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Self-Directed Investors: Implications for Wealth Managers; Understanding how self-directed investment affects the wealth management industry

Published By :

Verdict Financial

Published Date : Mar 2016

Category :


No. of Pages : 50 Pages

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

Table of Contents


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

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

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

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

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

Abbreviations and acronyms
Developed (mature) economies or markets
Developing (emerging) economies or markets
Liquid assets
Mass affluent
Mass market
Net inflows
Sizing the self-directed and execution-only markets
Verdict Financials 2015 Global Wealth Managers Survey
Verdict Financials 2014 Global Wealth Managers Survey
Verdict Financials 2015 Global Retail Banking Survey
Our Retail Banking Insight Survey was conducted online among 17,000 consumers across 20 global markets. Fieldwork was conducted during June to July 2015.
The survey covers product holdings, product characteristics, methods of arrangement, channel usage, advocacy, drivers of choice, motivation, and consumer attitudes.
The number of respondents for any particular question will depend on an individual's characteristics, their financial product holding, and their interest in that area. In all our research Verdict Financial specifies a demographically representative sample for all the countries surveyed, ensuring an accurate sample of a country's total (online) population.
The survey is conducted on an annual basis, and the countries surveyed are reviewed each year to ensure that we are meeting client priorities.
Cross-comparison of the HNW segment vs the mass affluent and mass market segments
Exchange rates
Further reading
About Verdict Financial

List of Table

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 Chart

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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