Financial advisers have a “huge opportunity” to target direct investors interested in scaled or niche advice but must first overcome skepticism on the value they deliver.
New research from CoreData found a clear majority of direct investors who are presently unadvised would seek financial advice if the value proposition were clearer.
The 2012 Direct Investors Report, which surveyed more than 1,100 Australian direct investors, found 64.7 per cent of unadvised investors would be more interested in seeking advice if “it was clearer what advisers were really bringing to the table”.
In particular, the survey found, advisers need to gain the confidence of this sector while being seen to as an obvious provider of specific limited advice – more easily said than done with the industry still awaiting regulator guidance on scaled advice.
Trust was identified as a key barrier for almost two thirds of direct investors (65.2 per cent), many of whom could be described as high-net-worth investors.
Kristen Turnbull, head of advice, wealth and super at CoreData, said the number of direct investors has been growing over recent years, driven by the market environment, a desire for flexibility and control and the explosion of social networking, which is creating a ‘me’ mentality.
“These self-directed investors present a huge opportunity for the financial services industry, both from a product and advice perspective,” she said.
“More than half of direct investor respondents to the research expressed an interest in scaled advice, with the finding suggesting this could be a platform for developing a full-service relationship.
“There are some key barriers that advisers need to overcome, however, including low trust and a lack of understanding in the value of advice.”
Scaled advice
Turnbull added that the survey results challenged the traditional perception that direct investors shun professional advice and that DIY investors are increasingly prepared to concede that they need advice in specific areas.
The research revealed strong interest in scaled advice, with the majority of direct investors interested in seeking scaled advice (56.9 per cent).
Among those interested in scaled advice, one off advice as needed was preferred over piece-by-piece advice (61.3 per cent to 38.7 per cent).
More than half of those interested in scaled advice would prefer to receive scaled advice from a financial adviser (52.8 per cent), while 23.5 per cent would prefer to receive it from their super fund and 23.8 per cent are unsure about their channel preference.
However, the real opportunity may be in converting the three in five unadvised respondents who are interested in scaled advice and who indicated they would consider expanding their advice relationship into a full service relationship if they were satisfied with the scaled advice they received.
Five distinct segments
CoreData identified five distinct segments among the direct investor respondents based on their investment experience and knowledge and their preference for control of their money and finances.
The following were identified: average coach seekers (46.7 per cent), savvy coach seekers (15.5 per cent), savvy controllers (13.6per cent), outsourcers (13.4 per cent) and average controllers (10.8 per cent).
Savvy controllers appear to be the most active direct investors in the market, with this group more likely than respondents overall to be invested in key asset classes such as direct Australian equities, direct residential property, cash and international equities.
Savvy controllers and savvy coach seekers who are unadvised are more likely to not have an adviser because they are not convinced of the value they add than the other segments.
Average controllers, average coach seekers and outsourcers are more likely than the savvy segments to not have one because they don’t think their financial situation warrants the need.
Savvy and average controllers are more likely than the other segments to say they feel qualified to make their own investment decisions independently from others.
