Advisors recognize that offering alternative asset investments through IRA accounts could be a good growth path for their business, but few are onto it yet, according to a new survey from PENSCO Trust Company.

Advisors recognize that offering alternative asset investments through IRA accounts could be a good growth path for their business, but few are onto it yet, according to a new survey from PENSCO Trust Company.

The PENSCO Market Barometer, which polled 1,000 people and 365 high net worth advisors, found that eight in ten advisors say their clients have expressed an interest in investing in alternative assets but only 10 per cent offer that capability.

Advisors also recognized a potential to build wealth through alternative assets, with 82 per cent of advisors expressing an interest in providing this service to clients, the survey found.

Kelly Rodriques, chief executive of PENSCO, said a number of trends were converging to drive this demand. The firm bought the individual retirement account business of Lincoln Trust earlier this year, significantly bolstering its size to over $10 billion in assets under custody. 

“We’re seeing fairly significant account opening in the middle of the market,” said Rodriques, referring to the fact the firm’s clientele tend to be high net worth investors, but the demand for alternatives is becoming more widespread. “Part of that is the disappointment in the returns of their 401(k)s,” he added.

“The independent movement has taken hold and advisors are using this as a differentiator,” according to Rodriques, and this trend is compounded by the fact that within a traditional broker-dealer firm there are more product and compliance limitations to this kind of investing.

And while alternative investing through retirement accounts has received more exposure lately due to the revelations about Mitt Romney’s IRA account, there are still a number of barriers that prevent many investors from entering into this space.

The Retirement Industry Trust Association, a group of alternative-asset IRA providers, estimates that only around 2 per cent to 5 per cent of all IRA assets are held in such accounts, according to a report in the Wall Street Journal.

For a start, there’s a lack of expertise, despite some advisors who have excelled.

“Well there are specialists out there,” said Rodriques, citing as an example one of the firm's family office clients that has been “very good at investing in real estate.”

“But yes there is a bit of a knowledge gap around the rules… advisors are just coming up to speed on that,” he says. “There’s also what I would call a ‘process gap’ within the large platforms that enable these advisors.”

But he’s optimistic about the way things are changing to increase the scope of this business.

From Washington he is looking for signs of more flexibility and self-direction being brought into retirement planning.

On the educational front, “companies like ours are trying to create educational content for advisors,” he says.

Perhaps most importantly though there’s a push underway on the technology front from the industry’s largest players (there’s a handful of them including PENSCO) that will allow their offerings to be integrated into the large platforms.

Since taking over as CEO of the firm around two years ago, Rodriques has been focused on “building a highly automated and scalable system” and says the firm in the mid-to-final stages of building a system that can plug into the large institutions so these assets can be administered.

Account openings have been the highest in four years in the first quarter and he expects these to reach record levels this year.

In terms of what investors are looking for, real estate is top of the list, with distressed real estate in areas like Florida and Arizona a focus, “as the market has started to seemingly bottom out, people are buying foreclosures for long-term rentals,” he says.

Meanwhile, in the private stock area Rodriques is seeing a significant amount of investing in growth companies, alongside venture capital, and particularly investors are looking to invest in businesses that “match their knowledge and expertise.”

Rodriques’ insights tie in with a recent survey from the Institute of Private Investors, published in January, which found that its member-investors were looking to become less reliant on public markets to protect and grow their wealth, with 55 per cent of IPI members looking to add to their direct investments in private companies, and many revealing a bullish sentiment on tangible assets.

PENSCO’s chief executive says he “definitely agrees” with these findings – everyone is looking for outperformance, and particularly in areas they know.

Meanwhile, in the hedge funds space, Rodriques says there’s a reversion to focused strategies, whereas before the crash they had become very generalized and broad, now hedge funds are looking at “very specific” areas of the market where there are opportunities.