The number of alternative investment distributors has plummeted from 500 to just 200 in the past two years, Intelligent Partnership says.
Surveys and analysis for the alternatives research firm, published in its second annual Alternative Investment Report, also show that advisers remain reluctant to engage with non-mainstream investments.
Intelligent Partnership managing director Guy Tolhurst says stemming the number of firms promoting alternatives to intermediaries has limited the choice available to retail investors, which he favours.
He says: “We’re definitely going to see a reduction in the number of new product launches as well.
“We’ve seen it already in 2014 and I see that as a positive: fewer alternatives products in the market means less chance of them going wrong.”
A balance needs to be struck between having sufficient choice and competition and a proliferation of distributors that are difficult to police, he says.
The report found most advisers believe allocating outside the mainstream offers beneficial, uncorrelated returns but 64 per cent of those surveyed said it is difficult to gain complete market knowledge.
The report says: “What has become clear from this research is that many advisers buy into the investment case for alternatives.
“They are concerned that between them, central banks and the regulators have herded many investors into equities, building up the risk of another 2008-style meltdown.”
Tolhurst also says there needs to be greater transparency about how alternative products are built.
“They need to be held up to the same transparency and scrutiny as mainstream assets,” he says. “They will need to be valued on a regular basis and advisers will need to have access to verifiable data on these products.”
Tolhurst is building an online register of alternatives products for use by intermediaries and aims to have 250 products appraised by the end of the year.
The latest annual report on the industry contains the details of 750 products from across all alternative asset classes, representing about half the market.
The report says the investment world must do more to allay advisers’ fears about alternatives and to get the regulator on side.
Because of the poor coverage of the sector, it continues to be plagued by naive, ill-conceived products, opportunistic “me too” launches and the occasional but significant case of fraud, the report says.
“As long as these three categories of poor-quality product continue to launch, they will generate negative headlines and there will be considerable reluctance from advisers and investors to engage with the market,” it concludes.
Dennis Hall, managing Director, Yellowtail Financial Planning
I try not to go through third-party distributors. If I’m going to do the research I would rather deal directly with the provider. I would rather see the whites of the eyes of the guy who’s getting the money.