Following the abysmal performance of stocks and bonds in 2022, it’s understandable that alternative investments have been gaining strong traction over the past year. Moreso when considering that alternatives delivered better returns while reducing volatility. 

In a CNBC article, Kate Dore discusses survey results from the Financial Planning Association that show nearly 30% of advisors are investing in ‘alternatives’ for their clients. These advisors mentioned diversification, lower portfolio risk, and higher returns as major factors in this decision. 

In contrast, 30% of advisors are aware of alternative investments but are electing to not put client funds in these vehicles. Many of these advisors cited higher fees and expenses, lower liquidity, higher borrowing costs, and a lack of transparency as major concerns. Another concern is that clients are not able to easily access these funds in case of an emergency.

There’s a wide disparity in the asset class as it includes a variety of categories like hedge funds, private equity, real estate, commodities, and structured products. Therefore, even more due diligence is required given lower levels of regulation and oversight. 

Finsum: Alternative investments are increasingly being embraced by advisors, especially after their strong performance in 2022. However, some continue to eschew the category due to a variety of concerns.

In an article for ThinkAdvisor, John Manganaro shares some concerning research that shows most advisors are not preparing for succession planning and that it poses a significant threat to the industry. It’s also commonly cited as a risk by the leaders of various advisories as there are forecasts of a massive wave of retirements by advisors over the next decade.

Many are incorrectly assuming that they will be able to gracefully exit the business and hand over their clients to the next generation. Yet, this is easier said than done since it assumes that the incoming advisor will have the talent and ability to serve clients and help them reach their financial goals. 

There are additional challenges such as many clients may not be comfortable with younger or newer advisors and elect to go elsewhere. Often, relationships between the retiring advisor and the newer one can fray over questions about leadership, compensation, and the financial structure of the new arrangement. 

It’s ironic because advisors intuitively believe in long-term planning to help their clients reach their goals. Yet, many are not doing the same for their practices.

Finsum: Financial advisors need to embrace long-term planning to ensure a successful exit with the same diligence that they help their clients build a plan to reach their financial goals.

In an article for USNews, Tony Dong covers the opportunity for investors in high-yield fixed income and equity ETFs. Currently, investors can lock in risk-free yields above 5% due to rates being at their highest level in decades. 

However, these short-term rates are not likely to linger at these levels for a long period of time due to inflation peaking and now starting to roll over as well as increasing risk of a recession. Although there is divided opinion on which outcome will prevail, the reality is that either scenario will result in lower rates and yields. 

For investors who don’t believe that a recession will materialize, they should be salivating at the prospect of buying a high-yield fixed income or equity ETF to lock in these yields. These ETFs offer higher yields than Treasuries, but they also offer the potential for appreciation if economic growth surprises to the upside. 

For instance, the Invesco Fundamental High Yield Corporate Bond ETF is a diversified basket of high-yield, corporate bonds. These are riskier than investment-grade bonds but less so than equities. Currently, it pays a yield of 6.7% with an expense ratio of 0.5%. 

Finsum: Investors should consider taking advantage of the highest rates seen in decades through high-yield ETFs.