Should fund managers and advisers see do-it-yourself investors as a threat or an opportunity?
Should fund managers and advisers see do-it-yourself investors as a threat or an opportunity?
New market research and trends in the United States point clearly to DIY investors bringing a new area of opportunity.
Market research by Neville Ward Direct reveals a clear picture of the demographics and investment inclinations of the DIY investor.
However, for the industry, one vital statistic from the research has emerged. Over the past year, one third of DIY investors relied on ad-vice from a financial planner.
This fact and development of the investment industry in the US point the way to a new perspective on DIY investors.
What has emerged in the US is a large middle ground of financial ad-vice, which is aimed at reasonably well informed investors who just want some guidance so they are not completely alone in the DIY deci-sion.
Growth of the large discount broker, Charles Schwab & Co, provides an interesting example.
Schwab began in the 1970s as a discount broker, but realised that market trends and new technology were forcing a change to its strat-egy if it were to continue to expand. Today, Schwab is a full service broker, but with the service tailored to DIY investors.
What Schwab has realised is that today’s investor is a lot more savvy, but still needs some guidance through the maze of what stocks to pick and which managed funds will meet their objectives.
This experience translates quite appropriately to the Australian mar-ket. In Australia, advisers have been concerned that growth of the DIY investment segment might undermine their business.
Similarly, fund managers have been reluctant to encourage DIY inves-tors for fear of harming their supporters, the advisers.
However, DIY attitudes here and in the US show these fears to be baseless. A percentage of DIY investors do need advice. It may not be a comprehensive exercise, but these investors need a plan and guid-ance towards making the right DIY choices.
If advisers embrace the current trend of knowledgeable investors wanting to make do-it-yourself decisions, they could increase their client base and expand the type of advice they give.
Fund managers also would tap into a new growth area if they encour-aged DIY investors and they would be helping their adviser supporters at the same time.
As Neville Ward Direct’s research shows, DIY investors are not igno-rant of financial markets, but need help with parts of their deci-sion. DIY investors are educated people over 55 who have paid off their mortgages and are active investors making several new invest-ments each year.
They are inclined to make DIY decisions, but also acknowledge the comfort that comes from some guidance from an adviser about the final investment allocation.
Increasing use of the Internet to invest in the stockmarket is caus-ing shock waves in the traditional stockbroking community. These shocks might extend to financial advisers and fund managers unless they are prepared for the new era of limited financial advice for DIY investors.
The basic concept of asset allocation and spread of risk still es-capes many sophisticated DIY investors and this is the gap advisers can fill.
The challenge for advisers and fund managers is not to put up barri-ers against the DIY crowd, but to see the logic of their needs and to advise them accordingly.
The trend towards investment via the Internet cannot be turned back, but it can be turned to the investment industry’s advantage.
Chris Lavers is the managing director of Neville Ward Direct.
