The financial services industry needs to define alternative investments better, according to a new report by Boston-based research firm 
Cerulli Associates.

Different firms defining alternatives in different ways “is leading to confusion among advisors and end customers and will ultimately impact adoption", the report said.

The word "alternative", in the context of investment management, has come to mean any asset class that it is not bracketed in the categories of listed equities, bonds or cash. In other words, the term covers commodities - ironically one of the world's oldest tradable markets - hedge funds, property, private equity, infrastructure and collectables. Such assets have widely different caracteristics, return profiles and levels of risk.

“As firms assess their market potential, many are trying to understand how much these investments will move down-market, which requires a clear-cut definition,” said Cindy Zarker, director of retail asset management at Cerulli and lead analyst for the report.

“Creating boundaries to define alternative investments not only helps truly evaluate this marketplace, but places asset managers and advisors on the same wavelength by educating them,” Ms Zarker said. “This is so important to successful distribution.”