CNBC: Do the risks outweigh the rewards? If so, why?
Butowsky: I am a huge proponent of always having a portfolio that is prepared to handle different economic and market conditions. With alternatives, the risk isn't necessarily investment performance but ... investor performance. Most seasoned investors know that a properly managed portfolio should always have some investments that are not doing well relative to the others. If you have a portfolio where everything is going up at the same time, your portfolio is being mismanaged.
CNBC: With the rise of new liquid alternatives, advisors are presented with more options to include alternatives in their clients' portfolios. What type of investor is the right fit for liquid alternatives?
Butowsky: A liquid alternative, for the most part, is an alternative investment that has very favorable liquidity terms. One of the biggest drawbacks to alternatives has been long lock-up periods, so liquid alts were created to address those concerns.
Read MoreInvestors turn to liquid alternatives
Basically, liquid alts are alternative investment strategies that are available through alternative investment vehicles such as mutual funds, exchange-traded funds and closed-end funds that provide daily liquidity.
I don't believe the size of the client's portfolio should dictate [whether] you should include alternative in a portfolio.
[Whether] you have ... $100,000, $1 million or $10 million, there should always be a percentage of your assets in alternatives. Liquid alternatives are a wonderful new entry into the investment choices that we have to offer clients. They were introduced due to the demand that retail clients had for liquidity, which was one of the biggest drawbacks previously to alternative investments.