While there is interest in alternative investment products, there are still significant concerns, namely their lack of liquidity and overall cost. What’s more, some planners have indicated a general lack of trust in the ability of these products to meet clients’ needs.
Meanwhile, more than 90 percent of investment professionals said they use or recommend exchange-traded funds for their clients, and nearly half say they plan to increase their utilization over the next 12 months. Investment professionals are embracing a blend of active and passive strategies after a turn toward one or the other over the past couple of years.
Those are some of the conclusions of the 2023 Trends in Investing survey, produced by the Financial Planning Association and the Journal of Financial Planning, which asked survey respondents to disclose how they were using alternatives for their clients.
Although investment professionals are generally bearish in their economic outlooks, more than 71 percent expressed some level of confidence in the traditional 60/40 portfolio’s ability to provide similar returns as it has historically.
The survey asked respondents to identify all of the investments they are currently using with or recommending to their clients. Over 90 percent of investment professionals who responded to the survey said they use or recommend ETFs for their clients. Nearly half say they plan to increase their utilization in the next 12 months.
Cash and equivalents (76 percent), non-wrap mutual funds (64 percent), individual stocks (51 percent), and bonds (47 percent) round out the top five investments that professionals are using or recommending to their clients.
To get a sense of how the investment landscape has recovered since the COVID-19 pandemic, the survey compared investment vehicle utilization between 2019, the last year before the pandemic started, to utilization in 2023. While innovation has brought some new opportunities to market, investment professionals’ utilization of tried-and-true vehicles is largely unchanged.
In this year’s survey, participants asked specific questions about their investment approach regarding alternative investments. Twenty-eight percent said they were actively investing in or searching for alternative investments suitable for their clients. Meanwhile, 30 percent of investment professionals said they were familiar with alternative investments but did not intend to invest in them or recommend them to their clients, and 11 percent were either not familiar or not interested.
Half of professional advisers are investing in or recommending that clients invest in funds that provide access to alternative investment classes or strategies (50 percent), while one in five are making direct investments in a product, project or company.
The most important objectives for investment professionals who recommend or invest in alternatives for their clients were diversification (55 percent) and risk mitigation (41 percent). Their biggest obstacle was the lack of liquidity, which 48 percent of professionals cited as a concern. Fees and expenses were a notable challenge (41 percent) while 38 percent said identifying suitable opportunities for client objectives was preventing them from implementing alternatives in their clients’ portfolios.
Download a copy of the full 2023 Trends in Investing survey by the Financial Planning Association and the Journal of Financial Planning here.
Mike Consol (m.consol@irei.com) is senior editor of Real Assets Adviser. Follow him on Twitter (@mikeconsol) and LinkedIn (linkedIn.com/in/mikeconsol) to read his latest postings.