As growing numbers of clients choose to invest directly in equities, planners and providers are rethinking how they cater to this demand. Simon Hoyle reports.
More than a third of financial planners would prefer to use a platform to transact direct share investments, if they could transact via only one channel, but only 16 per cent of planners rate their main platform’s share trading capability as “very good”.
This finding is contained in Investment Trends’ 2011 Planner Direct Equity Report, released in early July. The same report has identified “new gaps” in the share offerings of mainstream platforms. Not surprisingly, the report has also found a significant number of planners say they’re open to the idea of switching platforms.
A growing appetite among clients for better and more flexible direct investment options is placing new demands on planners’ offerings, and demanding new solutions.
“Over the past year, platforms improved satisfaction [among financial planners] by fixing some of the shortcomings identified in previous surveys,” said Recep Peker, an analyst with Investment Trends, in a statement when the report was released.
“But new gaps are emerging as more important drivers of overall satisfaction; notably around shares research, timeliness of data and pricing.”
‘Fewer are citing compliance risk as a barrier to recommending shares’
Peker said the research found that “planners are increasingly open to switching platforms for direct shares in 2011”.
“A third of planners said that they were at least somewhat likely to change to a different platform for shares in the next two years, up from a quarter saying so in the last study.
“With planners increasingly open to moving, platforms and brokers alike have the opportunity to compete for a growing slice of planners’ businesses through their direct shares offering.”
Arnie Selvarajah, chief executive officer of Bell Direct, says growing demand for direct share investments has “likely been fuelled by press around commissions, and rising awareness around the multiple cost levels within wrap platforms”.
“[Client] demands have also changed because they want more than just a ‘buy and hold’ strategy,” Selvarajah says.
“Traditionally, financial planners would advise clients on equities, provide them with a Statement of Advice [SOA] to confirm their recommendations, then execute the trades on behalf of their clients. Clients would receive a half-yearly report showing how their portfolio was performing and maybe, as a result, planners would change those investments. In the main, the planners offered a ‘buy and hold’ strategy and further recommendations were centred around new buying opportunities.”
Selvarajah says “as a side issue” that many financial planners would “use a full-service broker to provide supplementary advice and also execute these trades on their behalf – usually as an offset for providing research and advice”.
“In the new model that has emerged over the last three years, clients want to be much more hands-on,” he says.
“They now want to have access to review their portfolios at their convenience. They want to review the outcomes of the decisions they’ve made with their advisers and gauge their results.
“What has also emerged is that clients now also ask for the ability to trade themselves, to lift their level of control even further.”
If there was any doubt about the increasing popularity of direct investing, the Investment Trends report puts it to rest. In its survey of 900 planners conducted in April and May this year, it found that 28 per cent of new client money was invested into direct listed invest- ments in the previous year, including 19 per cent into direct equities. The 2011 report said these figures were up from 23 per cent and 15 per cent respectively in the year to October, 2010.
But tellingly, it also found that “42 per cent of planners expect their allocation to direct shares to increase over the next three years”, and that 40 per cent of planners believe a strong direct share offering is a powerful differentiator of their value proposition.
Bell Direct’s Selvarajah says smart planners are not treating all direct share investors as a homogeneous group.
“There are opportunities to segment the type of services financial planners offer to different segments of clients,” he says.
“The opportunity exists for financial planners to give their clients different levels of service along this continuum, depending on the different life stages or different portions of their clients’ wealth. This will make the financial planner more useful and relevant to their clients and therefore increase loyalty.
“That ultimately builds a more sustainable business for the financial planners.
“The key for financial planners is to stay close to their clients and find out in detail what they want.”
Selvarajah says there are “great examples of industries which have been transformed by addressing the core client need in different ways”.
He cites iTunes, the online music store that has revolutionised how music is sold.
“iTunes lets you buy one song at a time, not forcing you to buy the whole album,” he says.
“Another example is in the online book industry. We have recently seen the impact that chang- ing client behaviour is having on our local retailers in the music and book industries who have failed to transform their businesses in line with client needs.
“I believe the core need of receiving sound, relevant advice from clients will still exist for financial planners. What is important is for financial planners to find out what their clients want, to access the services that will satisfy their needs.”
