Investors of all asset levels attracted to self-directed trading platforms

Advisers should take note of the mainstream nature of do-it-yourself online offerings

Feb 10, 2014 @ 9:00 am

By Joyce Hanson

Advisers at brokerage firms that don't offer a self-directed trading platform risk losing client assets as the self-directed investment trend moves into the broader population, according to a recent report.

Every generation of investor, from the Silent Generation to Gen Y, threatens to hurt brokerages without self-directed trading platforms as retirees draw down assets while younger clients shift to firms that do offer online trading, the joint report by research firm Aite Group, technology firm Scivantage Inc. and bank-brokerage integration firm Riperian Inc. found.

“The big driver is changing client behavior and expectations,” Chris Psaltos, vice president of product management at Scivantage, said during in a webinar last Thursday. “It's a highly competitive marketplace. Many brokerages have already entered the online channel.”

The do-it-yourself channel no longer means just “the marginal self-directed investor,” said Sophie Schmitt, Aite's senior analyst of wealth management research, who noted during the webinar that online trading has gone mainstream.

An Aite survey shows that approximately 46% of U.S. investors with $25,000 in investible assets or more trade online at least five times per year, Ms. Schmitt said. Of those surveyed, 22% of Silent Generation investors, 32% of baby boomers, 53% of Gen Xers and 68% of Gen Yers trade five times per year or more.

Fidelity Investments, for example, is a primary investment provider for those surveyed because it offers online brokerage, in addition to wealth management, Ms. Schmitt said.

She said in a follow-up interview that those surveyed also named Charles Schwab and Co. Inc., TD Ameritrade Inc., E*Trade Financial Corp. and The Vanguard Group Inc. as their preferred online brokerages.

More than 60% of investors in the $250,000 to $1 million-plus range trade online, which suggests that potentially more than half of an adviser's client base trades frequently online on their own, Ms. Schmitt added.

“These online brokers are catering not just to self-directed investors,” she said.

Brokerage-affiliated advisers should look at the online channel not as a threat but as an opportunity to cross-sell, she said.

“Advisers have an opportunity to view online performance and account aggregation through the client portal and potentially charge for services down the road,” she said.

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