Still wary of advisers, investors using direct retail channel

Availability and ease of web-based tools an attraction; online brands 'unscathed'

Mar 21, 2013 @ 1:53 pm

By Andrew Osterland

Record highs in U.S. stocks may be bolstering market sentiment but, even as the financial crisis fades into history, U.S. investors remain largely distrustful of advisers and are putting more of their money into the direct retail channel.

Assets in the direct channel, which includes the likes of Charles Schwab & Co. Inc. and Fidelity Investments, increased 8.8% to $3.7 trillion in 2011, while the overall level of retail assets in the industry grew by just 2.7%, according to a Cerulli Associates Inc. report released today.

Cerulli director Scott Smith said that the lack of trust in traditional advisory firms at least partly explains the growth in the direct channel. Only 27% of respondents said they believed that financial firms were “looking out for their best interests,” and 36% said they did not believe that to be the case.

“Direct providers were largely unscathed by the reputation issues facing their advisory counterparts during the market downturn,” said Mr. Smith, “There's only so many times a firm can pay a $100 million fine before people start questioning their integrity.”

The post-crisis lack of trust in advisory firms isn't the only factor contributing to growth in the do-it-yourself channel, however. Mr. Smith also pointed to the superior resources now available to investors at the online brokers.

“For firms like Fidelity and Schwab, it's a priority to have best-of-breed technology because it's the foundation of their relationship with clients,” he said.

The demand for online investing, education, and customer service resources isn't limited to investors who can't afford an adviser, suggested Mr. Smith. High-net-worth investors have been putting more assets into self-directed accounts as well. With the discount brokers now offering advisory services as well, their asset growth could continue to outpace the market.

“Advisory firms still assume that face-to-face communications are the meat and potatoes of the advisory relationship,” said Mr. Smith. “I'm not sure that's true anymore.”

Findings in the report were based on data from a variety of sources, including regular surveys of affluent households by Phoenix Marketing International Inc., according to Cerulli.


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