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Somewhere between tee and green, the doctor in David Brady's foursome told the group that his broker had said he "needed a fracking play" in his portfolio, and that he had spread some money across a few different "fracking" stocks.

So Brady, who runs Brady Investment Counsel in the Chicago area, asked the doc if he knows what fracking is.

After an incoherent sentence and a moment of silence, "it was pretty embarrassing for both of us," Brady recalled. "The problem wasn't just that the doctor didn't know it, but that the broker - the person who was managing all of his money - hadn't explained it well enough for him to know.

"He was trusting them completely, and the silence was awkward I think because everyone realized how vulnerable that actually makes an investor," Brady said.

Do I believe most brokers could explain why an investor needs exposure to "hydraulic fracturing," which is often confused with drilling but technically comes after drilling to break apart rock, release gas and "complete" the process of capturing the natural resources?

No fracking way.

Is it possible that ordinary investors are being talked into trouble? You better fracking believe it.

That's not a knock on fracking itself, but rather on the class of investments that pure-play fracking stocks belong to - the realm of "alternative" investments.

A recent study by American Century Investments indicated that a growing number of financial advisers are using alternative investment strategies. Four out of five study participants currently use "alts" with clients; that grows to nine of 10 when it comes to brokers from the big investment firms, such as Brady's doctor friend.

Overall, advisers are using alts with about one-third of their client base, but those having "extensive" experience with alternatives use them with roughly half of their clientele.

More important, however, is that 55 percent of the advisers surveyed expect to use even more of these investments. In fact, their usage is looking so mainstream that it's hardly "alternative" at all.

Technically, an alternative investment doesn't have to be obscure and esoteric. Say "alternative," and most people think of hedge funds, commodities or funds with hedge-like strategies, effectively the things rich folks used to do that the ordinary investor didn't have access to until recently.

Other common asset classes - including gold and other precious metals, "natural resources," real estate and real estate investment trusts, currencies, private-equity directly into companies, and more - typically fall under the umbrella, too.

Although the advisers still prefer using traditional mutual funds and ETFs for their alternative exposure, more than 40 percent said that regardless of the tools they use, the biggest challenge associated with alternative investments is that it's "difficult to explain features, benefits and risks to clients."

Even when they explain it "successfully," the client might not get it. After all, the doctor's broker succeeded in getting him to go for the fracking plays, even if he had no real clue of what he was doing.

"The driver toward alternatives is the market volatility of the last few years," said Chris Doyle, a spokesman for American Century, which recently announced three new alternative portfolio funds.

"People are looking for ways to create a smoother ride," he noted. "They want to find whatever that investment is that won't move the same way as the equity or bond market. They want something that zigs when the rest of the market is zagging."

But if you can't understand what you own, you're out of control.

"People don't want to know the details," Brady said, "so they get fed the latest buzz word, they pick up on it without knowing what it really means and toss it around like it makes them smart."

(c) 2011 Tulsa World. Provided by ProQuest LLC. All rights Reserved.

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