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Key takeaway
This four-step framework can help you connect alternatives to real portfolio needs, clearly explain their potential role, and set expectations with clients before they invest.
Step 1: Start with your client's goals
Clients don’t need a tour of the entire alternatives landscape. They need to understand why you’re raising the subject, what could change in their portfolio, and what trade-offs come with it. Before discussing a strategy or fund, clearly present their portfolio challenge.
Goals that may open the door
- Portfolio diversification: Reduce reliance on public stocks and bonds, a concentrated position, or a small number of market drivers.
- Volatility dampening: Seek return sources that may respond differently from broad stock and bond markets.
- Growth opportunities: Expand access to companies or assets not available through public exchanges.
- Income generation: Broaden potential income sources beyond traditional bonds.
- Inflation management: Consider assets that may respond differently when inflation and interest rates change.
When to begin the conversation
During a portfolio review
When you notice a change in your client’s financial circumstances, time horizon, cash needs, or portfolio concentration, it can be a reason to reassess the available investment set.
Responding to client questions, frustration, or worry
If your client questions their portfolio returns, whether they’re diversified enough, or why the results didn’t match expectations, use that as an opening for education, not a reactive allocation.
During a goals or planning conversation
Learning your client has a longer time horizon, stable liquid reserves, or a new income or diversification goal may open the door to alternatives.
Step 2: Discuss current portfolio gaps
Explain the job traditional investments already perform in your client’s portfolio, then identify the specific gap an alternative strategy might address.
Stocks and bonds may not diversify every risk
Historically, stocks and bonds have often moved in opposite directions — when stocks fell, bonds held up, providing ballast to the portfolio. In recent years, that relationship has been less reliable, with both declining at the same time during some periods.
Public markets are only a fraction of the investable universe
A portfolio built exclusively on public markets excludes privately held companies, private loans, and certain real assets. With an annual growth rate of 9.4% 1 and with AUM projected to exceed US$3 trillion by 2030, alternatives can expand the opportunity set.
1Private Markets in 2030, Prequin, October 2025 (p. 4).
Step 3: Connect the strategy to your client’s goal
Now you can tailor the conversation around your client — positioning alternatives as a potential tool to address their specific goal. Identify the strategy, its intended role, and the conditions required to earn a place in their portfolio.
Goals-based talking points
Portfolio diversification
"You want to rely less on fewer market drivers. Some alternatives may offer returns from different sources — but we'd need to confirm they add real diversification, not just another holding."
Volatility dampening
"You want more stability through market swings. Some alternatives aim to reduce market sensitivity but can still lose money. Let’s look at the risks and how they've behaved in various environments."
Growth opportunities
"You’re investing for long-term growth. Some alternatives may provide access to companies and assets outside public exchanges, usually with less liquidity and greater reliance on an active manager."
Income generation
"You have a current focus on income. Let’s look at whether certain alternatives may provide additional sources of yield beyond traditional bonds and fit within your broader portfolio plan."
Inflation management
"You’re concerned about rising costs. Some real assets, like real estate or commodities, may respond differently when inflation rises. Let’s assess whether they can complement your portfolio."
Step 4: Set clear expectations around trade-offs
Alternatives often come with specific considerations, so it’s important to be upfront and ensure your client is comfortable with them before moving forward.
Sample advisor-client conversations
Advisor opening: "Alternatives are often less liquid. Depending on the fund, once you invest, you won’t be able to get your money back as quickly as with your brokerage account. Some of these vehicles only let you redeem quarterly, or even less often, and some only partially."
Client Q: "What if I need the money sooner?"
Advisor A: "Let's talk about your expected spending, emergency reserves, and any other concerns, and make sure we've set aside enough money in more liquid assets to cover your potential needs. This alternative investment should be funded with money you're comfortable keeping invested for at least the required holding period."
Advisor opening: "Alternatives may have higher or more complex fees than the funds you already own. Depending on the strategy, these can include management fees and performance-based fees."
Client Q: "Are alternatives worth the cost?"
Advisor A: "That depends on the role we expect the alternative to play. We’ll walk through the full fee structure, then weigh the costs against the strategy’s potential benefits to your portfolio and decide together whether they justify the expense."
Advisor opening: "With alternatives, you won't have the same day-to-day visibility you're used to with public holdings. Reporting on these strategies tends to be less frequent and less detailed."
Client Q: "How will we know how the investment is doing?"
Advisor A: "We’ll review the valuation scheduling, reporting package, and measures used to evaluate the strategy. Some details may not be fully visible between reports. Let’s talk through exactly what you will and won't see, and how often."
Advisor opening: "Unlike some of your other holdings, alternatives can have specific redemption windows and require additional paperwork, such as subscription documents and additional tax reporting each year."
Client Q: "What will I need to do?"
Advisor A: "I'll do most of the work, including managing the subscription process and keeping track of redemption windows and other key deadlines. We’ll stay closely connected throughout the process."
Advisor opening: "With an alternative strategy like this, the manager’s ability to find opportunities, construct the portfolio, manage risk, and execute the strategy can significantly influence outcomes."
Client Q: "How do we evaluate the manager?"
Advisor A: "We’ll look closely at their track record, their team, their process, risk controls, and results across different market environments. And we’ll walk through that together."
Advisor opening: "I want you to be aware that alternative investments can lose money. Depending on the strategy, risks may include concentrated positions, credit losses, complex contracts, or assets that are difficult to sell."
Client Q: "Is it worth the risk?"
Advisor A: "We need to consider the strategy in the context of your full portfolio — what risk it adds, what risk it may potentially diversify, and whether those trade-offs fit your plan."
Keep the conversation going
Talking about alternatives with your clients is not a one-time discussion — it's an ongoing responsibility. Clients may need more than one conversation to understand a strategy, its trade-offs, and whether it’s a good fit for them. Give them time to ask questions and avoid creating undue urgency around the decision. If it earns a place in their portfolio, keep revisiting the case as your client’s needs evolve..
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Disclosures
This framework is illustrative only, intended to help advisors structure educational conversations about alternative investments. It is not a script or investment recommendation. Discussions should be tailored to each client's individual circumstances, goals, and risk profile.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. There can be no assurance private equity funds will achieve higher returns than public equities. Private equity strategies are subject to different investment risks and are generally illiquid. They will experience equity-like volatility at times and are a portfolio of illiquid/private companies. The return of invested capital to limited partners is dependent on the success of the companies held in the portfolio, and the timing of such liquidity is uncertain.
For financial advisor and institutional use only. Not for use with the public. All investing involves risk. Diversification and active investment do not ensure profit or protection against losses. This is for educational and informational purposes only. Nothing herein constitutes investment advice or a recommendation and should not be relied upon as a basis for making an investment decision. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any security or instrument, or a solicitation of interest in any Wellington vehicle, account, or strategy. Opinions expressed reflect the opinions of the author(s) as of the date indicated and are based on the author’s opinions of the current market conditions, which is subject to change. Past events and trends are not necessarily indicative of future events or results. Forward-looking statements should not be considered as guarantees or predictions of future events. While any third-party data used is considered reliable, its accuracy is not guaranteed. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management.