Advances in technology over the last 100 years have repeatedly brought what was once only available to an elite few to the level of the average individual. Automobiles, telephones, televisions, airline travel, cellular phones; the list is nearly endless.

Similar developments have changed the investment world as well. The advent of mutual funds brought professionally managed, diversified portfolios to the masses. Technology made the management and widespread distribution of separately managed accounts (SMAs) a reality, bringing more institutional management and personalized portfolios to high-net-worth investors. The explosion of exchange-traded funds (ETFs) over the last 10 years has brought low-cost, liquid, highly tradable exposure to a wide array of equity and fixed income asset classes to investors around the world.

Advisors today should take a page from history books and apply it to current retail asset allocation plans. They can use technology to bring the world of institutional asset allocation to their clientele, thereby offering the full array of global investment opportunities.

Today's off-the-shelf retail asset allocation programs include a relatively limited number of asset classes. And while these models deliver on the promise of adequate diversification and long-term risk management, they also tend to ignore institutionally accepted asset classes that offer the potential for superior returns. The traditional retail model of domestic equity, domestic fixed income, international developed equity, and perhaps emerging markets equity or domestic real estate, no longer offers investors the best diversification and return potential for their portfolios.

Institutional grade asset allocation frequently includes international and emerging market debt, international real estate, high-yield fixed income, commodities, and alternative investments such as hedge funds. Technology, along with the financial engineering found in the investment industry, now allows advisors to formulate effective strategies using these and other asset classes in their allocation programs and to implement these plans using an array of ETFs, mutual funds and separately managed accounts on a cost effective basis.

With intelligent portfolio construction, the savvy advisor can adopt passive core—active satellite asset management structures that combine low cost beta exposure with the right mix of active managers who consistently generate positive alpha returns. The next step is to select the most suitable, highest quality products for strategy implementation.

Inmost retail asset allocations, the international equity allocation is predominately large cap, multi-national companies. This creates a sense of comfort for average investors, in that they have likely heard of these companies before and can swap these names during country club cocktail chatter.

But at the institutional level, the portfolio managers are looking at small cap companies, country or region-specific investments, un-hedged international debt (both sovereign and corporate), and emerging markets debt to simultaneously generate positive real returns and dramatically reduce correlations in the aggregate portfolio. In addition, ETFs allow investors to invest directly in an index representing a specific country, region, or global economic sector at a reasonable cost.

Financial advisors will recall that one of the hottest domestic market segments from 2003 to 2006 was the real estate sector, represented for most investors by the actively traded real estate investment trust (REIT) market. The Wilshire REIT Index was up more than 30% for four years running. These returns sparked more interest from retail investors and advisors who exhibit behavioral tendencies to chase performance. Over the last few years, a number of institutional managers and several mutual funds have migrated into the global REIT market, which provided investors with significant diversification benefits and returns in 2007, just as the U.S. real estate market fell sharply.

Alternative investments such as private equity and hedge funds represent a greater portion of pension and endowment assets today than ever before. These products, when properly managed and implemented, can offer attractively low correlations and substantial long-term returns, for a little more volatility than the average equity portfolio. Until recently, these products were only available to the wealthiest of investors, and usually at minimums in excess of $5 million. But, over the past few years, there have been an increasing number of registered funds available to qualified investors for as little as $50,000 and a growing universe of mutual funds employing hedge fund-like strategies and characteristics.

The natural progression of using these diversification strategies would lead to an increase in the resources required to research, select and monitor the viable investments. One solution is to consider the asset allocation, life cycle or target date funds available today. These aggregate some or all of the asset classes mentioned above.

Ideally, advisors should seek out institutional grade, diversified multi-manager portfolios. Use a pure, conflict-free, open architecture approach for selecting high quality money managers. Adopt passive core-active satellite portfolio construction techniques. And provide an independent third party firm to monitor the managers and rebalance the portfolio. These steps will increase the chances that investors achieve their retirement objectives.