Rise of online brokerages a trend to watch, says Broadridge

Contrary to popular belief, the market for self-directed investing isn’t all about the young and not-yet-rich, according to a new study from Broadridge.

The landmark study, which analyzed the activities of over 40 million individual investors in mutual funds, exchange-traded funds, and equities, showed a broad-based shift towards self-directed investing spanning different demographic and wealth groups.

The analysis revealed a marked increase in self-directed investing since 2018, with 31 percent of investors in 2023 using online discount brokerage platforms, including one-third that maintain advisory relationships. The trend is more pronounced among high-net-worth individuals, who allocate nearly 25 percent of their assets to self-directed channels, compared to their mass market and mass affluent counterparts.

Generational differences are also evident in the study. Younger investors, including Gen-Z, millennials, and Gen X, have significantly increased their presence in self-directed investing. These groups collectively hold 36 percent of their assets in this channel, up from 27 percent in 2018.

“The rise of younger investors and self-directed investing has led to asset managers, broker-dealers and advisors evolving their practices to better serve a more diverse class of investors across generations,” Dan Cwenar, head of Broadridge data and analytics said in a statement.

The study also pointed to a possible increase in diversification among Gen Y investors, with the average number of investments in their portfolios rising from six in 2018 to ten in 2023.

2023 also marked a pivotal year as mutual fund assets fell below equity assets in individual portfolios for the first time. In parallel with that, the percentage of investors holding mutual funds dropped from 72 percent in 2018 to 62 percent in 2023, while equity investments doubled from four to eight.

With two fifths (39 percent) of their portfolios in mutual funds, boomers had the highest mutual fund allocations in 2023. In contrast, younger cohorts including millennials and Gen Z were more prone to seek alternative options, such as ETFs and US equities.

Broadridge's data also show that men made up 51 percent of investors and controlled 55 percent of assets in 2023, slightly up from 54 percent in 2018, and the average male investor is three years younger than their average female counterpart. However, female investors have slightly higher median assets, with $52,105 compared to men's $50,271.

Overall, the online discount brokerage segment has gained substantial ground over the past five years, growing from 14 percent of total assets in 2018 to 23 percent in 2023. While the self-directed channel stands poised to become the second largest distribution segment, the top-ranked broker-dealer segment has seen a seven percent decline in market share in the past five years.