Self-directed investors don’t necessarily see the need for ongoing advice, and the industry needs to find a better way to match their demands.fizkes/iStockPhoto / Getty Images
Just how content are do-it-yourself (DIY) investors? Answering this comes down to questions of value – in terms of both fees and what’s offered by a real-life advisor – and confidence in either their ability to manage their own investments or in their advisor. Two recent reports provide some answers on what’s working and what’s missing – and the opportunities for advisors.
New research from Cerulli Associates about DIY investors supports the idea that most investors want human advice at some point. According to the Boston-based research firm, roughly four in 10 DIY investors said they would be willing to pay to speak to a human specialist, with younger investors most keen on the idea.
The firm said there’s an opportunity for investment platforms to transition clients toward an advisor relationship and that wealth management firms are missing out. Most aren’t good at recognizing the situations when investors want human advice and making that connection easy.
Cerulli found there may be a mismatch between how investors and providers define financial advice. Self-directed investors don’t necessarily see the need for ongoing advice, and the industry needs to find a better way to match their demands.
Similarly, a report last month from FAIR Canada found that about half of DIY investors would like access to an investment advisor when trading in their DIY accounts. Only about 10 per cent said they’re “extremely” confident about investing, and only one-quarter described themselves as confident investors who understand the risks involved.
The main dissatisfaction investors had with their DIY accounts was that they had to rely on their own knowledge and experience. Despite citing fees as an important factor, less than half knew what they paid.
So, why are they investing on their own? Almost two-thirds agreed that the cost of professional advice was a major factor, while 43 per cent said they could do as good a job as a professional. More than half said advisors are more focused on their own interests than those of their clients.
FAIR Canada did some interesting segmentation from the survey between DIY-only and hybrid investors who also use an advisor. The latter were more confident and often used their accounts for riskier investments such as trading options, futures and over-the-counter derivatives.
The non-profit investor advocacy group also created different profiles of DIY investors. These ranged from the confident, options-trading “Evan” and thoughtful, balanced “Harry,” who enjoy the process and are satisfied with their platform, to the ambivalent, risk-averse “Riley” and overwhelmed “Doris,” who neither enjoy nor trust the investment process.
So, what can be done for the Rileys and the Dorises? For starters, FAIR Canada says it’s time to rethink how DIY platforms are regulated. Order-execution-only firms aren’t allowed to offer advice to DIY investors; regulators are reviewing whether that should change.
But there’s also an opportunity for firms to win over DIY investors. One way to do that is by making investors aware of the other advice channels through targeted notifications at certain milestones, the Cerulli report said.
“Ultimately, if a full-service provider’s objective in offering self-directed brokerage accounts is to eventually transition those customers into advice relationships, they must make those interpersonal services visible to these clients – early and at the right time.”
How are you making inroads with DIY investors? Let me know: mburgess@globeandmail.com.
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