Survey finds that DIY investors are in it for more than just fee savings, citing educational and identity value now tied to 'going it alone'
Do it yourself (DIY) investors may be more nuanced and complex in their motivations than a cursory glance might show. From the vantage point of the advisory business, it could appear that the rush to low-cost brokerages and DIY platforms is motivated solely by the idea that advisory fees will erode returns and the social-media driven craze for meme stocks and day trading. A new study from CIRO’s Office of the Investor and Innovative Research Group has found a host of more nuanced and personal motivations driving the uptake of this investment approach.
Alexandra Williams, senior vice-president of strategy, innovation, and stakeholder protection at CIRO, highlighted some key results from the survey and their implications for the wider investment industry. She outlined what the survey found to be the instrumental and identity motivations behind the choice to invest independently and spoke to how advisors might be able to serve those motivations. She also outlined why CIRO, as an SRO for the investment advisory business, would want to study the motivations of the DIY market.
“It's important to understand what motivates people to go into do it yourself investing. Is there something different that we need to understand? We’re trying to also understand is how it informs our own policy responses and our own we audit firms, we write policy rules, etc.” Williams says. “It's an information piece for us as a regulator. Sometimes it's important that we do have a little more of a broader perspective, because you can get narrow and you can miss the plot.”
The study was based on 45 interviews with DIY investors as well as 5 interviews with social media ‘finfluencers.’ It explored how DIY investors obtain and verify investment information and advice. It also highlighted some motivations for DIY investors that go beyond fees and cost savings. Among its more notable discoveries, the survey found that DIY investors will often seek verification and validation for investment information or decisions from their friends and family. Rather than simply taking trade advice from a ‘finfluencer,’ social networks can serve to inform or moderate DIY decisions.
Williams notes that this desire for validation reflects something inherent in human nature, that we want our decisions to be backed by the people we trust. In the absence of a registered person or a professional advisor that these DIY investors can turn to, they are seeking that validation from other trusted relationships. In certain cases, those recommendations from friends and family were why DIY investors chose to go in that direction in the first place. Those trusted individuals often told them what platform to use and which investments to start with.
In exploring why DIY investors chose their path and stuck with it, CIRO’s team found three key categories of motivation. The first — and perhaps most obvious — was financial. Many investors were drawn to DIY channels by the idea of lower fees, better overall returns, and access to certain investments that advisors might not be able to provide them. The survey found, however, that instrumental and identity motivations were as or more important than their financial drivers.
The study identified instrumental motivations as the desire to gain practical skills and participate in communities, which offer DIY investors a sense of rewarding self-driven education. Williams notes that this fits within a wider desire for better financial literacy among Canadians. She acknowledges that many advisors and firms have prioritized financial literacy education as well, driven to meet the desire for more learning among Canadians. She highlights some of the steps advisors and firms can take to better serve the desire for learning, including more social media style content as well as more discursive and interactive lessons.
The identity motivations align with DIY investors’ desire to feel independent and in control of their own financial futures. While that desire for independence seems rooted in human nature, and may appear to be incongruent with seeking professional financial advice, Williams notes that many investors who do some degree of self-directed investing also work with a full-service financial advisor. She sees in the survey results how somewhat more muddled ideas of identity can fit into investors and advisors’ approaches as the industry itself becomes more blurred between DIY investors and those using advisory services. She hopes that advisors can understand the desire for more interplay, information, and the desire among many investors to feel like they are in control.
“[Advisors} probably have DIY investors who are also their clients. It’s important to understand their motivators, their needs, what they require from a relationship perspective to build trust and find good financial outcomes,” Wiliams says. “If an advisor has clients who want to learn and feel that sense of purpose and identity, it would be an opportunity for the advisor to deepen their relationships with clients. I think there are a lot of opportunities to keep an open mind.”
