The Rise of Alternative Investments: How Financial Advisors Can Capitalize on the Shift

Evidence shows that alternative investments are no longer a “niche play”—they are increasingly becoming a core part of today’s portfolios. Let’s take a quick look at the recent findings that underscore the importance of including alternatives into your services.

According to Cerulli, 77% of financial advisors say they need basic education about alternative investments. In addition, 69% want help building portfolios that include alternatives, and 54% want training on how to explain and discuss these kinds of investments with clients.

There is a reason for that -- alternatives are becoming a major focus for advisors. As stated by Mercer, 92% of financial professionals already incorporate them in their strategies, and 91% plan to boost their use in the next two years. It goes without saying that those who choose to ignore the rapidly rising trend, are more likely to fall behind their competitors.

The majority of financial advisors believe that alternative investing allows them to differentiate their practices from other advisors, attract high-net-worth clients and retain assets under management, as suggested by Cerulli Associates and Invesco. That said, half of the advisors surveyed by Cerulli reported allocating just 5 percent or less to alternatives. What’s more, the surveyed group overall said that at least 13.3 percent was the optimal alternative asset allocation.

Could Alternatives Uncover New Opportunities for Your Clients?

When you think about building portfolios for your clients, your mind probably goes straight to the basics: stocks, bonds, and cash. And for good reason — these traditional asset classes are usually part of most investment strategies. But what if expanding beyond this traditional approach could open up new possibilities?

Revisiting the Basics

Let’s start with a simple definition. According to Investopedia, alternative investments are basically anything that doesn’t fall into the usual stock, bond, or cash categories. We’re talking about the following items:

• Real estate

• Private equity or venture capital

• Hedge funds

• Commodities

• Managed futures

• Even tangible assets such as art, wine, or antiques

Some of the above items may sound complex (and some truly are), but what’s important to keep in mind is this: there is a difference between alternative and traditional investments, which can be very beneficial if you are looking to build more resilient, better-diversified portfolios.

Why Alternatives Matter Now

In today’s volatile market environment, where returns are often unpredictable, most clients need safety, stability and new ways to generate income.

Here’s how, according to Mercer:

• Diversification: Alternatives often go in the opposite direction from traditional markets. So when stocks are down, certain alternative assets may hold steady or even go up.

• Growth Potential: Private markets and other alternative sectors can offer access to emerging opportunities that may not be available in public markets.

• Income Generation: Some alternatives, such as real estate or private credit, can produce steady income streams — especially appealing in a low-interest-rate world.

• Tax Management: Certain structures in the alternative space may allow for more efficient tax planning strategies.

It’s not about replacing what works. It’s about” rounding out” what you already do with new tools that can make portfolios stronger and more personalized, as stated by Investopedia.

Making Alternatives More Accessible

Not too long ago, alternatives were mostly reserved for ultra-high-net-worth individuals and institutions. But that’s changing —and it’s changing fast. Many platforms now offer more accessible, transparent, and regulated options for alternative investments. What does it mean to you and your clients? That means more of your clients can potentially benefit from them, not just the wealthiest.

What’s In It for You, the Advisor?

Let’s be honest — growing your practice is just as important as growing your clients’ portfolios. In other words, the two scenarios are connected. And offering alternative investments can be a smart move for your business. Isn’t that obvious?

Here’s why:

• Differentiate Yourself: Not every advisor is talking knowledgeably to clients about alts. Bringing fresh ideas to the table shows value and confidence and sets you apart. After all, we all know how competitive it is out there.

• Deepen Client Relationships: Having more sophisticated conversations — especially about long-term goals and legacy planning — builds trust and credibility.

• Attract New Clients: Higher-net-worth individuals often look for financial advisors who understand complex strategies. Being well-versed in alternatives can help you capture this market.

• Create More Enduring Assets: Clients who own alternatives tend to stay put longer. Why? Because these investments are usually long-term by nature — and they require ongoing conversation and guidance, according to Mercer.

Final Thoughts:

Alternative investments aren’t a magic bullet. They DO come with risks and require due diligence. In addition, they need to be a good fit for each client’s unique situation. But for the right clients, they can potentially unlock real opportunity.

If you haven’t explored this space yet, now might be a good time to expand your horizons. Alternatives are becoming a key part of a well-rounded investment strategy, and it makes sense to join the movement.

So, start the conversation. Ask your clients what they’re looking for beyond the basics. And see where alternatives might take them -- and your practice.

FREQUENTLY ASKED QUESTIONS

1. Why are alternative investments gaining traction with financial advisors?
Because they offer diversification, income potential, and access to unique growth opportunities—especially valuable in today’s volatile markets.

2. What’s holding many advisors back from embracing alternatives?
A lack of education, portfolio-building guidance, and client communication strategies are major barriers, according to industry research. That’s why effective training is crucial for success.

3. How can offering alternatives benefit an advisor’s practice?
It helps differentiate their services, attract high-net-worth clients, deepen relationships, and build longer-term, more stable assets under management.