Market Research

EXCLUSIVE: Why The Industry’s Biggest Threat Should Be Your Next Client

Josh O'Neill, Assistant Editor, 12 December 2017

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New research shared exclusively with this news service shines a light on the growing sector of self-directed investors and why you need them as clients.

Self-directed wealthy investors, defined as private clients who manage investment portfolios without external input, pose one of the biggest threats to traditional wealth management firms, new research shared exclusively with this publication shows. 

Some 32 per cent of the world’s high net worth population is classed as self-directed, accounting for just under $20 trillion in assets globally, according to data from MyPrivateBanking, the Swiss research house. 

And these figures are set to grow. 

“Not only is the client segment of self-directed investor here to stay, their wealth continues to grow steadily,” Onawa Lacewell, senior analyst at MyPrivateBanking, said. “The needs of this self-directed investor are becoming more complex, akin to the needs and requirements of a more traditional HNW clientele, and wealth managers have to react to these developments.”

The SDI mandate is outpacing advice and discretionary investment, MyPrivateBanking says, as the cohort has grown 11 per cent since the financial tsunami in 2008. This data is presented in the firm’s latest report, titled Wealthy and Affluent Self-Directed Investors 2017 – How Wealth Managers Can Win Them Back.

New entrants to the market - often referred to as “disruptors” – robo-advisors and online discount brokers are increasingly tapping the self-directed high net worth sector, the research shows, reflecting a “crucial change in the financial services landscape”.

To keep abreast of new players and technological advancements, traditional wealth management houses need to bring self-directed high net worth investors into their ranks, MyPrivateBanking suggests.

This, however, requires a thorough understanding of the segment and the products and services offered by competitors in the market, the firm stresses. 

To successfully tap the self-directed investor pool, it is important that wealth managers understand the sector’s motivations and allow participants to retain control to an extent, MyPrivateBanking says. 

Because self-directed investors are typically tech-savvy, it is therefore important to build a “cutting-edge” online brokerage platform that is available across an array of devices.

Developing a tiered advisory structure and perhaps offering so-called “lite” services alongside holistic wealth management services would also be beneficial, according to MyPrivateBanking. 

“Wealth managers, banks and brokers should provide investors with the means to participate in, or fully control, their investments in the form of digital investment platforms, advisory “lite” services and other tools for the self-directed investor,” Lacewell said. “Yet, while these developments may bring disruptions, they also pose new opportunities, especially if wealth managers are responsive and agile enough to understand this investor segment.”

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