Three ways to help DIY investors help themselves

The Canadian Investment Regulatory Organization (CIRO) released details of a study earlier this month on do-it-yourself (DIY) investing. The news isn’t great. These investors think they can do better on their own, they believe it gives them an opportunity to improve their financial literacy and it makes them feel like they’re taking responsibility for their financial future.

“Being an investor is an identity in and of itself,” said  Alexandra Williams, senior vice-president strategy, innovation and stakeholder protection at CIRO. “Investing gives people a strong sense of confidence and personal satisfaction. DIY investors feel like they are taking responsibility for their investments and DIY investing is one way for them to feel like they are in the driver’s seat of their own life.” 

Too often, these would-be Max Verstappens are looking to finfluencers and other social media figures for guidance. Some work with financial advisors, but that’s not where they’re going for direction. Increasingly, investors are opening DIY accounts without telling their advisor.

“Nearly half of advised investors keep a self-directed sleeve nowadays,” said Raghav Mehta, vice-president, ETF strategist at Global X Investments Canada Inc. in Toronto.

“The advisors manage the core, diversifiable bucket,” he said, while DIY investors pick up their phone to “run the exploratory, thematic and speculative bets.”

Fees are a motivation — investors understand the value of advice, but “they are extremely cost conscious,” he said. “Cost savings tend to be a major driving force for DIY.” Almost half (45%) of clients would switch advisors if their fees increased, according to U.S. and Canada research.

Like playing a video game

There’s something else at work. These apps have gamified the investor experience to such an extent that advisors are unable to deliver a comparable client experience. Fintech companies unburdened by legacy IT systems are so far ahead of advisory firms and financial institutions that it’s difficult to imagine them catching up.

Trading apps aren’t just user friendly, they’re fun. You’ve probably got clients who buy ETFs and cryptocurrencies the same way they bet on baseball games.

“The DIY platforms have blurred the lines between investing, crypto and gaming,” Mehta said. All of it is “like playing a video game.”

There are three things advisors can do.

First, start the conversation. Ask your clients if they’re trading outside of the portfolio you manage for them. Ask about betting too. You need to know, to serve them properly.

Second, spend more time talking about investment risk and why it’s important for you to have a comprehensive view of your client’s money.

Third, ask your client to answer a tough, uncomfortable question. Why are they using these apps? Is it fees, or diversification? Or are they simply addicted to the gaming experience? If we’ve learned anything about the app economy in recent years, it’s that these things are engineered to drive obsessive behaviour among users. It’s a stark reality we shouldn’t ignore.