RIAs and Fee-Based Advisors Say Alternative Investments and Tactical Management Key to Navigating Current MarketJefferson National’s Recent Survey Shows Clear Majority of Advisors Focused on Monitoring Markets, Managing Client’s Assets and Ensuring Retirement Readiness
New York, NY and Louisville, KY—September 7, 2011— Financial advisors continue grappling with record drops in leading indexes and unprecedented spikes in volatility, and they see the increasing use of alternative investments and tactical asset management as key to navigating the current market, according to a survey conducted recently by Jefferson National, innovator of the industry’s first flat-insurance fee variable annuity.1 More than 500 responses were recorded, and a significant percentage of the advisors surveyed—roughly 2 to 1—have increased their use of alternative investments, while an even greater number—roughly 3 to 1—believe tactical management can outperform a passive approach over the long term.
“In recent weeks, we’ve seen the Dow and the S&P drop more than 10% off this year’s peaks, and advisors are preparing for the reality of ongoing volatility,” said Laurence Greenberg, President Jefferson National ”While the fundamentals of good investing won’t change—establish a goal, create a plan, follow a disciplined approach, and don’t overreact—our survey indicates that in today’s turbulent market advisors are employing alternative assets to provide advantages such as increased diversification, and they are more confident in the disciplined use of Tactical Asset Management rather than relying only on traditional Buy-and-Hold.”
Detailed findings from Jefferson National’s most recent survey include:
Alternatives on the Rise:
In the turbulent wake of the Crash of 2008, more than two-thirds of advisors, or 68%, have increased their use of alternative investments, with 22% saying their use has “Increased Substantially” over the past 5 years. Going forward, 67% of advisors see their allocation to alternative investments continuing to increase, with 11.1% saying it will “Increase Substantially” over the next 5 years. Of note, nearly two-thirds of advisors, or 61.5%, also believe that alternatives will become even more important than traditional investments in the future.
There are clear trends driving advisor’s use of alternative investments. When asked for what purposes they have used alternative investments in the past, “Addressing Portfolio Correlations” ranked most important, selected by 61.3% of advisors, demonstrating a growing concern for the increasingly strong correlation between leading market indexes and many traditional asset classes.
Next in importance was “Filling Portfolio Allocations,” selected by 52% of advisors and “Absolute Returns” selected by 48.6%, demonstrating that alternatives are now considered critical for true diversification and essential for producing a positive return regardless of the direction and fluctuations of the markets.
Another highly popular solution for achieving greater diversification is tapping into international markets. Roughly three-fourths of advisors surveyed, or 74.2%, have 10% or more of their clients’ portfolios allocated to global or international securities. Likewise, roughly three-fourths, or 74.2%, have examined the use of high yielding/high dividend global equity securities in their clients’ portfolios.
The survey also revealed areas of opportunity. It demonstrated a clear need for more support and ongoing education relating to alternative investments. When asked about clients’ willingness to invest in alternative investments, the ranks are almost evenly divided, with 48.7% of advisors indicating that clients are willing to invest in alternatives, and 51.3% saying clients are hesitant. Digging deeper, advisors say that clients’ reluctance is largely attributed to “Lack of understanding” according to 82.2% of advisors in the survey, and “Lack of liquidity” a distant second reported by 50.4%.
More Confidence in Tactical Solutions:
Compared to a survey conducted last year by Jefferson National, a growing number of advisors are showing increasing confidence in tactical solutions. In this most recent survey, more than three-fourths of advisors, or 75.5%, believe that active portfolio managers can outperform an index over the long term. This compares with a survey from 2010, where 63% of advisors surveyed by Jefferson National were more likely to employ a tactical management strategy and 66% said clients were more confident with Tactical Asset Management strategy.
When asked how they judge a portfolio manager’s skill, roughly half, or 49.5%, indicated that past performance was the preferred indicator, while 28.3% indicated that Alpha was the preferred indicator.
Monitoring Interest Rates and Inflation:
Advisors are focused on monitoring the markets. When asked to share their outlook for interest rates and inflation, advisors were evenly divided. Just under half of advisors, or 49.1%, believe interest rates and inflation will remain at current levels for the foreseeable future, while 47.6% believe interest rates and inflation will rise. Only 3.3% believe that interest rates and inflation will decrease.
More than two-thirds of advisors, or 67.4%, have examined the performance of Commodities, TIPs and REITs in the context of return versus volatility over the last 5-year market cycle. Commodities are the clear solution of choice for nearly two-thirds, or 64.0% of advisors, when protecting client’s portfolios against an inflationary or deflationary environment. TIPs rank second used by more than half, or 55.4% of advisors, and REITS rank a close third, used by 53.7% of advisors. Meanwhile, only 16% had considered Infrastructure-Related Investments, when choosing solutions for inflationary or deflationary environments.
Ensuring Retirement Readiness:
In today’s tough markets, advisors say that retirement readiness remains vital. Of advisors polled in the survey, 93.6% said it is important for them to have tools and resources in their practice to assess clients’ retirement readiness. A full 94% placed the highest importance on those tools that can identify specific areas where clients need additional support, such as generating more income.
About this Survey
More than 500 responses from participating advisors were collected online at www.jeffnat.com on August 23, 2011, as part of Jefferson National’s series of ongoing surveys addressing the issues that RIAs and fee-based advisors care about most.