Filling The Knowledge Gap For Clients As DIY Investing Grows

Robbie Lawther

27 February 2018

Understanding the intricacies of finance and investments can be hard, so wealthy clients typically rely on experts. But some high net worth individuals are trying their hand at do-it-yourself investing, emboldened by new tech platforms. It begs the question: are they financially clued up enough to cope?

There is considerable evidence that wealthy clients lack understanding about the financial world. A 2015 survey conducted by US Trust on ultra-high net worth individuals found only 20 per cent of parents think their children are prepared to handle inherited family wealth. Stash, a digital investment advisor based in New York City, surveyed more than 26,000 of its investors in February 2017, and found 41 per cent did not understand that a diversified portfolio was “a safer investment than a single stock”. US watchdog FINRA reported on investor education in 2016: it found that when asked five basic questions about finances and the markets, 61 per cent of US citizens could not give more than three correct replies.

Martin Gronemann, partner at , to get his take on the current scope of financial literacy.

“I think there is a widespread issue with clients who are not financially literate,” said Moles. “The financial industry has a lot of jargon and it is horrific for people to understand. The very basic level now is challenging the normal day-to-day client. As an industry we have to try and simplify things for people not make things more complicated, and the government has to help with that as well.

“From experience, if we can spend more time educating clients then we can have more educated discussions with them. If they understand the basics then we can move on to a higher level of planning with them, as opposed to spending more time speaking about the standard things. It is at the heart of what we want to do with clients.”

Millennials
The great wealth transfer is set to happen over the next few years, which will see Millennials - those aged between 18 and 34 - inherit a reported $30 trillion from older generations. However, In 2012, a study by the National Endowment for Financial Education in the US said only eight per cent of Millennials had extensive financial knowledge.

There is a way to reach Millennial clients, and that is through online platforms. According to a Legg Mason study in 2017, almost half of Millennials across the world want to plan their financial lives using a smartphone.

The Progeny managing director discussed what the firm is looking to do to try and help clients with the launch of a new solution.

“What you have to do is remove the element of someone being scared to ask a 'silly question',” said Moles. “We have now got to a point where we are launching an online platform for the next generation clients at the moment and you have got find a way to engage and not confuse. We came up with the concept to have a platform that still employs a load of our experience in investment and expertise, but also focus purely on the next generation. Part of the platform is purely educational than it is about investing, and is trying to give guidance and help to clients to help what plans and products are all about. Then if the clients do have further questions, then they can come to an advisor and explore the themes in depth.”