There was an interesting headline and synopsis the other day in Investment News Daily. It said “With alternative investments becoming more mainstream, three of the top minds in the business tell advisers what to watch – and what to expect in a new world of investing.” Wow. Just wow. The word from Wall Street and from wire-house reps has always been “Stay the course, the markets always correct,” and I was admittedly caught off guard by this story, especially in a publication that has traditionally been very antagonistic toward independent advisors. Now however, with the markets as volatile as ever and with clients looking for a more diversified approach to investing, these same wire-house reps are embracing a way of doing business that they were bashing only weeks before. These same advisors that have consistently said how wrong and misguided the independent advisor world is are now endeavoring to enter this same space with only a few days training, while some of us independents have worked at and mastered this space over years of hard work and study.

It’s no secret that the stock market has gone through a period of incredible volatility. Returns have been inconsistent and the news has been negative going back many months and years. While the mantra from the wire-house reps has always been to ride it out because the stock market always goes through cycles and always comes back, many people who are either retired or on the verge of retirement just don’t have the time to take large losses while waiting for the inevitable bounce back. These clients are looking for other ways to achieve returns and their advisors are looking for ways to please them. And there is nothing wrong with trying to please the client, until it forces an advisor to delve into areas where they have neither the expertise nor the experience to adequately weigh the risks involved with direct investments.

It is very easy to make a real estate investment look good to an investor or to an advisor. Making predictions on profit potential that are based on assumptions that are unrealistic or unlikely is a staple of this business. For example, an apartment investment can state that it will attempt to make the investor a 15% profit, based on an occupancy level of 85%. That looks reasonable. But you have to dig a little deeper to find that the historic occupancy level in the given sub-market for this investment is only 75%, and no plan or reasoning is given for why the product sponsor feels they can outperform this historic number by such a wide margin. This is worthy of further questions to the sponsor, yet many of the reps who are not experienced in this side of the business will never know to look deeper or to ask the right questions.

At South Coast, our background is in due diligence and compliance. We do know the right questions to ask, and furthermore which investments have a good chance to fulfill their stated goals. Further, we have worked with many of these investment companies for many years and we know many of the officers and directors well, both personally and professionally. Our experience and our knowledge in this area allow us to build custom financial plans for our clients with the proper amount of liquidity, risk, income and stability that each individual client wants and needs.

Alternative investments are not right for everyone. Make sure that before you make that decision for yourself, that you consult advisors who have the requisite knowledge and experience to know.

– Posted by Jeff