With abundance of alternative products, advisors need to do their homework

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The growing number of alternative investments available for client portfolios means advisors need to educate themselves about these products, including cryptocurrencies, if they want to stand out with clients.

“This world takes a lot of work,” said Craig Machel, senior portfolio manager and senior investment advisor at Richardson Wealth Ltd., who spoke about investing in private assets at Globe Advisor’s Wealth Leadership Forum 2026 on June 8.

Advisors should be “sitting down with managers to understand who they are, where they’re invested, how they’re paying employees and what their process looks like.”

Private market investments, such as private equity, private debt and real estate funds, have become more attractive as sources of diversification in recent years. That’s because the returns for public equities and bonds have become highly correlated and companies are remaining private for longer, said Meric Koksal, managing director and head of product at CIBC Global Asset Management.

But advisors need to understand their clients’ risk tolerance and liquidity needs as well as whether investing in a private fund could have tax implications, Mr. Machel said.

“You can amend things along the way, but it’s better to amend up toward more risk than to go from higher to lower,” he said. “It’s a lot of education along the way for clients to get comfortable knowing exactly who they own and what they exactly do.”

With several high-profile examples of private funds restricting redemptions, Ms. Koksal said more education is needed around the practice known as “gating.”

There’s often an impression that gating is a “structural flaw,” she said, but in fact it’s meant to protect clients by ensuring asset managers don’t have to sell their positions if there are too many redemption requests.

She also recommended asking whether asset managers are beholden to initial public offerings or the mergers and acquisitions market for an exit from investments, or if they have opportunities in the secondary market.

Mr. Machel pointed out that not all funds own the underlying shares of a company they’re invested in and may only have the opportunity to buy them when they go through an IPO.

Many of the same due diligence questions that apply to public asset managers apply to private asset managers, Ms. Koksal said, including about return drivers and fees.

Private funds often have performance fees when returns exceed a certain threshold, called a “hurdle rate,” and there can be additional fees when there are other funds contained within the fund.

However, Ms. Koksal said increased competition, as more funds become available, has driven down fees and led to more transparency.

She said advisors should start learning about alternatives even if they aren’t offering them.

“All your clients are being pitched these things in one shape or form and, frankly, there are some mispriced, missold products,” she said. “You want to know it on a defensive level, even if you’re not ready to introduce it as a structural part of your asset allocation.”

Michael Zagari, portfolio manager at Zagari Wealth Advisory with Wellington-Altus Private Wealth Inc., said learning about cryptocurrency when other advisors treated the asset with extreme skepticism helped him stand out with clients.

Speaking on a separate panel at the Globe Advisor event, he said many in the financial services industry saw crypto as too volatile and unusable for making purchases, even when regulators approved the first bitcoin ETF in 2021.

“Today, clients are asking questions, but the issue is advisors have not caught up in terms of knowledge,” he said. “They underestimated the adoption level because they didn’t understand the underlying technology.”

Mr. Zagari said clients are willing to pay a premium for advice from advisors who are knowledgeable about crypto and who can drive growth in assets under management.

Chris McHaney, executive vice-president and head of investment management and strategy at Global X Investments Canada Inc., said on the panel with Mr. Zagari that it’s become easier for traditional finance players to adopt cryptocurrency capabilities, with well-known custodians now either building their own digital custody capabilities or partnering with specialists.

“It’s about bridging into that … regulatory framework that everyone’s already comfortable with and [they’re] not going to think, ‘What’s going to happen to this? Who’s taking my dollars on the other side?’” he said.

There’s “still a lot of homework to be done” in terms of selecting the right crypto ETFs, Mr. McHaney said, “but you’re getting rid of a lot of that regulatory worry when investing in traditional structures.”

Although he said cryptocurrencies’ underlying blockchain technology is “incredibly powerful” and going to transform finance, the investment opportunity is still up for debate.

Companies enabling this transformation – such as trading platforms Coinbase Global Inc. and Robinhood Markets Inc. – are set to benefit, he said, as are traditional financial firms such as Visa Inc. and JPMorgan Chase & Co. that are adopting cryptocurrency or using it to serve their clients.