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Rating:How Exclusive Are FAs About Their Liquid Alts Providers of Choice? Not Rated 5.0 Email Routing List Email & Route  Print Print
Wednesday, August 31, 2016

How Exclusive Are FAs About Their Liquid Alts Providers of Choice?

Reported by Neil Anderson, Managing Editor

Financial advisors work with less than two liquid alternatives managers each, on average.

T. Neil Bathon
FUSE Research Network
Managing Partner
Needham, Massachusetts-based Fuse Research Network just released its second "Alternatives: The Advisor View" report in the Fuse Advisor Trend Monitor series. Neil Bathon's Fuse folks teamed up with WealthManagement.com and surveyed more than 750 advisors about alternative investments, including liquid alts.

The researchers found that FAs use an average of 1.77 liquid alts managers each. That number increased somewhat with FA size: FAs with less than $50 million in assets worked with an average of 1.48 liquid alts shops each, while FAs with more than $150 million in assets worked with an average of 2.23 liquid alts shops each.

Pat Newcomb, director of benchmark research at Fuse, wonders if the average number of liquid alts shops used by each advisor is low in part because of the lower average allocation of assets that advisors use for alts. The researchers found that FAs allocate about 13 percent of client assets to alternatives and that they use alternatives in portfolios for more than 30 percent of their clients.

This is the second edition of Fuse's report on advisors and alternative investments, and the first was released in 2014. In both 2014 and 2016, FAs expected to increase their use of alternatives over the next two years; yet, FAs' self-reported use of alternatives now, in 2016, is in line with their self-reported use two years ago. In other words, FAs said they'd be using more alternatives, but they ended up using about the same amount.

"Aspirationally, they use more alternatives," Newcomb tells MFWire. "Part of the challenge is educating advisors to hold an alternative through multiple market cycles."

The new, 16-page report also digs into a number of other topics, including: which product structures FAs use for their alternatives (mutual funds were the plurality choice, by assets); providers' challenges when it comes to educating FAs about liquid alts (the plurality response by FAs was that they don't know of any liquid alts shops providing effective education on the subject); FAs using liquid alts strategically versus FAs using them tactically; and more. 

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