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
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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 $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
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 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
Bibliography
Further reading
Reports
Interviews
About Verdict Financial
Disclaimer
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
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
