into their service offering will be well-positioned to attract and retain high-value clients.
The shift toward alternatives isn’t merely about diversification, it’s about capturing new and unique opportunities for alpha generation. Praemium’s research indicates that over 20 per cent of advisers identify alternative investments as a crucial strategy for generating excess returns, particularly in an environment where traditional market opportunities may be limited.
A new engagement strategy
The growing appetite for alternatives presents a significant opportunity for financial advisers to enhance their value proposition. Our research shows that 56 per cent of HNW investors who invest in alternatives maintain an ongoing relationship with their financial advisers, compared to just 36 per cent of those who don’t invest in alternatives. The research also reveals a striking engagement differential. Over 60 per cent of HNW investors who invest in alternatives describe themselves as “highly engaged” with their investments, versus 37 per cent of those who stick to traditional asset classes.
This heightened engagement stems from several factors:
- Access to a broader spectrum of investment opportunities;
- The complexity of alternative investment strategies requiring deeper understanding of market dynamics, asset classes and portfolio construction; and
- Greater collaboration opportunities between adviser and client in shaping investment strategies which foster a sense of empowerment and satisfaction.
The research also shows that 62 per cent of financial advisers who frequently work with HNW investors have recommended alternatives in the past 12 months, indicating growing adviser recognition of their importance in portfolio construction. It’s also an acknowledgment by advisers of the importance this investor segment places on the inclusion of alternatives in their wealth management strategy.
Removing barriers
When it comes to investing in alternatives, there are still some perceived challenges that must be addressed before advisers can fully embrace the opportunity. Our research shows that the top three barriers preventing advisers from using more alternatives are liquidity, fees, and lack of transparency.
Matt Walsh is general manager, distribution for Praemium.
This is an edited abstract from the Professional Planner Adviser’s guide to investing in alternatives. For insights on opportunities in private markets, download your copy here.
