Alternatives haven’t been this relevant since the ’90s grunge scene.

Equity concentration is at historically high levels. With SpaceX’s June listing, the 10 largest companies now account for about 35% of Morningstar’s Total Market Index, and Goldman Sachs’ research that artificial intelligence spending will make up about 40% of this year’s S&P 500 earnings growth comes as no surprise. That has some investors turning to alts to diversify away from equities.

“The scale of the AI theme is so big and so powerful, and its tentacles stretch into so many different things, that watching out for your exposure to AI is a key part of risk management,” said David Stubbs, chief investment strategist at AlphaCore Wealth Advisory. If clients are determined to stay liquid, it is, of course, possible to get away from AI by allocating to sectors, factors or countries in equities that don’t have AI exposure, “but without utilizing alternatives, you’re trying to climb the ladder with one hand tied behind your back.”

Alpha Bet Soup

One area that Shang Chou, cofounder of Dishmi Capital, is looking at for diversification is managed futures, which can provide a consistent positive absolute return. “In the case of really sharp equity market selloffs — think 2008, 2009, 2022 — these strategies actually really performed well, and they give you the so-called ‘crisis alpha,’” he said. “Most individual, taxable investors are totally underallocated to this strategy.”

Other suggestions include:

• Early-stage venture capital across themes that are only at the fringes of AI, like consumer, defense and biotech. Evergreen vehicles can provide more transparency than traditional capital call structures, Stubbs said.
• Manufacturing has been a trend, given the current presidential administration’s priorities. Lower middle-market private equity for companies building physical things is a way to play this theme, and it tends to have cheaper valuations and more options for finding liquidity, like selling up the private equity food chain, said Matt Malone, head of investment management at Opto Investments.

Don’t Throw the Bot Out With the Bathwater. All this said, AI is still a growth driver. “What we’re seeing from a lot of clients is not necessarily that they’re trying to diversify away from AI, it’s that they’re trying to get exposure to AI in a different way,” Malone said. These clients are looking to get into fast-growing, private companies that may be bought out by Anthropic or OpenAI or contributing to the AI infrastructure buildout.

It’s all about balance, Stubbs said. “People often jump from, ‘I’ve got lots of exposure to AI’ to ‘I don’t want any exposure to AI’ and they miss the middle ground, which is, ‘Can you calibrate and diversify your exposure to AI?’”

These owners are staying put for now.

After nearly two years of hitting record heights each quarter, M&A activity among RIAs has begun to slow, according to new DeVoe and Co. research. As of early last week, RIAs had announced just 72 transactions in the third quarter, a nearly 20% decline from the same period last year.

“A short pause may simply shift transactions into later quarters,” company CEO David DeVoe said. “A prolonged pause could leave some owners with less time to prepare for succession and more pressure to make a decision when circumstances become urgent.”

Hold On

Succession needs, demand for scale and buyer interest in high-quality firms still remain. So why aren’t owners selling? Well, the world is on fire. (Then again, when is it not?) Tariffs, the Iran war, surging gasoline prices and other economic shocks are creating plenty of volatility, uncertainty and distractions. Advisors are more focused on clients right now, DeVoe said, adding that selling a business is a major strategic decision that demands considerable time and focus. “It can move down an owner’s priority list,” he told Advisor Upside.

The research also found:

• RIA deal activity started the year vigorously, with 93 transactions in the first quarter, matching the all-time quarterly record, which was set in Q3 2025.
• Activity eased to 74 deals in the second quarter, just one above the same period a year earlier.

What Are Ya’ Buyin’? In addition to sellers hitting the pause button, buyers appear to be becoming more selective, said Corey Kupfer, founder of Kupfer, a law firm that counsels on RIA growth. Serial acquirers are focusing on fewer, larger deals after years of paying strong valuations for smaller firms to establish geographic footholds, he said.

A slower quarter isn’t necessarily a bad thing, said Haig Ariyan, founder of Arax Investment Partners. “Buyers are being more selective, and I think that’s healthy,” he told Advisor Upside. “Capital is available for strong businesses. What matters more than the number of announced deals is whether firms are finding the right long-term partners.”

To borrow from Indiana Jones and the Last Crusade, financial advisors must “choose, but choose wisely” what they suggest to clients. Thanks to model portfolios, however, they have fewer choices to make nowadays.

Assets in model portfolios totaled $943 billion as of March, more than triple 2021 levels, according to data Morningstar published last month. And providers are constantly honing their models. For many, taxes are top of mind. A new report from Cerulli found that more than 80% of model issuers say tax optimization services for taxable accounts are an important service and support effort, and 40% say that making models more tax-efficient is among their top-three product development initiatives. That’s music to an advisor’s ears.

“Tax efficiency is a top priority for us because many of our clients are retirees drawing income from their portfolios,” said Sean Beznicki, director of investments at VLP Financial Advisors. “They need reliable cash flow, but how that cash is raised matters. Realized gains can increase taxable income and, for some clients, lead to higher Medicare premiums.”

The Holy Grail: Tax Efficiency

More tax-efficient model portfolios are super important to advisor Joon Um of Secure Tax & Accounting, too, as he works with higher-income clients.

“I’d like to see model portfolios do more with tax-loss harvesting, asset location and managing capital gains,” Um said. “Clients may not always ask about ‘tax efficiency’ directly, but they definitely care about how much they actually keep.”

Exposure to alternative assets is also a priority, with 57% of providers saying that incorporating semi-liquid and illiquid alts is a top-three product development initiative, per Cerulli:

• But not all advisors are convinced that it should be a focus. Beznicki said fundamentals — including tax-efficient ETFs, low-turnover funds and thoughtful allocation of assets between taxable and tax-advantaged accounts — should be the priority before more complex products are introduced.
• “The goal should be better tax management and customization, not just adding more products,” Um said.

Hunting for Diversification. Just this week, Raymond James announced that it’s expanding its model portfolio with enhancements for advisors who work with high-net-worth clients, and emphasized exposure to private markets as a means of diversification. “Alternatives can help with diversification,” Um said of adding more alts to model portfolios in general. “But I’d be cautious about fees, complexity and liquidity.”