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

  • ID: 3845949
  • Report
  • 32 pages
  • MarketLine
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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.

Key Findings
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?

Key Highlights
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.

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.

Traditional brokerage business models are being challenged by the growing number of platforms offering automated investment solutions (robo-advisors).
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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
Wealth managers should choose the products available via their execution-only services carefully
Further Reading
Ask the analyst


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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