Berthel Fisher’s Rick Murphy on growing relevance of alts for retail wealth managers
Berthel Fisher knows alternative investments. For decades, the Cedar Rapids, Iowa-based diversified financial services firm has deployed a vetting process on these complex investments before including them on its product platform. That’s not changing. What is changing? The growing appetite for alternatives from an emerging investor class: the retail market.
Market watchers put the size of the alts market at approximately $12 trillion; and it is expected to continue expanding at a good pace. Growth in the asset class can be attributed to new offerings to a degree. However, the wider adoption among retail clients is playing a larger role. Long a favorite portfolio diversifier among institutional investors, alternatives now resonate with next-gen and high-net-worth individuals looking to avoid FOMO (fear of missing out) and capture return in a challenging investing environment.
The alternatives market is complex, and Rick Murphy, executive vice president, due diligence at Berthel Fisher is responsible for reviewing and approving products for the firm. On the alternatives side, the firm primarily offers REITs, a long-time favorite among alts investors. We spoke to him about his process, and how Berthel Fisher’s capabilities are aligning high-quality alts with financial advisors and their advisors’ end clients.
Alternatives Watch: Tell us about Berthel Fisher’s current capabilities in identifying and vetting alternative investments that you allow onto your platform, and from there, how you partner with financial advisors to help them in aligning alts solutions with their clients.
Rick Murphy: Founded in 1985, Berthel Fisher has over 30 years of experience identifying, researching and conducting ongoing due diligence in the alternative investments space. We’ve always maintained that a well-diversified investment portfolio should include exposure to alternatives, but not just any alts. We’re very deliberate and discerning when it comes to which products come onto our platform. We owe it to our advisors and their clients to have clearly defined criteria. For example, we’ll only engage with providers that have a third-party law firm for due diligence.
The alternative products on our platform are primarily real estate-related. The alts market is gaining more acceptance from the retail audience; Still, investing in the area is for investors who are willing — and able — to accept more risk in return for potentially higher income or total return.
Alternatives Watch: Tell us about your role, specifically at Berthel Fisher, and how many years you have spent in the industry.
Murphy: I have nearly three decades of industry experience, having joined Berthel Fisher in 1995. I currently serve as EVP in charge of Due Diligence. I work closely with the firm’s Chief Operating Officer, Andrew Christofferson, to review and approve the alternatives products we make available to Berthel Fisher advisors and, ultimately, their clients.
Alternatives Watch: What are the top three to five retail investor needs that financial advisors engage with alternative investment solutions providers to help address?
Murphy: The days of alts being within the purview of institutional investors only are gone. The democratization of the space has provided retail investors with a tool to address a number of needs. Thanks to their lack of correlation with traditional asset classes, they may provide stability in a volatile environment. For this same reason, they have the potential to increase returns over time. However, they can come with an increased risk of potential loss of some or all of your initial investment.
In some cases, the tax-sheltered income and/or tax depreciation benefits appeal to high-net-worth clients. Lastly, these investments offer the potential for higher income/return than stocks and bonds.
With that said, alts are not for everyone. There’s a lack of liquidity that should be considered when discussing these investments with clients.
Alternatives Watch: How does Berthel Fisher help financial advisors engage with alternative investments on behalf of their clients with confidence, in terms of education, training, strategic support, etc.?
Murphy: Many of our financial advisors are industry veterans and well acquainted with the alts universe, the benefits these investments offer and the challenges they can present. All of our advisors have access to AI Insights for continuing education, including a course made mandatory by Berthel Fisher, and other alts-related resources.
They know our team at the home office has a multi-factor review process in place, so there’s a confidence that comes with that. At our firm’s national conferences, alts are always on the agenda, and advisors are encouraged to attend the sessions to stay on top of new regulations, offerings and sponsors. Throughout the year, issuers on our platform conduct informative webinars where advisors’ questions are taken and answered. In addition, we actively encourage our advisors to attend industry events where alternatives are part of the program.
Alternatives Watch: Do you see demand for alternative investments among financial advisors and the retail investors they serve continuing to increase over the next 12-24 months? Why or why not?
Murphy: There’s no doubt in my mind that the increasing demand we’ve experienced over the past few years will continue for at least the next 12-24 months. As more recognizable names are enjoying success in the retail market — Goldman Sachs, Blackstone, Guggenheim and Cantor Fitzgerald, for example — clients are becoming more comfortable with wading into the alts pond.
Plus, there’s more familiarity with the products thanks to social media and the emergence of cable news networks as a source of financial information. As pundits tout alternatives, whether it’s a REIT, private placement, private equity or hedge fund, investors are listening. As with most things in life, if someone thinks an investment product is a good idea, you will find someone else who will disagree with that position. Investors need to understand where they are investing their money and what the risks and potential rewards are to determine their comfort with those risks.
Alternatives Watch: How can alts managers more effectively collaborate with wealth management firms in bringing their solutions to market for financial advisors?
Murphy: Bringing products to market and introducing them to the retail market is a time-consuming, expensive and sometimes risky endeavor. In the private placement area, for instance, it’s a real balancing act to ensure enough money is raised to meet expenses, but not so much that the capital can’t be deployed strategically.
In all areas of the alts market, a viable distribution connection must be in place. Firms and financial advisors are looking for an established track record from product sponsors, as well as a real commitment to the space.
Being willing, and able, to proactively engage firms and their advisors is key to long-term success. That means getting out there, meeting with advisors and hosting webinars. Helping them understand what your product is all about and who is behind the product is imperative in an increasingly competitive marketplace.
