Persistent volatility in traditional assets and heightened concerns about the long-term viability of the 60/40 balanced portfolio have pushed investors and asset managers to consider more seriously adding alternatives to their portfolios and offerings. Asset managers have engaged in extensive buying sprees, acquiring a series of boutique and specialist alternative managers in the hopes of generating higher fees that are more insulated from passive competition. The complexity of alternative strategies raises the importance of financial advisors that can walk investors through private and frequently opaque markets.
ISS Market Intelligence’s latest report, the ISS MI Advisor Pulse series – Alternatives, December 2024, investigates the decisions advisors make in choosing and investing in alternatives, derived from interviews with almost 700 financial advisors in November 2024. The survey has found a consistent increase in advisors investing client dollars in alternatives over time. In 2024, 45% of advisors invested in alternatives compared to 43% at the same time in 2023 and 39% as of the end of 2021.
Wirehouses have demonstrated the strongest relative interest in alternative investments. 72% of wirehouse advisors invested client dollars in alternatives, compared to 35% of broker-dealer and 42% of RIA advisors. This also represented the largest increase from the prior year, when 61% of wirehouse advisors reported investing in alternatives. The channel serves as a key venue for alternatives due to the higher prevalence of ultra-high-net-worth clients as well as extensive support offered by family offices, which allows advisors to provide a wider array of offerings supported by greater due diligence.
Advisors’ interest in alternatives has been strongest within private credit, as seen in Figure 1 (below), which has served as a leading strategy for multiple years running. Among advisors allocating client dollars to alternatives, 64% of them invested in private credit, up from 61% in 2023 and 54% in 2022. Concern about the future direction of interest rate policy and its subsequent effect on fixed income returns has provided a prolonged boost in demand for the strategy.
Figure 1: Wirehouse Advisors Drive Interest in Private Credit and Other Exclusive Alt. Strategies
As with alternatives more broadly, wirehouse advisors have the heaviest involvement in private credit. 79% of wirehouse advisor invested in the strategy, a more than 20 percentage point lead over other broker-dealer advisors. Wirehouse advisors are more frequently invested in more exclusive strategies, owing to more relationships with accredited investors and other resources supplied by home offices.
The elevated interest in private credit will have consequences for traditional fixed income strategies. ISS MI asked advisors which asset class they expected would decrease the most when adding alternatives. 31% of them cited taxable fixed income, followed by 21% for domestic equity and 18% for foreign equity. This holds extra importance in today’s environment considering how critical bond strategies have been to supporting flows into active funds.
Six times each year, ISS Market Intelligence surveys financial advisors across the country to understand the advisor decision making process and their perceptions of firms across the asset management industry. Download a Summary of the latest issue of the Advisor Pulse research series.
By: Alan Hess, Vice President, ISS Market Intelligence
