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Analyst Interview: Self-Directed Investors and Implications for Wealth Managers

Senior Wealth Analyst Bartosz Golba has been working on our “Self-Directed Investors: Implications for Wealth Managers” report. Here we ask him about what he discovered in his research, and the key trends to look out for over the course of the year.

What was the most interesting thing that you found out when writing “Self-Directed Investors: Implications for Wealth Managers” and why?

I was slightly surprised to discover that globally only a fraction of HNW investors choose to self-direct because they don’t trust the wealth management industry. Clearly the financial crisis is long forgotten and wealth managers have been doing a good job of nurturing relationships with their clients. Yet at the same time competitors have to face client’s eagerness to save on fees. Once again quite surprisingly, this is more pronounced in mature rather than emerging economies, with traditional wealth centers such as Singapore, Switzerland, and the US being the most price-sensitive across the globe.

What do you think are the most important trends affecting self-directed HNW investors’ preferences?

These are quite similar to issues that affect the wealth management industry in general. Firstly, regulatory scrutiny on fee transparency obviously contributes to the aforementioned growing price-sensitivity, and our data shows that wealth managers in Europe are still uncertain about how their self-directed clients will react to MiFID II. Secondly, various digital tools and platforms are becoming more sophisticated but also more user-friendly and visually attractive, further encouraging investors to try investing on their own rather than opting for advisory or discretionary mandates. We have all heard about robo-advisors, and even if they are not a proposition that fits HNW individuals’ needs perfectly, some features of automated advice platforms – such as ongoing reporting or online previews of portfolio performance – can certainly be leveraged to the benefit of traditional wealth management services.

What do you consider to be the main challenge for wealth managers given these trends?

Wealth management firms have been focusing on increasing the cost-effectiveness of their operations and also pushing towards discretionary mandates, which offer better margins than execution-only platforms. The challenge is how to achieve greater mandate penetration when HNW clients pay attention to the cost of advice. Quite paradoxically, the recent volatility in capital markets may turn out to be a godsend for asset and wealth managers. If they deliver good rates of return, investors won’t mind paying more for better results. However, outperforming the market in times of uncertainty will itself be a challenge for most asset managers.

By Bartosz Golba, Interim Head of Wealth Management

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