“On the whole I wouldn’t expect an adviser to recommend alternative investments as an investment,” says Adrian Lowcock, senior research analyst at Hargreaves Lansdown.
“The occasion it is likely to occur is with high net worth clients who have specifically expressed an interest in alternative investments but you should direct them to an expert in that field.”
Some advisers may also worry that there may be issues around professional indemnity insurance and so should only discuss them with more sophisticated investors.
Brett Williams, managing partner of Old Burlington Investments, agrees: “Traditionally AI are better suited to sophisticated, high net worth investors with already diversified investment portfolios. These alternatives enable such investors to add exposure to non-market correlated investments that further diversify the portfolio and access new growth opportunities.”
After assessing an investor’s suitability, their knowledge, financial situation and investment objectives, Mr Williams stresses that advisers must satisfy themselves that an investor understands the AI and the risks associated with it. “All of this may be achieved through extensive questionnaires as well as through structured discussion.”
“Once an adviser has identified that the addition of AI is appropriate for the investor based on the investor’s portfolio and circumstances the adviser should explore the range of AI available and recommend these based on the appetite for risk of the individual investor and the intended investment timeframe.
“An investor with an appetite for increased return should thus be willing to take on more risk and in this instance it would be beneficial to structure a portfolio with a higher proportion of AI with the opposite being true of a more risk adverse investor.”
But even if you eschew recommending direct investment, investing via AI funds is still too specialist for the average adviser, cautions Mr Lowcock. “The expertise to assess a managers ability for picking alternative assets such as wine are different from those required to pick equities. What qualifications does a financial adviser have to know whether to recommend a wine fund or an art fund?”
However, Mr Williams believes the case for AIs is strong enough to warrant the extra effort for investors of taking further expert advice: “AI are a valuable tool in diversification and also offer substantial growth opportunities and may positively impact the risk-adjusted returns of a portfolio.”
