Full Article: Financial Planning – Ask an Advisor: Why are alternative assets often not included in portfolios?
The article “Ask an Advisor: Why are alternative assets often not included in portfolios?” explores the hesitancy among financial advisors to incorporate alternative investments into client portfolios. Advisors cite reasons such as complexity, unfamiliarity, illiquidity, higher fees, increased risks, and opaque pricing structures. They emphasize the importance of understanding these investments thoroughly before considering them for clients, noting that there are often simpler, more transparent options available that can achieve similar financial goals.
Key Takeaways:
- Complexity and Unfamiliarity: Alternative investments are often complex and not well understood by many advisors, leading to reluctance in recommending them to clients.
- Illiquidity Concerns: Many alternative assets lack liquidity, making it difficult for clients to access their funds when needed, which can be a significant drawback.
- Higher Fees and Costs: These investments often come with higher fees and costs compared to traditional assets, which can erode potential returns.
- Increased Risk and Opaque Pricing: The risks associated with alternative investments can be higher, and their pricing structures are often less transparent, adding layers of uncertainty.
- Availability of Simpler Options: Advisors note that there are plenty of less complicated, more transparent investment options that can achieve similar financial objectives without the added complexities of alternative assets.
Overall, the article highlights the cautious approach advisors take towards alternative investments, prioritizing client understanding and the suitability of investment choices.