Advisors are increasingly turning to alternative investments, not as a source of outsized returns, but rather to provide true diversification to clients' portfolios, according to a new Rydex|SGI survey of registered investment advisors, broker/dealer reps, and wirehouse brokers. In fact, 81% of RIAs and 78% of brokers surveyed cite diversification as the main reason for adding alternatives to the investment mix.
Although the majority of RIAs (96%) and brokers (95%) said they already employ alternatives in their client portfolios, the Rydex|SGI study found that alternative investment usage and awareness is in the "adolescent" stage for RIAs versus the "infancy" stage for brokers. Only 8% of RIAs say that they have "little familiarity" with alternatives compared to 16% of brokers. Overall, advisors indicate a significant appetite for additional education regarding alternative investments, with RIAs universally wanting to enhance their knowledge and 86% of brokers saying they would carve out time to learn more about using alternatives.
"This is not a fad," said Richard Goldman, Rydex|SGI's CEO, at a press briefing on the study. "There is a burning need, because of the acceleration in the use of alternatives for education." Sanjay Yodh, Rydex|SGI's managing director for alternative strategies and the executive spearheading Rydex|SGI's advisor education effort, added that the proper use of alternatives in a portfolio is to provide investments that do not move in lockstep with stocks and bonds. "It's about managing risk," he said.
