Be Wary of “Institutional-Quality” Product Claims
Advisors looking to move between independent broker-dealers should do their research when firms claim they offer “institutional-quality” alternative investment products, Jeff Nash writes in Barron’s.
The difference between institutional products and institutional-quality alternative products “can be like the difference between pure gold versus ‘gold plated’ jewelry,” one transitioning advisor comparing product platforms tells Nash, president and CEO of Nash Consulting Group.
Some institutional product providers expanding in the retail alternatives sector delegate the main work for institutional-quality alternatives to sub-advisors who often don’t have any institutional experience, according to Nash.
Likewise, retail alternative investment product providers can claim a foray into institutional-quality products because the sub-advisors they hire are institutional strategists, he writes. More and more retail product sponsors are expanding into what they call the institutional-quality alternatives product space, according to Nash.
Moving between IBDs can be further complicated by the increased scrutiny of financial products arising from the implementation of the Department of Labor’s fiduciary rule and the varying approaches platforms have taken to implement the rule, Nash says. The rule, which purports to force retirement account advisors to put clients’ interests first, went into partial effect in June.
Advisors who are considering a transition therefore need to do their due diligence to determine how their product lineup could be affected by a move to another platform, says Nash. He suggests asking the prospective firm to send over a list of its top retail product sponsors and study the sponsors’ track records in the institutional space. Advisors should also consider the scope of the institutional space served by the sponsor and scrutinize the sub-advisors involved, according to Nash.