Why Show Affluent Clients An Alternative Route

When a top-flight advisor with $200 million in assets under management touts alternative investments, it might be worth pausing to listen.

That's exactly what a roomful of conference attendees did as Philip Moses, Jr., a branch manager for First Federal Bank of Florida who runs a fee-only practice with 650 IMPAC accounts, listed the compelling reasons for advisors to consider using alternative investments with their high-net-worth clients as a means of reducing portfolio risk and enhancing long-term performance.

"It's been an interesting evolution for alternative investments. We're now using long/short funds, structured products, private equity, real estate and commodities,"Moses said during hisDiversifying Portfolios Beyond Traditional Investments session Tuesday at the Raymond James Financial Services National Conference. The $200 million he manages includes investments in such alternative vehicles as U.S. equity callable yield notes and equity market-linked deposits (similar to CDs), which, according to Moses, are "a real popular product."

Moses said he's lately been moving more client assets into structured products, along with equity-linked alternative investments and other vehicles. "We're trying to take equity allocation and move to alternative investments to get an equity-type return, with the protection we want," he explained.

Moses said his alternative investment strategy consists of four components:

1. Fostering an appreciation among clients for the value of defensive strategies that minimize risk.
2. Proactively bringing alternative investment and structured products opportunities to meetings with high-net-worth clients (an approach that has been extremely well received, he said).
3. Once clients have been educated about alternative products, presenting them with options for putting funds into these vehicles.
4. Walking the talk — to buttress their recommendations, advisors purchase alternative products for their own portfolios. Without that personal stake, clients might question the advisor's endorsement. "Purchase the products yourselves," suggested Moses. "The client wants to know that you have them."

When it comes to explaining alternative investment strategies to clients, Moses said he sticks to basic tech tools like Excel. "The Excel spreadsheet is what we use with new and existing clients. It helps us explain what we're doing with their portfolios and with client reviews."

In most cases, however, the best way to communicate with clients is either in person or by phone. Concluded Moses: "We email a PDF to a client that explains how a product works and how they can anticipate what the product will do."