Is Your Advisor Talking to You About Alternative Investments?

Published on February 6, 2018

The growing interest in nontraditional investments appears to be spreading!

A late 2017 survey of 250 registered investment advisers (RIAs) who manage at least $500 million in assets revealed that these advisers plan to include alternative investments in 2018 as a means to hedge the markets. Interestingly, 51 percent of the advisers said that half their clients already hold alternatives in their portfolios and nearly 20 percent also reported a fairly significant number (20-50 percent) of their clients are invested in alternatives.

Forty-five percent of RIAs reported they will increase their clients’ portfolio allocations to alternatives in 2018, with a majority of those planning to increase that alternative investment exposure in client portfolios by up to 25 percent. Thirty-one percent of RIAs indicated they want to increase their clients’ investments in alternatives as a means to enhance portfolio performance. These findings tell us that RIAs are recognizing the potential alternatives have to not only diversify but also build a more lucrative retirement portfolio.

Of the most common alternative asset classes:

• Over one-third (37 percent) of RIAs plan to increase private equity exposure
• Nearly one-fourth (23 percent) will increase exposure to private credit/lending
• Over one-fifth (22 percent) will increase exposure to real estate

These three asset classes are already popular among self-directed investors, with real estate accounting for the majority of assets used to build long-term wealth in a retirement plan.

Despite the interest in increasing these allocations for their clients, some investment professionals who responded to the survey cited concerns about their clients’ lack of knowledge about alternative assets—and for good reason. Unlike traditional retirement plans, self-direction requires a certain level of financial savvy and the willingness of the investor (or their advisor) to do proper due diligence; it is critical they understand the ins and outs of their investment options as well as the IRS restrictions on investment types and prohibited transactions.

At Next Generation Trust Company we provide support to clients—and their advisors—who want to allocate retirement funds to alternative assets. Want to know more about alternative investing through self-directed retirement plans? Contact our professionals at Next Generation Trust Company with your questions at Info@NextGenerationTrust.com or 1-888-857-8058; we’re here to help you take control of your future, today, through self-direction as a retirement wealth-building strategy.