How advisors could make clients out of DIY investors

Digital advice can be the bridge wealth firms need to unlock the previously untapped demographic

How advisors could make clients out of DIY investors

At first glance, the DIY investing crowd might not look like an ideal group for advisors to court as clients. But could it be that the self-directed investors who eat, breathe, and live the Reddit investing life actually represent an untapped opportunity?

In a piece written for Barron’s, Kevin R. Keller, the CEO of the CFP Board, noted how wealth management firms had long categorized investors into one of three categories: do-it-yourselfers; delegators, who completely entrusted investment decisions to their advisors; and validators, who took their advisors’ recommendations into consideration but did not necessarily defer to their judgment.

But over the past decade, many of the largest wealth management players have started to implement the low-cost and scalable, digital advice platforms that used to be the exclusive territory of their robo-advisor rivals. Through those platforms – which Keller said are typically supported by CFP charterholders – DIY investors may have a new way to access financial planning advice.

“Digital platforms can help firms overcome two major hurdles: mistrust of the financial services industry and the perceived high cost of advice,” he added.

Citing the Edelman Trust Barometer, Keller said financial services were cited as the least-trusted industry sector in 2021, marking its tenth year at the bottom. That was largely due to the memory of the Great Recession, which many investors in their 20s and 30s could still recall from their adolescent or formative years.

“[Those investors] seem to feel less inclined to trust traditional financial institutions with their hard-earned assets,” he said. “Instead, it appears they trust technology, which they find more efficient and productive.”

The second mental roadblock firms have to break through is the perception of high costs of advice shared by many young people. Despite the long-held belief that financial advice is something only the very wealthy can afford, Keller stressed that digital services can provide low-cost, high-quality investment advice.

He added that while DIY investors might not match the account size advisors would necessarily want on their books, such investors might go on to become full-service clients in the future. That means showing the value of advice early on in their journey, and helping them get over the perception problems by providing education and low-cost advice on their preferred channels, could bear fruit as years and decades pass.

“In time, as this generation matures, they’ll find gaps in automated services as their lives become more complex,” Keller said. “If we intend to serve the clients of the future, we must go further to encourage our industry’s digital transformation reach out to the next generation investors.”