The retail potential for alternatives has grown in recent years with the proliferation of online platforms such as CAIS, which recently found that 84% of financial advisors are recommending alternatives to clients who meet accredited investor requirements.
The survey was conducted last month during the 2022 Morningstar Conference in Chicago, with more than 300 registered investment advisors, financial advisors and other investment industry experts participating on-site.
“Ten years ago, RIAs didn’t have access to alternatives,” said Abby Salameh, CMO and managing director of CAIS IQ, the educational platform at CAIS. Once advisors had access, the process was cumbersome. Online platforms have since streamlined and democratized these investments that are well established in institutional investor circles. RIAs didn’t have the confidence to understand and talk about these investments to their clients early on, Salameh added.
Roughly seven in 10 respondents (68.98%) cited the lack of education around alternatives as a hurdle to investing in the CAIS survey. Respondents also named high levels of administration and paperwork (37.6%), and concerns around due diligence and compliance processes (34.3%) as difficulties when making allocations.
For Salameh, the survey findings confirmed what she knew to be true. While more of the investment process has been digitized and Mercer handles due diligence on products on the CAIS platform, integral to the shared success between RIAs and their clients is education, executives say. CAIS IQ was launched in 2019 to tackle this very issue. Salameh joined CAIS in 2020, from HighTower Group and has been active in the independent adviser space for over two decades.
“This is all from the viewpoint of how we can help advisors get the outcome that their clients need,” she said of the development of over 100 courses on the CAIS platform ranging from broad overview of alternatives to structured products and specific asset classes. Each module offers learning opportunities in short microbursts that can be completed at the advisor’s own pace. The asset class modules then take RIAs directly to the corresponding products on the platform.
For its part, CAIS has grown to more than $2.5 trillion in network assets. Since its inception in 2009, the company has handled over $17 billion in transaction volume. Currently, over 5,300 unique advisor firms/teams rely on the platform, which has grown its team in the past year.
CAIS survey respondents believe that private equity (49.8%), real estate (38.9%) and private credit (33%) are the three alternative asset classes most likely to outperform the market in 2022. Alternative assets are expected to make up to 24% of the global investable market by 2025, up from 12% in 2018, according to research from the Chartered Alternative Investment Analyst Association completed in 2020.
CAIS’ findings also point to industry-wide scrutiny around the definition of accredited investor – a long-standing threshold for access to alternative asset classes. Almost three-quarters of respondents (74.9%) believe that the SEC’s definition of accredited investor needs to be updated. Among them, 43.6% say that the definition is too rigid, while 41.4% believe that the income threshold for individuals should be lowered. Only 11.5% believe the definition is too lax.
“As traditional assets face muted expectations, alternative investments may provide a diversified method for investors looking to hedge against increased volatility and potential enhanced returns,” said Matt Brown, CEO and founder of CAIS. “These survey results validate our conversations with the independent wealth management community, highlighting a growing urgency for access to alternative products. CAIS is answering that call by providing the connectivity and education that advisors can use to meet this demand.”
