Are You and Your Advisor Talking About Options Strategies?

Talking with investment advisor about option strategies | Sheaff Brock

Are You and Your Advisor Talking About Options Strategies?

The study results represented good news for the Options Industry Council. The OIC had commissioned global research and consulting firm Cerulli Associates to find out how much interest and involvement there is among financial advisors when it came to including options in client portfolios. The report, published a year and a half ago, highlighted three important developments:

  1. One third of financial advisors were already using options in 20% of their client portfolios.
  2. Advisors expected to increase the use of options by 30% over the next three years.
  3. The greatest increase in options usage rates over the next three years was expected to happen in independent RIAs and hybrid RIAs.

One interesting detail that came to light was that advisors who worked for wire houses and national and regional broker-dealers reported the highest volume of options trades compared to independent advisors. (Cerulli theorized that greater centralized support services were offered by the bigger organizations.)

The study pointed out that advisors used options for diverse purposes. Large practices (those with more than $500 million in assets under management) placed an even greater emphasis on downside risk along with income generations. The OIC’s stated goal, meanwhile, was to “potentially increase market share of these valuable financial risk management tools.”

In former years, Sheaff Brock Director Jim Murphy recalls, options were often misunderstood, with many clients unreceptive to discussing options strategies, believing options fall to the far right area on the Efficient Frontier chart. Today, Murphy’s finding, it may be the advisor who is reluctant to incorporate options in their clients’ overall portfolio strategy (although the Cerulli study shows this is beginning to change). Lack of time and lack of backup support services may account for this advisor reluctance.

On the other hand, since advisors play such an important role in helping clients put stock market volatility into perspective, Sheaff Brock focuses on offering option overlay techniques built around existing portfolios. Outsourcing allows advisors to avoid the time commitment needed to direct options trades in client portfolios while yet attempting to satisfy their clients’ desire for:

  • assets to be productive during flat markets
  • enhanced cash flow
  • risk reduction

Are you talking to your investment advisor about option strategies?

Share this post