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Self-Directed Investors: Implications for Wealth Managers

Published: Mar 23, 2016 | Pages: 50 | Publisher: Verdict Financial | Industry: Financial Services | Report Format: Electronic (PDF)


Although advisory and discretionary asset management services are more profitable to wealth managers, they cannot afford to ignore the needs of clients who self-direct. Globally over a quarter of HNW wealth is invested independently of wealth managers' mandates. Furthermore, a large chunk of assets already brought to wealth managers sits within execution-only platforms. Technological and regulatory changes in the financial services industry have affected the drivers for investors to self-direct in recent years. Understanding these factors is crucial to ensure the long-term profitability of wealth managers' business.

Key Findings

Globally execution-only mandates constitute 19.1% of total HNW assets held with wealth managers. Although clients in developing economies tend to prefer unadvised services, the US represents the biggest market opportunity in terms of self-invested assets.
HNW clients under 35 years old and first-generation entrepreneurs are most likely to self-direct their investments.
Price-sensitivity encourages HNW investors to look for alternatives to the services of wealth managers in mature economies, but in developing markets a pure preference to run simple portfolios independently is the key driver.
Advances in digital technology are contributing to the growing interest in DIY investments, particularly in Asia Pacific.
Traditional brokerage business models are being challenged by the growing number of platforms offering automated investment solutions (robo-advisors).
The increasing popularity of exchange-traded funds (ETFs) and peer-to-peer (P2P) lending platforms has started to affect the business of wealth managers.


This report draws on our 2015 Global Wealth Managers Survey to analyze the independent HNW investors' landscape across the globe. It sizes the market for self-directed investments and examines the key drivers behind wealthy individuals' decision to build their portfolios without professional advice. The competitive landscape and product environment are also analyzed.

Specifically, the report:

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

Discover how much HNW wealth is invested independently from wealth managers
Learn why HNW investors choose to self-direct, and how their motivations differ from those of mass affluent individuals
Gain an insight into best practice examples from competitors operating within the self-directed landscape
Understand how the rise of robo-advisors and the growing popularity of ETFs and P2P lending affects the wider wealth management industry
 Table of Contents

1. Executive Summary
- Self-directed investors remain a lucrative target group for wealth managers
- Key findings
- Critical success factors

2. Sizing The Global Market For Self-Directed Investment
- Defining the self-directed investment market
- Globally execution-only mandates constitute 19.1% of total HNW assets held with wealth managers
- 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
- The US HNW self-directed market alone is worth $2.6tn
- 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

3. Global 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 the HNW segment
- The UK: the lower the value of investments, the greater the price sensitivity

4. 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
- Brokerages are typically a mass affluent proposition
- Brokerages have low investment thresholds
- Some competitors differentiate their offerings for wealthier clients
- Automated investment advice providers are growing in number
- Robo-advisors appeal to a similar segment of clients as brokerages
- Wealth managers can leverage robo-advisor features

5. 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
- P2P lending and crowd funding attract self-directed HNW investors
- Retail and mass affluent investors are active in the P2P market
- Wealth managers should choose the products available via their execution-only services carefully

6. Appendix
- Abbreviations and acronyms
- Definitions
- Developed (mature) economies or markets
- Developing (emerging) economies or markets
- Liquid assets
- Mass affluent
- Mass market
- Net inflows
- Methodology
- Sizing the self-directed and execution-only markets
- 2015 Global Wealth Managers Survey
- 2014 Global Wealth Managers Survey
- 2015 Global Retail Banking Survey
- Cross-comparison of the HNW segment vs the mass affluent and mass market segments
- Exchange rates
- Bibliography
- Further reading
- Reports
- Interviews
- About Author
- Disclaimer
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
Table 4: Pound sterling-US dollar exchange rate, December 31, 2014 and December 31, 2015

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: In the UK, the wealthier the individual, the higher the trust in professional advisors
Figure 16: Most wealth managers provide execution-only platforms for HNW clients
Figure 17: Fidelity has a graduated proposition
Figure 18: Assets managed by robo-advisors comprise only a fraction of the wider industry
Figure 19: US HNW individuals prefer to discuss their portfolios rather than have them managed by an automated platform
Figure 20: Current portfolio reviews and low costs attract HNW clients to robo-advisors globally
Figure 21: Wealth managers recognize the benefits of automated investment platforms
Figure 22: Self-directed investors are likely to opt for near-cash products
Figure 23: Although ETPs are cheaper then mutual funds, they do not necessarily perform better
Figure 24: Wealth managers should include ETPs when building portfolios in advised or discretionary mandates
Figure 25: HNW clients in markets like Poland have limited access to ETFs
Figure 26: The P2P lending market in the UK has been growing rapidly 

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