You may want to take caution when discussing alternative investments with your financial representative. In a survey by Natixis Global Asset Management, they found that only 31% of advisors said they feel they understand alternative investments “very well,” with 53% of advisors saying alternatives are “often too complex to explain.” And yet, 89% of advisors put at least some of their clients’ money in these alternative investments.
Determining whether an alternative is accomplishing its goal is difficult, Wall Street Journal investigating columnist Jason Zweig states, but he suggests that consumers ask advisors what benchmarks they will use to evaluate each investment that is recommended. This has two key benefits for consumers:
- It will tease out how well the advisor understands the alternative investments being recommended.
- It will make sure that the advisor doesn’t change the benchmark later.
Regarding this advice, it’s important to know under what circumstances the investment will do well or poorly under. The benefit of identifying the right benchmark is that it helps make sure that the advisor really knows the role of the investment in their clients’ portfolios.