Chapter 17Suitability and Fees


Discussions about liquid alternatives can sometimes overlook suitability, or get sidetracked by a preoccupation with fees. Granted, alternative mutual funds usually do have high expense ratios compared to traditional mutual funds. The key question is: Are they worth it? If advisors do their homework, they can find funds with a risk/return profile that justifies a premium fee, especially in the context of the portfolio's overall costs and goals.

This chapter also discusses the value proposition of investment advisors. Fee compression is spreading throughout the wealth management industry, sometimes with good reason, and sometimes not. Advisors have a key role to play in the investment process when they take time to understand the client's goals and connect these goals with the appropriate set of investment solutions. This process can be enhanced by considering sophisticated products such as liquid alts, and this is one way that advisors can serve clients better.

Suitability and Results

Advisors who have long-term client relationships are already familiar with the importance of suitability. Suitability screening is often done defensively, in order to prevent compliance problems, and focuses mainly on risk tolerance. Forward-looking advisors who use a goals-based approach to financial planning may see suitability in a more positive light, as a means to help clients reach their objectives, and keep them engaged with their financial success ...

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