A Massachusetts regulator has sued LPL Financial, alleging violations of prospectus rules and investment-concentration requirements. At issue are sales of nontraded real estate investment trusts from 2006 to 2009. "We believe the claims included in the complaint are substantially overstated. ... We have always endeavored to promote a strong culture of compliance and continue to do so," an LPL spokesman said.
With barriers for smaller investors removed and amid growing demand for higher returns and diversification, alternative investments are rapidly gaining customers. As a result, big brokerages with products such as private-equity offerings, nontraditional mutual funds and market-linked investments are seeing increased business. "Clients who are seeking the diversification that comes from alternative investments can invest in them and maintain liquidity," said Andy Sieg, head of global wealth and retirement solutions at Merrill Lynch. "It broadens the set of clients for whom these are appropriate."
Financial advisers face a particular challenge selling alternative investment funds. Given full-disclosure requirements for such products, advisers need to learn a great deal about illiquid alternative investments contained in the funds. "We spend a lot of time with broker-dealers and advisers educating them how this fits in the client's portfolio," said Ray Lucia Jr., portfolio manager of the $35 million Multi-Strategy Growth & Income Fund, the largest such fund. "It's an alternative investment, while others are saying it's like a mutual fund."
Advisers say they're frustrated with money market funds amid low yields and uncertainty related to regulations. Many advisers are reducing reliance on the vehicles and seeking out alternatives, mainly certificates of deposit and online savings accounts.
Star-quality financial advisers may not always be worth the recruitment bonuses they command, but there is a way to determine their actual value, says Patrick Kennedy, co-founder of product and client services at PriceMetrix. One surprising bit of PriceMetrix analysis reveals that length of experience correlates negatively with prospects for future performance.