Key Takeaways
- • Alternative investment and private fund usage among financial advisors rose to 67% in Q3 2022, up from 59% in Q1 2022, according to a Broadridge Financial Solutions survey of 400 registered financial advisors.
- • Only 27% of advisors using or planning to use alternatives are very satisfied with the products and resources available through their firms, while 16% report dissatisfaction.
- • Real estate and REITs (70%), commodities (39%), and private equity and venture capital (35%) are the most-used alternatives, while cryptocurrency usage stands at just 5%.
- • SMA usage reached 69% of advisors, and 66% report in-house portfolio usage, signaling continued outsourcing of the investment management process.
- • Broadridge's Matthew Schiffman characterized the gap between demand and asset manager product offerings as a long-term opportunity for managers.
Summary
A bi-annual survey of 400 financial advisors released by Broadridge Financial Solutions, Inc. (NYSE: BR) finds that advisors are increasingly relying on private funds and alternative investments amid volatile equity and bond markets. Sixty-seven percent of advisors now report using such products, compared with 59% in the first quarter of 2022, and 52% of current users plan to increase usage over the next two years. Diversification is the leading motivation, cited by 76% of advisors, followed by non-correlation with equity markets at 69%.
Despite this growth, advisors report a significant gap in supply. Only 27% of advisors who use or plan to use alternatives are very satisfied with the private fund and alternative investment products and resources available through their firms, while 16% report overall dissatisfaction. Broadridge attributes the dissatisfaction largely to limited availability and restrictive options. In commentary, Matthew Schiffman, Principal of Distribution Insight at Broadridge, said asset managers are not adequately meeting advisors' needs and that the gap represents a strong, long-term opportunity for managers to demonstrate value through product offerings aimed at retail investors.
Advisors largely avoid cryptocurrency: real estate and REITs are used by 70%, commodities by 39%, and private equity and venture capital by 35%, while crypto usage is at 5%, unchanged since Q1 2022.
The survey also points to continued growth in outsourced investment vehicles. SMA usage stands at 69%, up from 62% in Q1 2021, and 53% of current SMA users plan to increase usage within 12 months. Advisors report that on average 57% of AUM sits in model portfolios, and in-house portfolio usage rose from 55% in Q3 2021 to 66% in Q3 2022. Of advisors aware of direct indexing (85% of respondents), only 32% have never used it and are not considering it. The survey was conducted online with fieldwork in September 2022 and was sponsored by Broadridge.
Despite this growth, advisors report a significant gap in supply. Only 27% of advisors who use or plan to use alternatives are very satisfied with the private fund and alternative investment products and resources available through their firms, while 16% report overall dissatisfaction. Broadridge attributes the dissatisfaction largely to limited availability and restrictive options. In commentary, Matthew Schiffman, Principal of Distribution Insight at Broadridge, said asset managers are not adequately meeting advisors' needs and that the gap represents a strong, long-term opportunity for managers to demonstrate value through product offerings aimed at retail investors.
Advisors largely avoid cryptocurrency: real estate and REITs are used by 70%, commodities by 39%, and private equity and venture capital by 35%, while crypto usage is at 5%, unchanged since Q1 2022.
The survey also points to continued growth in outsourced investment vehicles. SMA usage stands at 69%, up from 62% in Q1 2021, and 53% of current SMA users plan to increase usage within 12 months. Advisors report that on average 57% of AUM sits in model portfolios, and in-house portfolio usage rose from 55% in Q3 2021 to 66% in Q3 2022. Of advisors aware of direct indexing (85% of respondents), only 32% have never used it and are not considering it. The survey was conducted online with fieldwork in September 2022 and was sponsored by Broadridge.
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