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

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


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Executive Summary

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.

Synopsis

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

EXECUTIVE SUMMARY

Self-directed investors remain a lucrative target group for wealth managers

Key findings

Critical success factors

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 USD2.6tn

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

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

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

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

APPENDIX

Abbreviations and acronyms

Definitions

Developed (mature) economies or markets

Developing (emerging) economies or markets

HNW

ISA

Liquid assets

Mass affluent

Mass market

Net inflows

Methodology

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 individuals 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 countrys 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

Bibliography

Further reading

Reports

Interviews

About Verdict Financial

Disclaimer

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

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

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

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

Table 4: Pound sterling-US dollar exchange rate, December 31, 2014 and December 31, 2015

To know more information on Purchase by Section, please send a mail to query [@] kenresearch.com
 

Barclays

Charles Stanley

Fidelity

Hargreaves Lansdown

Interactive Investor

TD Ameritrade

Merrill Edge

Charles Schwab

Scottrade

Fidelity

Bank of America Merrill Lynch

Betterment

Wealth front

Wells Fargo

UBS

National Australia Bank

SCM Direct

Street Shares

Self Directed Investors, Brokerages, Robo Advisors, Etf, Automated Advice, Hnw, Mass Affluent, Wealth Management, Investments, Asset Allocation, P2p, Crowd Funding, Diy Investments, Execution-only, Discretionary, Advisory, Asset Management


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