As noted in an earlier column, research conducted by consultants such as Casey Quirk has made an indisputably compelling case for including alternatives in individual as well as institutional portfolios — particularly in the relatively low-yield, low-total return investment environment for traditional equities and fixed-income portfolios, the precise environment we’re facing today.

There have always been at least five challenges inhibiting more widespread use of alternatives by professional investment advisers on behalf of their clients.

The first is lack of experience and expertise. Most advisers have received little or no training or education in the nuances of investing in the alternative space.

The second is the high cost of distributing these investment classes. Most, if not all, wirehouses and independent broker/dealers require product sponsors to pay relatively high fees to underwrite their programs before adding them to their platforms. Most of these costs come out of the investors’ pockets.

The third is the fact that onboarding new clients onto these kinds of programs tends to be archaically paper-based rather than screen-based, requiring more time on the part of advisers recommending these products, creating higher costs for advisers.

The fourth is that it’s difficult, if not impossible, for most advisers to integrate the performance reports for these programs into their quarterly and annual client statements, making it even more time consuming to integrate alts into portfolios.

The fifth is the absence of benchmarks to help advisers evaluate the ongoing performance of the programs they’re recommending.

The educational challenge is finally being addressed in part by publications such as this one, and by organizations like IPA and ADISA, as well as various family office organizations such as the Family Office Real Estate Institute.

Programs that are fully registered as public offerings and properly structured can now qualify for their own ticker symbols, which eliminates the problems and extra costs associated with onboarding these kinds of programs.

Several performance measurement and portfolio reporting packages are beginning to incorporate tracking and reporting capabilities for alternative investment programs, which reduces or eliminates the relatively high cost of reporting alt performance to clients.

The real challenge lies in lowering (or eliminating altogether) the high cost of distribution. Product sponsors simply can’t deliver market returns if they first have to pay out between 3 percent to 15 percent to raise the capital from investors for their investment programs. This is not just a problem with the alternatives side of the financial markets. In my opinion, the commission side of the business needs to completely disappear.

No matter how good your intentions as an adviser may be, it’s almost impossible to provide objective advice about investing in alternatives that stand to pay you several multiples more in commissions than you would earn from recommending strictly traditional asset classes. A far better model for the integrity of the industry’s sake, and in the best interests of the investing public, is the fee-for-advice model — particularly fees based on a percentage of the assets an adviser has under management. In this way, fees rise and fall based on the performance of the underlying portfolio, and the incentive to recommend higher commission-based products is altogether eliminated. This empowers the adviser to recommend tailored investment programs and only suitable investment programs that are strictly targeted to meet the objectives of their individual clients.

Shifting to a noncommissioned-based model won’t eliminate altogether the cost of distribution. The professionals promoting these programs to adviser platforms will still need to be paid. The difference is that their compensation now becomes a cost borne by the product sponsor, covered by the product sponsor’s asset management fees, and not upfront “loads” paid for by the investor.

The SEC and FINRA clearly are headed in this direction, and for my money, eliminating the commission side of the business can’t come too soon. The interests of investors have to come before the interests of the people who are serving them. That’s what being a fiduciary is all about.

I realize my position on this matter won’t be popular with all of our readers — particularly those who make their livings on commissions. But I do think this is the future of their business, and the sooner they adapt, the sooner they’ll be prepared to face and prosper in the Brave New (commission-free) World that’s coming.

Meanwhile, it’s important to be careful. Be very, very careful. It’s a whacky world out there.

Geoffrey Dohrmann is president and CEO, publisher and editor-in-chief of Institutional Real Estate Inc.