New Cerulli study shows 'absolutely surprising' finding: Human advisors have drubbed the self-directed investing sector despite radical advances in DIY tools
The Cerulli findings have a caveat for humans -- that just-in-time advice to investors whose assets grow to $500,000 may be too late to win the account
4 min read- Advisors defied expectations, growing their market share despite DIY investing advancements.
- Investor demand for financial planning has surged, valuing advice amid complexity.
- Discount brokers struggle as major firms integrate advice into their offerings.
Despite sharp improvements in self-directed financial offerings in the past 15 years, fewer investors have chosen to go that route on a percentage basis, according to a new study.
Two forces have been working to bring about such a contrarian finding – one of them a backfire, says Scott Smith, director at Cerulli.
"Absolutely the findings were surprising; with the explosion in online resources, it seemed logical that more investors would take these responsibilities on by themselves, but we actually saw the opposite. .
“But in reality, with so many options people just don’t even know where to start.”
The “advised” investor segment has grown from 35% to 47%, while those who consider themselves “self-directed” have fallen from 41% to just 24%, according to a Cerulli study sponsored by the Securities Industry and Financial Markets Association.
Indeed, discount brokers are falling like flies; small brands like TD Ameritrade and Scottrade are gone, and E*Trade has fallen into the arms of Morgan Stanley. Big survivors like Schwab, Vanguard and Fidelity are aggressively layering on advice.
Participatory planning
The study points to two key findings:
Six ways that human advisors kick robo-advisor butt
• "Over the last decade, investors' reliance on advisors, and interest in financial planning, has substantially increased, and we expect this growth to continue.
• Investors are recognizing the value of advice to navigate complicated choices and realize it comes at a price which they are willing to pay."
The robo-advisor heirs to the throne seem stuck serving a micro-niche. Most brands vanished, while two of the largest, Wealthfront and Betterment, have seen asset growth level off.
Some of the rugged individualism that had the richest dad spending Saturday afternoon mowing the lawn has also given way to a growing consumer service industry.
“I think there is a lot less resistance now to admitting you need help, especially when it comes to complex scenarios,” Smith says by email.
"Things we really didn’t think we needed help with, or were too proud to use, are now so common – personal trainers, lawn care services, therapists."
Story Timeline
Yet in one regard, the study shows an investor willingness to do more themselves – by participating in the planning process.
“Interest in formal financial plans has increased from 38% to 54% over the last 14 years, allowing advisors greater opportunity to assist clients on the way to achieving their financial goals while increasing satisfaction with their advice relationships,” the study release reads.
Navigating choices
Citing Edward Jones as a cautionary tale, Cerulli alerts 'eRIAs' -- i.e. robos -- that they need to be world-beaters just to survive
The SIFMA embrace of “advised assets” traces both to new SEC rules and to corporate strategy, Smith adds.
"While there are definite critics of Reg BI, it continues to nudge the industry toward default alignment with client best interests. See: RIAs may face ticking time bomb after SEC slams a $1.9-billion RIA for neglecting 'orphan' accounts while charging fees, a problem that may be industrywide
“There are plenty of investors for whom brokerage is the better fit, even more so when they are more confident that potential conflicts are being addressed proactively.”
“The data clearly indicates that Investors are increasingly choosing professional advice and recognize the value to navigate complicated choices," says Kenneth E. Bentsen, Jr., president and CEO, SIFMA, in the release.
“Trustworthiness and quality of service comprise the foundation of client satisfaction.”
Earlier is better
Yet it's no longer enough to advise clients after they get rich because it could be too late, Smith says in the release.
“Displacing providers will become increasingly difficult as incumbents find more ways to extend the breadth of their client relationships,” Smith adds.
“The more advised clients feel that someone is looking out for them early on, the harder it will be to break the trust and loyalty that comes with the advice relationship.”
He adds by email: "Providers are realizing waiting to start relationships with 50-year-olds with $500,000 rollovers isn’t a long-term growth strategy.
“Firms are finding ways to engage with clients on a comprehensive basis earlier in their financial life cycle, and if you can’t do that, client acquisition is going to keep getting harder.”
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