Advisors should help clients make the right decisions about alternative investments, according to David Levi, head of Brookfield Oaktree Wealth Solutions.
“The role of an advisor is making sure that the client understands what they’re investing in and understands things like the tradeoff between liquidity and returns, the details of the various vehicles that are out there,” Levi said.
Advisors should also “assure that they know the client deeply,” including their liquidity requirements and their risk tolerance, he added.
Brookfield Oaktree Wealth Solutions invests in alternatives such as real estate, infrastructure and alternative credit, according to Levi.
“Alternatives are not for everybody, but alternatives in different vehicles and structures make sense in almost everybody’s portfolio,” he said.
Around 84% of 107 advisors surveyed by CAIS, an alternative investment platform for advisors, in May said they’re already recommending alternatives to clients who meet accredited investor requirements.
Alternatives present challenges for advisors, however: 69% of those surveyed said a lack of education about alternatives is an obstacle, while 37.6% pointed to high levels of administration and 34.3% said they’re concerned about difficulties in the due diligence and compliance processes, according to CAIS.
The average allocation of retail investors to alternative investments is just 5% of their portfolios, according to a 2020 report from the Chartered Alternative Investment Analyst Association.
Nevertheless, Brookfield Oaktree is focused on “bringing our institutional-caliber investment capabilities to the wealth market,” with the expectation that more retail investors will become interested in alternatives in the coming years, according to Levi.
To that end, Brookfield Oaktree has a team that works with wirehouses, custodians for registered investment advisor firms and large RIA firms to determine their alternative investment needs, according to Levi. Those firms, which include Merrill Lynch, JPMorgan and Dynasty Financial Partners, “make decisions about which products they want to put on their platforms, just like a mutual fund,” he said.
Last month, Rudy Adolf, founder and chief executive officer of Focus Financial Partners, said that given the current inflationary environment, investors need something other than plain old stocks and bonds.
“The world of the 60/40 [stock/bond portfolio] is over,” Adolf said last month during a presentation at the U.S. Financials, Payments & Commercial Real Estate Conference hosted by Morgan Stanley.
“With the way the interest rates are going, the way markets are going, any portfolio of any decent size needs to have a much more sophisticated set of choices, and particularly alternatives,” he added.
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