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Some investors who work with advisors have always favoured taking a portion of their portfolios into their own hands as they like to participate in the latest investment trends or simply have an interest in trading. For others, the pandemic may have been the catalyst to give self-directed investing a try.
In the U.S., affluent investors who consider themselves reliant on advisors rose to 42 per cent last year from 37 per cent in 2015, according to a recent Cerulli Associates Inc. report. However, these clients also increased their ownership of self-managed accounts in the same period – almost doubling to 69 per cent from 35 per cent. In fact, these accounts make up 33 per cent of their total investment assets.
For advisors, that presents an ideal opportunity for relationship-building, deeper conversations and collaboration with clients as they work toward their goals. That’s especially the case among clients in their prime wealth-building years, as more than three in four (77 per cent) investors aged 40 to 49 have self-managed accounts, the Cerulli report finds.
Grant White, portfolio manager and investment advisor with Endeavour Wealth Management at iA Private Wealth Inc. in Winnipeg, has noticed individuals are looking for more advice and value from their advisors, but there has also been an uptick in some clients’ use of self-directed accounts.
For some, there’s a desire to participate in individual stocks, brands and trends discussed in the news or on social media, Mr. White says. Others may have taken an interest in trading or investing as they found themselves at home with more time on their hands over the past two years.
“They want a professional oversight on the majority of their money, but they still want to play around and be a part of the story,” he says.
A 2021 Ontario Securities Commission study shows more than a quarter of investors who invest primarily with an advisor have a secondary self-directed account because they enjoy buying and selling stocks or they want to take risks with their own account while their advisor manages their retirement portfolios.
Mr. White says some clients are in favour of setting up a separate “fun money” account, in which his firm still has some oversight, but are only buying investments that interest them. Others would prefer to manage an account on their own.
In either case, he says, it is important for advisors to adapt to clients’ needs and offer support as they navigate this process.
“Clients are engaged in their investments and how they work more than they have ever probably been,” Mr. White says. “So, if you’re delivering value on that front, then actually it should help to reinforce your relationship and the process that you go through.”
Encouraging clients to invest on their own
Julie Shipley-Strickland, senior investment advisor with Wellington-Altus Private Wealth Inc. in Calgary, has always encouraged clients to experience investing a part of their portfolio if they’re interested because it presents an opportunity for balance.
Clients can see how to buy and sell on their own, as well as gain insight into the amount of work and research that goes into that aspect of working on their portfolios, she says.
“My spiel to them is, ‘I’ll make sure you can retire, you take [some] money and have fun with it,’” Ms. Shipley-Strickland says, adding that up to 40 per cent of her clients currently have a self-managed aspect in their portfolios.
Setting out a clear and consistent process is the key to ensuring advisors and clients are on the same page about risk as clients continue to move toward their goals, she says.
It’s also important to check that investments are not overlapping with the rest of their portfolios.
Ms. Shipley-Strickland checks in on clients’ self-directed investments by asking them to provide electronic statements before regular review meetings, during which they discuss the clients’ plans for those holdings for the next six months to a year and how that will affect their portfolios’ overall risk.
Discussions around prospective investments also allow her to explore clients’ interests and share some of her own research, knowledge and professional opinion.
“It allows for some really in-depth conversations in which we can both gain a lot more trust in the relationship,” she says.
Knowing the right approach
Elke Rubach, principal of Rubach Wealth Holistic Family Advisors in Toronto, says that clients who express interest in managing part of their portfolios mean they’re eager and invested in the process. But to be successful, clients should have some technical skills or at least be willing to learn.
The advisor-client relationship also has to be strong to facilitate the discussion of ideas.
“We need to be realistic, and if you’re going to do it right, that means time, concentration, education and responsibility. And that goes for you as an advisor, and also the client,” Ms. Rubach says.
She adds that it is primarily younger clients who favour this approach, although she has had discussions with retirees who have the knowledge and drive to take on self-directed investing.
Ms. Rubach tells clients to start small, look at how their prospective investment will complement their current portfolios and whether they’re overdiversifying or doubling up on existing holdings.
It’s also important to discuss the tax implications of the investments in this part of their portfolio.
Meanwhile, Mr. White says advisors should work toward finding ways to help clients plan more appropriately for assets that are not necessarily under their management. One challenge for clients gathering information from self-managed accounts is that the data can often be outdated or inaccurate.
Looking ahead, he says, this will likely improve as more account aggregation tools become available.
“It’s really important that technology catches up to what the clients’ expectations are in Canada,” he says. “As that happens, then I think managing accounts will get a lot easier.”
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