SEC warns advisors: Liquid alternatives are sharp objects

Advisors' need for alternative investment education is greater than ever

In a recent InvestmentNews article, the Securities and Exchange Commission warned advisors to be careful about investing their clients’ assets in alternative mutual funds. The SEC called these products “bright shiny objects” with sharp edges.

The huge influx of alternative mutual funds confuses advisors and investors alike. We think the smart move for asset managers is to wrap these “sharp objects” in blankets of practical education to support advisors in selecting the right funds for their clients. It’s good for the advisors, good for their clients and, in the end, good for asset managers.

Advisor education can be a big differentiator for asset managers in this climate. The challenge is to attract and engage the advisor who will actually buy alternatives.  Once a relationship is established, education can also tie that advisor to you for the long-term. It demonstrates your commitment to the market, and it enables advisors to confidently communicate to clients what you do and why your funds make sense. Alternative education is as much about development and retention of assets as it is about acquisition.

What advisors want in alternative education.

In our last blog post, we outlined what advisors want to see in an alternatives education program. Based on the SEC’s comment, we thought it worthy to repeat it. Specifically, advisors told us that they need to know:

Why alternatives?
• Illustrate, with facts and figures, how alternatives help manage a portfolio’s volatility, including the importance of correlation. Include objective information from academics with “plain English” interpretations.

What are alternatives?
• Define the various strategies, from global macro to relative value, and the role they play in a portfolio.

How do I use alternatives?
• Illustrate how to “mix in” alternatives beside traditional holdings in a portfolio, including hypothetical “before” and “after” examples and a comparison of risk and return statistics.

Additionally, advisors asked for:
• “client ready” materials that help them make a solid case for alternatives, using “plain English” terminology.
• best practices of other advisors using alternatives to address client needs.
• CE credits for participation in any kind of educational webinar or event.

Education program = lead generation.
By leading with education, asset managers can open a dialogue with an advisor that can serve as a gateway to learning more about his practice. This information can help you qualify the advisor and generate a valuable lead. If the advisor finds your education program valuable, he is likely to “opt in” to receive new messaging from you. Throughout his participation in your education program, he will tell you exactly what he wants to learn about alternatives so that your messaging becomes relevant and motivating.

Ulicny has hands-on experience in designing and delivering alternative-education programs for advisors, including simple ideas they can remember and communicate. We can also help you coordinate a comprehensive educational program that aligns with your marketing strategy and directs the production of effective communications for advisors and their clients.

Advisors, empowered with the knowledge you provide, serve their clients better, which creates a virtuous cycle of goodwill for your brand.  In sum, education is good for advisors, their clients, and in the end, good for asset managers.

—March 2014