Advisor best practices view on alternative investments

I just read an interesting white paper on commercial real estate – in it, I saw some interesting best practices thoughts for financial advisors. These thoughts are related to us being better able to help our clients, which better enables us to grow our advisory businesses.

Clients comfortable with known investment approaches – Experience has shown that the easier an investment option is to understand, the greater our clients’ willingness to follow our advice. This paper’s author, Clifford Jack, a highly experienced real estate investor and thought leader in the financial services industry, said, “after bonds and stocks, real estate has become a very popular alternative asset class for investors.” Mr. Jack is the CEO of Capital Tide, real Estate operating company.

The appeal of inefficient markets – I’ve always felt that the reason investment managers like Warren Buffet receive so much attention and praise is that investors view them as having a rare ability to spot opportunities where others cannot. If the appeal of this insight exists with large cap stocks – viewed as an efficient market – there is an even greater investor appeal with inefficient markets, like real estate. On the point of the advantages of being an expert in an inefficient market, Clifford says, “While the prices of publicly traded stock in large companies may reflect all available information, being sure of paying a fair price in real estate requires much more expertise.” And this paper covers how this inefficient market mostly has leverage from borrowed funds, increasing the returns when done correctly.

Keeping focused on a key reason for diversification – Of course, one of the key reasons we work so hard to diversify our clients’ portfolios – including with alternative investments – is to have a portion of their programs that have a very low correlation to the stock market. We all know how important this diversification is for our clients – from investing returns and behavioral finance perspectives – when there are market corrections, or worse. Clifford Jack wrote, “Historical evidence suggests that US commercial real estate has shown little correlation to US stock market returns.”

It is my understanding that Capital Tide provides accredited investors with the potential to benefit from co-investing with institutions while potentially profiting by receiving a piece of the manufacturing profits from the general partner.

Please see my comment to this article, for the link for this white paper (no registration required). I’ll include my email address, if I can be of any help with this or any other advisor best practices subject matter.