Alternative assets: Advice for advisors

September 29, 2020

As an increasing amount of advisors seek to diversify portfolios through alternative asset investments, finding the right custodian can give you the edge you need to stand out. Learn why in the article below.


Investors’ appetite for portfolio diversification is driving more independent registered investment advisors (RIAs) to consider alternative asset investments.

“The number of advisors we see entering the alternative asset space is incredibly high, certainly better than half,” said Kyle Erion, vice president and business development officer of Institutional Trust and Custody at U.S. Bank.

A recent survey by PPB Capital Partners of 250 RIAs with at least $500 million under management reflects this. Those surveyed said more than 50 percent of their clients have invested in alternative assets.


Complex market conditions prompt diversification

Historically, advisors have focused on traditional investments, such as stock and bonds. With increasingly complex markets, high net worth individuals and families are looking for ways to diversify their investments.

“Alternative assets is a way for families to pool resources to broaden their investment scope in an ever changing market,” Erion said. 


Keeping up with the clients

Due to this desire for diversification, a significant percentage of advisors have ventured into alternatives, such as hedge funds, private equity funds, real estate investment pools and pools of commodities. Investment options advisors are willing to take on has expanded along with their clients’ appetites for alternatives.

“It’s a way for advisors to differentiate themselves within their prospect and client base to say, ‘Hey, not only do we have expertise in stocks and bonds, we can also generate value for you using alternative assets,’” Erion said. “A lot of the advisors that we work with want to be a full-service provider and trusted financial partner for their clients.”

But managing those investments isn’t easy. 


The gauge of a good custodian: Resources and capacity

For support, advisors need a custodian with the capacity to handle less-traditional investments in addition to the usual stocks and bonds. Alternative assets require a more hands-on approach, though — and not all custodians are up to the task.

“Some custodians in the industry shy away from these types of assets because it’s a more manual process,” Erion said. “Not only do they require getting the information and evaluating the asset to ensure it can be efficiently held, it’s also labor intensive to keep the asset properly logged.”

To thrive in this space, you need a custodian with the resources and capacity to handle the demands of these processes. Ideally, they’re able to function as an extension of your staff — supporting growth and enabling new opportunities.

“It’s important to find a custodian who is willing, within reason, to hold most alternative assets and who has dedicated resources that are experts in posting and maintaining the assets in a timely and accurate fashion,” Erion said. “At U.S. Bank, we aspire to be a one-stop shop for advisors. If you only hold stocks and bonds, great; if you want to expand your practice to be more boutique, we want to be your partner for that as well.”

Pursuing alternative assets provides an ideal way to differentiate yourself from other advisors. With the right custodian as your partner, you’ll have all the resources you need to excel in this space. 


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