MutualFundWire.com: Bigger Advisors Drink the Alternatives Kool-Aid
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Tuesday, October 5, 2010

Bigger Advisors Drink the Alternatives Kool-Aid


Fundsters who spend their time contemplating new products to launch in the advisor-sold space may want to take a look at a new survey just released by Rydex|SGI (now backed by Guggenheim Partners) [see profile]. In the "2010 Rydex|SGI Annual AdvisorBenchmarking Study," Rydex affiliate AdvisorBenchmarking found that advisors who put at least 10 percent of their clients' assets into alternative investments had an average of 536 clients and $651 million in assets, compared to the 436 clients and $223 million for the average advisor with less than 10 percent of client assets allocated to alternatives.

"To truly compete with the larger and more sophisticated advisor practices, it is becoming increasingly important to offer alternative investment products," stated Maya Ivanova, research manager for AdvisorBenchmarking.

AdvisorBenchmarking found that 71 percent of advisors "advocate using alternatives for their clients."

Dow Jones' Daisy Maxey reported on the survey and interviewed Sanjay Yodh, managing director of alternative strategies at Rydex| SGI.

"The growth of alternative strategies in mutual funds is going to play a very large role in how and why people invest in these strategies," Yodh stated.

Company Press Release

October 4, 2010…ROCKVILLE, MD…The 2010 Rydex|SGI Annual AdvisorBenchmarking Study showed that the majority of investment advisors (71%) surveyed advocate using alternatives for their clients, with 19% of advisors having at least half their clients invested in alternative investments.

The study also shows a significant increase in the percentage of advisors citing diversification as the main driver of using alternative investments. In 2007, 60% of advisors surveyed said diversification was the primary reason for the use of alternative investments. In 2009, that percentage increased to 76%.

“We’ve seen that over the past few years, alternative investments are being valued more as a diversifier from traditional investments rather than a source of enhanced returns,” says Maya Ivanova, research manager for AdvisorBenchmarking. “In an increasingly volatile market, advisors continue to look beyond of traditional investment choices to help clients achieve their investment goals”

The study revealed that advisory firms that use alternative investments tend to have more clients and assets under management compared with those who use little to no alternative investments. Advisor practices that allocate at least 10% of client portfolios to alternatives had on average 536 clients and $651 million in AUM, whereas those with less than 10% allocated to alternatives averaged 436 clients and $223 million in AUM.

“To truly compete with the larger and more sophisticated advisor practices, it is becoming increasingly important to offer alternative investment products,” said Ivanova.

According to the study, alternative usage will continue to trend upward. More than half (61%) of advisors expect to increase their use of alternative investments in the next three years, and only 2% expect to decrease their current usage.

Some additional survey findings include:

  • The average advisor’s typical client portfolio had 8% invested in alternative assets (e.g., hedge funds, funds of funds, direct investments) and 11% invested in alternative asset mutual funds.

  • Most RIAs surveyed currently advocate using alternative investments either for many clients (46%) or for a select few clients (24%).

    About the Survey

    The 2010 Annual AdvisorBenchmarking Study was conducted through online surveys of 427 RIA firms from February through April 2010. The analysis of the results reflects only information from completed surveys. This information is intended to be general and these overviews are no substitute for professional, legal or consulting advice. This information should not be construed as advice from Rydex|SGI AdvisorBenchmarking, Inc., AdvisorBenchmarking.com, its strategic partners or their affiliates. Rydex|SGI AdvisorBenchmarking.com is a service of Rydex|SGI AdvisorBenchmarking, Inc., an affiliate of Rydex|SGI.

    About AdvisorBenchmarking, Inc.

    AdvisorBenchmarking, Inc. is a research and analysis center focused on the RIA marketplace. Through its survey web site, www.AdvisorBenchmarking.com, the firm conducts multiple surveys of advisors each year covering a host of business and investment management practices. The findings and analysis of the data are then released to the marketplace in the form of annual studies, quarterly research notes and monthly newsletters. The service is aimed at helping advisors grow and enhance their firms by comparing their businesses to others, highlighting the best practices of the most successful advisors in the business. AdvisorBenchmarking is an affiliate of Rydex|SGI.


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