Can a Financial Advisor Help With Your Alternative Investment Portfolio?

November 10, 2021

Not sure where to begin with your alternative investment portfolio? You’re not alone! While many average investors can benefit from alternative investments, the reality is that many of us just don’t know how to make sense of them.

Unfortunately, that can quickly get you into treacherous territory, since alternative investments are more complex and less regulated than their conventional counterparts.

This is where a financial advisor can make all the difference for your portfolio—and your financial future. Here’s what you need to know about hiring a financial advisor, alternative investments, and why a financial advisor can help you with your alternative investments.

What is a Financial Advisor?

A financial advisor is a finance professional who helps clients navigate their personal finances. Clients may be individuals, but they can also be corporations, pension plans, charitable organizations, and even municipal governments—if you need financial advice, a financial advisor can give it to you.

Basically, think of a financial advisor as your expert financial planning partner.

What Does a Financial Advisor Do?

Because a financial advisor’s clients are so varied and the goals of each client are often unique, financial advisors fill several roles.

For example, one of the first parts of a financial advisor’s job is to help you understand your current financial health. That way, you’re on the same page and they can get a better understanding of what goals are realistic for you.

From there, your financial advisor works with you to draft a financial plan, which will serve as a road map for your financial future. It will include the results of your financial health questionnaire as well as your primary financial goals and your current financial situation, including things like net worth, assets, liabilities, and the like.

At this point, your financial advisor will help you put your plan into action. They may shift into an educational role, helping you choose investments (or choosing investments for you) while making sure you fully understand your options so that you can make informed decisions.

Why Would You Need One?

For many people, the biggest deterrent is fees. Most financial advisors charge a percentage of the total money they manage for you, which can run between 0.25% to 1% per year. Some advisors charge flat fees or annual fees instead. For those who charge flat fees, costs run between $2,000 to $7,500 per year, while percentage fees vary based on the total money under management.

So, are the fees worth it?

About one-quarter of investors are self-directed, meaning they invest on their own. That’s perfectly alright. Not everyone wants (or needs) an advisor. However, there are two things to keep in mind.

First, successful self-directed investors are both passionate and knowledgeable about investing. They don’t need expert advice because they have the skill and interest to generate returns without outside assistance. But that’s not most investors.

Second, if you’re dealing with complex assets and are out of your depth, you’re never going to see great returns from those assets. Not because the assets themselves aren’t good investments, but because you don’t know how to manage them.

For those investors who don’t know their way around the market and have complex assets (or are considering complex assets), a financial advisor is a good idea.

Can a Financial Advisor Help with Alternative Investments?

Here’s a hint: alternative investments are complex assets.

An alternative investment is simply any investment that doesn’t fit into one of the three conventional investment categories: stocks, bonds, or cash. That means alternative investments include assets like fine art, real estate, hedge funds, venture capital funds, and distressed securities.

However, all alternative investments have a few features in common: they’re way more complex than their conventional counterparts, they’re generally less liquid than their conventional counterparts, and they’re riskier than their conventional counterparts (in part because they’re both more complex and less regulated).

Complexity is the key point for many investors, but it varies between assets. To give you a baseline, keep in mind that most alternative investments are not bought and sold on the stock market. Instead, they change hands among a small pool of interested investors in a niche market. The art world, for example, relies heavily on personal connections to make sales. This means that right out of the gate, many investors don’t know how to buy and sell alternative investments, never mind how to manage them.

Why You Need an Advisor for Alternative Investments

To put it plainly, most people can benefit from a financial advisor for alternative investments simply because they don’t understand how alternative investments work.

If anything, the average investor may get more value out of a financial advisor specifically for an alternatives portfolio. A financial advisor brings the expert advantage that gives you a critical edge in the alternatives market, and that can often make all the difference in the future success of your portfolio.

Also, keep in mind that in order to see an appreciable difference in your portfolio from alternatives, your portfolio should be 10% to 20% alternative investments, and they have to be well-managed. That’s a lot of alternative investments, and if you don’t know what you’re doing, it can hurt your larger portfolio. A seasoned financial advisor can help ensure you get the best possible results.

Getting Started with the Right Alternative Investments

If you’re considering alternative investments, a financial advisor could be extremely valuable. If anything, when it comes to a financial advisor, alternative investments see the best return on expert advice.

If you’re ready to try your hand at an exciting alternative investment class, we’re here to make blue-chip art accessible to ordinary investors like you. We authenticate and purchase multi-million-dollar art (with some help from our research partners at Citi Bank and Bank of America) so that our members can purchase shares starting at just $20 per share, kind of like a stock, and when we make the sale, you can collect your dividends. Sound good? Then sit down with your financial advisor and fill out your membership application today to learn more.

Masterworks is a fintech company democratizing the art market. Our investors are able to fractionally invest in $1mn+ works of art by some of the world's most famous and sought-after artists.