A white paper from Capital Preferences estimates a $6.9 trillion gap between what accredited investors could reasonably hold in private market assets and what they currently own, stating that the shortfall is tied to a lack of insight into how clients make decisions.
The firm partnered with economists from the University of California, Berkeley to study how 1,532 investors make decisions when presented with real trade-offs. According to the report, titled “The Client Alignment Challenge: A $6.9 trillion Private Markets Advice Gap,” age and wealth tell advisors very little about how comfortable someone is with illiquidity.
“To serve clients responsibly and capture the full potential of private-market adoption, advisors don’t need more generic education,” said Bernard Del Rey, Founder and CEO of Capital Preferences. “[T]hey need a precise way to understand how each client weighs risk, reward and liquidity. Without that foundation, the trust, retention and growth of private investing will suffer.”
The study also revealed that 30% of investors who previously owned private market investments sold them. The authors attribute much of this turnover to a mismatch between products and each client’s behavioral comfort zone.
The white paper suggests that advisors and asset managers embed behavioral diagnostics into client discovery, tailor products to align with investors’ liquidity comfort zones, integrate decision-science data into workflows and educate clients.
The paper suggests that creating behavioral alignment could increase the allocations of accredited investors to private markets from the current 5% average to 17%.
Janeesa Hollingshead, Contributing Editor at Wealth Solutions Report, can be reached at editor@wealthsolutionsreport.com.
