Nearly 30% of high-net-worth investors in the United States define themselves as self-directed investors, according to Cerulli Associates’ High-Net-Worth and Ultra-High-Net-Worth Markets 2014: Addressing the Unique Needs of Wealthy Families report.
In the report, Cerulli analyses the US high-net-worth (HNW) (investable assets greater than USD5 million) and ultra-high-net-worth (UHNW) (investable assets greater than USD20 million) marketplaces. The report focuses on the three constituencies of investors, providers, and asset managers.
"This helps explain the dispersion of assets among providers, and although the direct channel's surge in the high-net-worth marketshare gains have stemmed in more recent years, providers continue to boost their high-net-worth capabilities and presence among younger, tech-savvy wealth creators," says Donnie Ethier, associate director at Cerulli. "For wealth managers, they represent increasingly worthy competitors that will likely test traditional managers' willingness, and aptitude, to adapt to next-generation investors."
The immense balances that many of these investors have within their self-directed accounts are further proof. This also helps explain where assets have flowed as investors have expanded their provider relationships. According to Cerulli's research, more than half of high-net-worth investors have direct or online trading account balances between USD500,000 and USD1 million.
"The self-directed model becomes less favourable relative to other advice models as assets increase," Ethier explains. "Logically, as assets increase, so does the complexity of portfolios, lending more credence to taking on an external advice sources and provider relationships. In addition to dealing with complex portfolios, advisors are an added expenditure, which can explain their lower use among retail clients."
"High-net-worth and ultra-high-net-worth clients that are using a self-directed model represent a significant opportunity for asset managers that pass due diligence screenings. In the end, direct providers are yet another avenue for external managers to reach the pool of high-net-worth assets," says Ethier.
Opportunities to capture additional wallet share of these investors certainly exists for wealth managers and their advisor forces, although they should know going in that many high-net-worth investors use direct accounts to test their own investment ideas, provide liquidity, and even to shelter assets from their primary advisors.