Off Wall Street Investing vs. Alternative Investing

In the search for stability and growth an investor may explore the area of Alternative Investments with the belief that this investment group is sufficient to hedge the portfolio, when in fact the last half of 2008 proved that theory incorrect again as this Alternative Investment class is usually still investing in products from the murky world of Wall Street. Investors must look at products off Wall Street for true diversity in investing.

 

Off Wall Street Investing

Off Wall Street investing offers true diversification or in some cases complete separation from the stock market extremes and lack of transparency and allows investors opportunities that they are more familiar with or can have a higher level of confidence in due to the personal nature of investment group.

The primary risks to this group of investments are lack of real information on what is being done with the funds and the lack of liquidity as there is rarely a secondary market for the security to be negotiated. The Cash Flow Store created the Liquid Cash Flow to specifically overcome these issues so the investor has the opportunity to have access to their principle investment, the day to day management and operations of the business in ways that would be likely impossible if an investor were buying into a Wall Street hedge fund or stocks.

 

Alternative Investing

Alternative Investments are usually described as non-correlated to the stock market. The term non-correlated covers a wide range of possible investment options most often including real estate, private equity and commodities. The inherent problem still exists; the investor has no reasonable access to those making decision about the money as most alternative investments are usually still blind funds investing in stocks or bonds in which the manager is seeking to generate favorable returns from the relationship between the securities rather than the overall asset class direction.

 

Why Doesn’t my Advisor Have This?

Why is this most common approach to overcome Wall Streets wild swings? The answer is found by following the money in a couple of ways. Typically a financial advisor in all the forms; CFP, RIA, ChFP, CPA, must spend a significant majority of their time marketing and maintaining client relationships, some reports indicate that 90% of an advisors time is spent on relationship building (getting more clients). This can easily be observed by the general industry acknowledgement that the value of a practice or advisory firm is primarily based on assets under management or ‘AUM’. This leaves a relatively limited amount of time open to actual product education and due diligence. This in turn creates the situation where the advisors will rely on widely distributed marketing due diligence packages from the underwriters of investment banks or product issuers as the research on a particular product, hardly an unbiased presentation at best.

 

Another reason that the alternative investment category is still primarily focused on stocks and bonds is that almost all investment advisory firms control the products that investment advisors can offer to potential investors. In this environment, the financial advisor is acting like a broker offering specific products allowed by the parent organization. The parent organization is typically receiving financial consideration to offer the products through its advisors and is responsible for the due diligence of the product so that the individual financial advisor can stay focused on marketing and sales. Ultimately an investor may need or want a product that is not offered by the advisor, and the advisor must advise against the investment because they are prohibited in facilitating the use or sale of an unapproved or unknown product. This is referred to as “selling away” and is a punishable offence by the employer to the investment advisor.

 

This common scenario can sometimes be overcome with truly independent investment advisors. These groups of advisor firms do allocate time and money to research investing alternatives that are not tied to Wall Street so that they can offer a unique value to their clients. The Cash Flow Store has relationships with professional independent advisor firms like this and in addition to complete transparency we offer board advisor roles and specialized reporting.