If you've delved into alternative investments lately, you probably didn't hear about them from your financial advisor, and if you did, you most likely have greater wealth and income than your affluent peers.

Perhaps you sought them out as a way to diversify traditional vehicles. Hopefully you are using alternative investments to balance risk.

What you should know is that alternative investing is actually not that common among the affluent, with 61% feeling that it’s important to keep their investments within the bounds of the traditional stock exchanges. A recent Spectrem Group Perspective™, Alternative Investments: Are they a priority for Affluent portfolios?, supports this sentiment, indicating that alternative investments, those outside the established vehicles of stocks, bonds and mutual funds, are not well understood by the affluent. If you are involved with Hedge Funds, Venture Capital, or REITs, you are probably a well-informed minority among your affluent peers.

Another reason for this lack of understanding may be that only a third of investors reported that their advisors had spoken to them about these choices. If this is your experience as well, there could be several reasons; your advisor may not feel you fit the risk profile to invest in alternatives, they may not be very knowledgeable about them or it may not be in their best interest to steer you towards these selections. They may not be compensated when you invest in them as opposed to their institution-approved investment offerings. This is one reason why independent financial advisors have seen a surge of clients in recent years; and why more institutions have introduced open investment platforms.The key to using alternative investments to your advantage is education.

Though greater wealth generally coincides with greater understanding and interest in these products overall, half of wealthy investors have no understanding of Structured Products and Private Placements, while Private Equity and REITs received the most interest from the affluent. This may stem from the fact that the affluent have more exposure to equity and real estate investing than other vehicles, due to their exposure to venture capital as a source of funding for business purchases, and real estate being an age-old and perennial favorite in 75% of affluent portfolios. Today’s affluent investor is more educated, self-directed and technologically savvy than ever. Addressing these alternatives with advisors, and actively requesting information is necessary, but considering advisor hesitancy to address these choices, it also might be necessary to seek out other sources of information.

Alternative investments should be entered into with care, because they can dramatically change the risk profile of your overall portfolio. Even if you do not make these investments through your present advisors, they should be informed because of the potential change in risk that could warrant a rebalancing of your investment portfolio. Armed with information and working in partnership with your advisor to control risk, knowledgeable choices can be made.

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