Offering clients the opportunity to invest in alternative assets can be good for the advisors, as well as for the clients, according to Christopher Zook, founder and chief investment officer of CAZ Investments, a wealth management firm and multifamily office based in Houston.
Advisors’ profit margins are being squeezed by competition from other advisors, as well as from robo investment sites and other digital formats. Offering alternatives, rather than traditional investment mixes, can boost an advisor’s business and keep the fee structure from collapsing, Zook said in a recent interview.
“If an advisor does not offer clients some alternative investments, another advisor will, and the first advisor will be in danger of losing the client or losing some of the client’s assets,” Zook, who has 30 years of financial experience in both the traditional market and alternatives, explained. “For the vast majority of investors, someone is talking to them about alternatives. If it is not the primary advisor, it is a competitor.
Most advisors have only a portion of their client’s assets under management. The advisor needs to find a way to differentiate himself from the competition in order to gain more wallet share.
“With most public stocks being expensive right now, it is a perfect time to reach for alternatives for better returns, as long as risk management is a focus,” Zook said.
One of the best alternative investments right now is private credit, according to Zook. “It is hard to find any really good investments in the public sector now.”
CAZ, which works with investors, focuses on alternatives for both its own investments and for the guidance it provides to other advisors. It has experience in short sub-prime, distressed financials, mid-stream energy, medical royalties, private credit and GP minority investments.
For its own investments, CAZ holds large shares in private equity firms.
“Our ideal client is an advisor who understands that his clients need alternative investments in their portfolios. Too many investors are listening to friends about possible alternative investments, and many are being told alternatives are bad,” he explained.
However, many advisors do not have the background needed to use alternatives effectively. CAZ can give the advisors as much or as little help as they need and can custom-build alternative portfolios for the advisors’ clients.
He noted that partial private equity ownership tops other alternative investments right now–such as venture capital, hedge funds, managed futures, art and antiques, commodities and derivatives contracts.
“By far, the best risk-reward option that I have found is in ownership of private equity firms,” Zook said.