HNW alternative demand spells advice opportunity

Alternatives praemium Core Data high net worth asset allocation portfolio construction

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With high-net-worth (HNW) investors representing the largest market for alternative assets, research from Praemium and CoreData underscores why this is a compelling opportunity for advisers.

The research report, commissioned by Praemium from CoreData, surveyed 150 advisers with a HNW focus to gauge their use of alternative investments.

Over the past year, there has been a 23 per cent rise in funds allocated to alternatives as the asset class approaches $6 billion in funds under administration (FUA).

More than 17 per cent of HNW investors are now diversifying their portfolios with alternative assets, according to Praemium. This figure is higher than any other investor segment, with just 10 per cent of core affluent investors and 6 per cent of mass affluent investors holding alternatives.

“Implemented appropriately, with the right due diligence, investing in alternatives also offers the opportunity to enhance client engagement and create the collaborative advice-client partnership HNWs are increasingly seeking,” the report wrote.

Praemium discovered that HNW investors who incorporate alternatives into their portfolios exhibited greater engagement and are significantly more connected with their advisers.

Over half (56 per cent) of HNW investors who embrace alternatives reported an ongoing relationship with an adviser, compared to just 36 per cent of HNW non-alternative investors.

This flowed onto how engaged the clients were with their portfolios as over 60 per cent stated they are highly engaged with their investment activities. This figure dropped to 37 per cent for their counterparts which stuck to traditional asset classes.

However, the report found that 64 per cent of HNW investors seek their own methods when investing in alternatives, presenting a gap in the adviser-client dialogue and potential portfolio risks.

“As the research highlights, there is a significant opportunity for advisers to have the collaborative advice relationship HNWs are wanting which can strengthen client relationships, mitigate the risk of clients seeking opportunities independently, and help the adviser position themselves as a trusted partner to guide them through the complexities of this asset class,” described Denis Orrock, Praemium chief strategy officer.

In addition, Praemium encouraged advisers to have conversations with their clients who are looking to access alternatives independently.

“It also offers the opportunity to provide education and support on a topic that is becoming increasingly of interest to HNW investors, and one where they may benefit from professional guidance. This, in turn, can enhance the relevance and effectiveness of your advice, fostering trust and confidence among HNW clients,” according to the report. 

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