Financial advisors are flocking to private assets available in retail wrappers for any number of reasons: need for income, a buffer against market downdrafts, and purely increased availability through vehicles like interval and tender-offer funds as well as non-traded REITs. But it’s easy to overlook the significant role ETFs have played in making alternatives both appealing and affordable for clients.

Some 84% of financial professionals are allocating at least a portion of client assets to alternatives, although still less than 10% of total invested assets. That’s according to results of a survey of 300 advisors attending the Morningstar Investment Conference surveyed by alternative investments platform CAIS, reports Tony Rifilato at Financial Advisor IQ’s sister publication, FundFire.

A separate survey conducted by Cerulli Associates and alternative fund data site Blue Vault Partners showed that 69% of advisors are tapping into alternatives to reduce exposure to traditional stocks and bonds, while 59% say they seek to generate income.

More than half (59%) of the 100 respondents to the Cerulli and Blue Vault survey said they use ETFs for alternatives exposure, while 61% said they were using nontraded REITs and 69% said they reached for alternative mutual funds.

In all, alternatives represent about $5.9 billion of ETF flows, just a tiny slice of the $292.4 billion that flowed to ETFs, broadly, during the first six months of 2022. They represent just $37 billion of the $6.2 trillion ETF universe, according to data from Morningstar Direct.

But ETFs’ biggest influence in alts may in fact be a result of the mass adoption of plain passive products. With investors able to access cheap index ETFs to fill up the big buckets of client portfolios, advisors see facilitating access to alternative investments in other portions of a client account as a way to differentiate, consultant Louis Diamond told FundFire.

Indeed, ETF sponsors are starting to recognize the power in combining forces with alternative assets. For example, WisdomTree last year launched a model portfolio with exposure to cryptocurrencies.

ETFs also play a big role in lowering the investment fees that clients pay, relative to mutual funds expenses or spreads and commissions on individual securities. That savings can then be used to pony up for more niche investments. Annual fees on one increasingly popular breed of alternative, the interval closed-end fund, can top 3.5%, and many include redemption fees, according to a Finra investor alert.

Alternatives require a much more hands-on, and often paperwork-intensive, enrollment, and they may not be for the set-it-and-forget-it crowd. But ETFs may give advisors the berth needed to kick the tires and dabble in the complex strategies.