At the end of the day, clients who want to consider alternative investments may want to consider adding to their traditional investing line up – which could be as simple as adding an IRA. For some investors, now may be an excellent time to consider annuities as well as various life insurance products. Those “vanilla” investments carry various tax consequences that clients should consider. But they may lack the illiquidity, barrier to access and degree of expertise that alternative investments have.
Every so often, we write articles for advisors on how to manage their marketing and client prospecting. If you’ve read them, you know that we are firm believers in having a marketing plan and relying strongly on its friend, the marketing calendar. And those dear readers, is how we had an entire article on alternative investments that aren’t cryptocurrency planned for this month. Are we so savvy that we knew crypto would turn crapto? We’d like to think so, but our marketing team swears that a solid marketing calendar trumps a crystal ball every time. For other key points in marketing see our marketing articles.[1]
Whether we knew it was time to turn away from discussing cryptocurrency because of the media saturation or from our decades of experience and training that crypto could only last so long, the fact remains that for many advisors the topic of alternative investments that aren’t cryptocurrency, NFTs or real estate is top of mind for some clients. Some clients may have failed to heed their advisor’s advice concerning digital currency and its lack of stability and may need reassurance that traditional investment products are stable and effective means to save for retirement. Those clients may want to hear about annuities and adding them into a 401(k) plan. But some clients may still want (or need) to enhance their savings and investment plans with alternative investments. For those clients hearing about the following options could be helpful. As always consult your counsel before considering adding any new marketing or outreach on investment products.
By definition, an alternative investment is one that is to state the obvious, one not made in traditional avenues. That is, one that isn’t in stocks, bonds, or cash. This can include private equity, venture capital, hedge funds, managed futures, collectibles like art and antiques commodities and derivatives. Most people classify real estate as an alternative investment as well. The main difference in types of alternative investment is the liquidity of the asset. Most alternative investments aren’t very liquid. While news about the real estate market may seem like a house can be for sale one day and sold the next, the truth is the average time from listing to sale for houses in the U.S. is 66 days.[2]
Collectibles, on the other hand, may seem more liquid and may seem like they have a smaller barrier to entry than hedge funds or private equity. That asset class includes art and antiques, including toys, coins, stamps, and baseball cards. It can also include vintage wines and cars. But, as one expert cautions that collectibles “can be risky due to the high costs of acquisition … and potential destruction of the assets if not stored or cared for properly. The key skill required in collectibles investment is experience; you have to be a true expert to expect any return on your investment.” The last time we discussed collectibles we cautioned that a client’s interest in them may have more to do with a lack of education about options. “If you look at the similarities between tulips, beanie babies and Bitcoin you may find that the similarity is not how easy it is to move them, but the timing of the interest in them. The interest in Bitcoin may flux as people become nervous about the coming recession. If so, then plan sponsors may serve their employees addressing employees’ fears about the recession through more education about the source of those fears.”[3]
Some experts add private debt to the collection of alternative investments. Private debt may seem more accessible to the average investor than private equity or hedge funds (or structured products for that matter). While there is some movement around crowdfunding venture capital opportunities,[4] most investors don’t opt for that as an alternative investment. Private debt is also known as microloans, a topic we covered in 2019.[5] Back then we said “there is a market for microloans for the middle class, both as borrowers and as investors. Focusing again on [investment site] Prosper … they claim that 969,254 people have gotten loans through them, with assets totaling $16 billion.” Prosper refers to itself not as microlending but as peer to peer (or P2P) lending, and usually this kind of alternative investment can be done through a self-directed IRA, an investment with high risk.
The remaining asset classes may seem like lackluster options for clients. In that case, it may be worthwhile to listen to the needs behind what clients are asking for regarding alternative investments. We discussed commodities recently as something sparking client interest because of the inaccessibility of the real estate market.[6] We also noted that a client’s interest in commodities might not be driven by a need to diversify or a need for additional investment options to catch up or recover. “Advisors may want to listen their client’s interest in investing in commodities for notes of that familiar emotional investing tune.” Each kind of alternative investment drives its own kind of risk.
At the end of the day, clients who want to consider alternative investments may want to consider adding to their traditional investing line up – which could be as simple as adding an IRA. For some investors, now may be an excellent time to consider annuities as well as various life insurance products. Those “vanilla” investments carry various tax consequences that clients should consider. But they may lack the illiquidity, barrier to access and degree of expertise that alternative investments have.
[1] Our monthly newsletter for advisors includes articles on marketing like how to speak stress https://www.bcgbenefits.com/blog/how-to-speak-stress and post pandemic myths and marketing https://www.bcgbenefits.com/blog/marketing-post-pandemic
[2] https://www.homelight.com/blog/how-long-does-it-take-to-sell-a-house
[3] https://www.bcgbenefits.com/blog/crytpo-currency
[4] https://www.ourcrowd.com/about
[5] https://www.bcgbenefits.com/blog/microloans
[6] https://www.bcgbenefits.com/blog/emotional-investing-and-commodities
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
get xpress proposal
