Self-Directed Investors: Understanding how self-directed investment affects the wealth management industry

Although advisory and discretionary asset management services are more profitable for wealth managers, they cannot afford to ignore the needs of clients who self-direct. Globally over a quarter of high net worth (HNW) wealth is invested independently of wealth managers’ mandates. Understanding the factors driving the demand for execution-only platforms will help private banks and wealth management firms engage effectively with clients who wish to retain exclusive control over a portion of their wealth.

Scope

Estimates the value of HNW and mass affluent assets invested outside discretionary and advisory mandates

Analyzes the demographics of DIY investors

Compares drivers for self-directed investments between developed and emerged economies

Examines client targeting strategies of brokerages and robo-advisors

Identifies what investment products are preferred by self-directed HNW clients and how wealth managers can use them to expand their offerings

Reasons to buy

What is the self-directed investment market and how big is it?

What drives people to self direct their investments?

How has increased digitalization driven self-directed investments?

What type of investments do self-directed investors seek out?

Companies mentioned

None

Table of Contents

Overview

Catalyst

Summary

Sizing the Global Market for Self-Directed Investment

Defining the self-directed investment market

Globally execution-only mandates constitute .% of total HNW assets

HNW clients in Central and Eastern Europe have the strongest inclination to use execution-only services

Among developed markets, execution-only platforms are popular particularly in France

Over a quarter of global HNW wealth is invested independently of wealth managers

Users of execution-only mandates are also likely to self-direct through third-party services

The HNW self-directed market is largest in the US and China

Demand for execution-only services will grow, but will be outstripped by advised services

Prior to MIFID coming into force, minimal change is forecast in the European self-directed market

Mass affluent investors use advice less frequently than HNW individuals

The mass affluent self-directed market represents an opportunity for wealth managers

Drivers for Self-Directed Investment

Demographics are essential to understanding the self-directed market

First-generation entrepreneurs are likely to invest independently

Younger investors also show a tendency to self-direct

Wealth managers should consider long-term demographic trends

Drivers for self-directed investment differ between developed and developing economies

Price sensitivity is more prevalent in developed markets, but is not the only driver

The desire to maintain control and financial sophistication trump price concerns in Australia and the UK

Digital solutions have boosted the execution-only market in Asia Pacific

Drivers for mass affluent self-investment differ from HNW segment

The UK: The lower the value of investments, the greater the price sensitivity

Understanding the Competitive Landscape

Execution-only asset management services are available through the majority of HNW-focused wealth managers

Wealth managers’ execution-only platforms have been exclusive to HNW clients

Universal banks typically operate execution-only platforms for a wide spectrum of clients

Charles Stanley serves self-directed clients regardless of their affluence level

HNW-focused competitors can benefit from opening their execution-only platforms to the wider market

Brokers are typically a mass affluent proposition

Brokerages have low investment thresholds

Some competitors differentiate offerings for wealthier clients

Fidelity graduates its products and services based on the level of wealth

In the US, brokerages offer a competitive fee structure for price-sensitive clients

Product Environment in the Self-Directed Market

Self-directed investors tend to have deposit heavy portfolios

Assets held in deposits can be easily transferred to more sophisticated products

Self-directed investors contribute to the growth of ETF assets

ETFs appeal to price-sensitive clients

Wealth managers can leverage ETFs in advisory or discretionary mandates too

Some markets still lack easy access to the ETP market

Conclusions

Wealth managers should choose the products available via their execution-only services carefully

Appendix

Sources

Further Reading

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List of Tables

Table 1: Minimum investment thresholds of selected UK brokerages (£)

Table 2: Minimum investment thresholds of selected US brokerages ($)

Table 3: Basic fees and charges of selected US brokerages ($), for transactions made online

List of Figures

Figure 1: HNW clients in Central and Eastern Europe are most likely to use execution only platforms

Figure 2: Execution-only services are not popular among UK HNW investors

Figure 3: Globally over a quarter of HNW investment portfolios are not allocated within wealth managers’ services

Figure 4: The US is the biggest self-directed market in terms of HNW liquid assets

Figure 5: Demand for advised mandates will grow faster than for execution-only services

Figure 6: The greatest growth in demand for execution-only platforms is expected in the Americas

Figure 7: Mass affluent investors are more likely to arrange their portfolios without advice than HNW clients

Figure 8: The US represents the biggest opportunity for competitors targeting self-directed mass affluent investors

Figure 9: Execution-only services are in demand among first-generation entrepreneurs

Figure 10: The HNW population in Central and Eastern Europe self-direct despite comprising only a small proportion of young individuals

Figure 11: The drivers for choosing execution-only platforms differ between developed and emerging markets

Figure 12: Swiss and US self-directed investors want to save on management fees

Figure 13: HNW clients in Asia Pacific are frequent users of digital investment tools

Figure 14: Mass affluent investors self-direct because they believe investing is simple

Figure 15: Most wealth managers provide execution-only platforms for HNW clients

Figure 16: Fidelity has a graduated proposition

Figure 17: Self-directed investors are likely to opt for near-cash products

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