Private Markets Investments Provide Advisors with Practice Differentiation, High-Net-Worth Client Asset Gathering and Retention Opportunities

September 27, 2023 — Boston

New research from Cerulli, Invesco, and Investments & Wealth Institute (IWI) finds that a strong private markets offering can help advisors with client outcomes, but more education is needed

By offering an expanded shelf of private markets investments, advisors can differentiate their practices (81% agree this is a business impact of offering alternative investments), attract high-net-worth (HNW) clients (67%), and consolidate and retain assets under management (AUM) (66% each), according to Cerulli’s latest whitepaper, Adapting to Growing Private Markets: A Playbook for Practice Success, in partnership with Invesco and Investments & Wealth Institute (IWI).

Equity and fixed-income market declines in 2022 spurred broad recognition among advisors of the need for greater diversification. This, coupled with vast innovation in alternative product development, has coalesced into greater demand for private market exposure. “It’s clear that advisors understand the importance of private markets investments as both a defense and offense tool at a practice level because they can use the exposures to better define their value proposition and help clients meet their goals,” says Daniil Shapiro, director at Cerulli. “If advisors have a focus on wealthy clients, implementing alternatives may also prove to be a commonsense way for a practice to move upmarket toward a coveted wealthier client base,” he adds.

Despite increased awareness and a set of prominent advisors who plan to allocate almost one-quarter of client portfolios to alternative investments through 2025, half of advisors report an alternative allocation of 5% or less. According to the research, lack of liquidity (56%), client education (44%), and product complexity/due diligence (39%) are fundamental challenges inhibiting greater adoption.

“Now more than ever, it is important for financial professionals to have access to robust educational tools and resources to help them grow and build their alternatives practices,” said John McDonough, head of Americas Distribution at Invesco. “Investor demand for private markets investments continues to grow, so financial professionals need to understand and clearly articulate the potential benefits of asset classes, structures, liquidity provisions, and individual products.”

The research recommends a multi-pronged educational effort that relies on communication and coordination across the distribution chain to address these challenges. Advisors prefer alternative product specialists/wholesalers and home offices for educational support (54% and 49%, respectively). Advisors also seek materials that provide educational value on liquidity and general education on discussing private markets with clients (48% and 47%, respectively).

“Robust educational and consulting resources can help advisors best represent the value of incorporating private markets within their clients’ portfolios,” adds McDonough.

“There is great potential in the efforts providers, technology firms, and home office teams are willing to dedicate to help advisors get up to speed,” says Shapiro. “We believe the future is bright for practices that can curate a holistic educational experience while streamlining the operational challenges associated with due diligence,” he concludes.

Cerulli, Invesco, and IWI all recognize the need to provide an objective assessment on how alternative investments are currently leveraged in client portfolios. This research was developed to help share insights from advisors on how private markets can help both clients and advisors’ practices.

“We all share the same goal to provide advisors with unbiased education on topics that are top of mind to them, as well as to their clients,” said Tim Whiting, chief revenue officer of IWI. “By combining the power of Cerulli’s keen understanding of the advisor marketplace, Invesco’s broad alternative education platform, and the perspectives of IWI credentialed advisors, we developed an invaluable playbook that advisors can use to learn more about the potential benefits of alternative investments.”

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Note to editors

To read the full whitepaper,  Adapting to Growing Private Markets: A Playbook for Practice Success, in partnership with Invesco and Investments & Wealth Institute (IWI), please visit its dedicated website.

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