The growth in self-directed investing is evident from the emergence of new platforms, social media sites and financial influencers. Self-directed investing attracts a younger, diverse consumer base to invest, starting with small sums for small fees across a breadth of funds.
Britain Thinks' research on behalf of the Financial Conduct Authority concludes that self-directed investors’ investment journeys are complex and highly personalised. It identifies three archetypes:
- Having a go (newer or less experienced self-directed investors);
- Thinking it through; and
- The gambler.
The research highlights concern that some consumers are persuaded by sales tactics/marketing to buy complex, higher-risk products that are very unlikely to be suitable for them.
This research aligns with the FCA’s new strategy to tackle investment harm, aimed at giving consumers the confidence to invest, “supported by a high-quality, affordable advice market, which should lead to fewer people being scammed or persuaded to invest in products too risky for their needs.”
However, the ability to self invest is helping to generate a keener interest in personal finance within a group that previously would have felt too young or too inexperienced to take part. That can only be positive, and arguably these consumers are a critical part of a business’s succession planning.
The ideal would surely be for younger generations to grow up seeing personal finance as the norm; an essential part of their financial wellbeing strategy and as an interest that sits alongside their career development, fitness regime and diet.
The challenge the profession faces is how to connect with this audience and channel their interest into seeking professional advice, to reduce their risk and attain their end goals.
Professional bodies, businesses and the FCA need to work harder to communicate the differences between investing and planning to these consumers. It should be explained how they interlink and support each other but are entirely different propositions, both essential to client-focused outcomes.
Maintaining connection and interest
Innovative services are also required to then maintain the interest and enthusiasm of this audience, so that they become the future client base.
Director and financial planner Robin Keyte of Keyte Chartered Financial Planners has seen an increase in the number of new clients making contact purely for financial plans and not investment management, which he sees as a growing trend.
He views this as “a backhanded compliment to the financial planning process, that some consumers perceive that it is worth paying for on its own".
Lexington Wealth has now created a modified, lower-fee-based service for clients who want to manage investments themselves, by building them a plan that the client then implements.
Warren Shute, certified financial planner at Lexington Wealth, explains: "Financial planning is about the client and their financial journey, it’s not about products. If we can build a financial plan for clients to help them live their best life, and they implement any products themselves online, this may well be the future of our profession, especially for clients with less complex requirements.
"We should set out our service offering, explaining how this is attractive for the consumer. This will dictate how successful we are."
Shute adds: "We shouldn’t feel we have to become a social media icon; I am sure many successful practices will continue to not go down this route. But if we want to speak to the younger generation, we need to be where they are hanging out."
But how do we hang out with them? And what is the partnership based on?
Using a brokerage strategy can work well; many have found the likes of Boring Money or VouchedFor a roaring success.
Many businesses are not comfortable with this fee-paying approach, perhaps as it increases the underlying costs of the business, which could in turn inflate fees for the end consumer. The quality of the client lead is unknown and therefore this could be risky.
Individual partnerships with financial information platforms, Instagram 'influencers' or self-directed investment companies would be timely, to identify the right partner and then maintain the relationship, particularly if there is no money changing hands and the reciprocal offer for leads is pro-bono or filmed general advice for platforms.
Building relationships early
So, what is the answer?
Laura Pomfret, founder of financial information provider Financielle, says: "We try to build a relationship with our online community, giving them basic-level financial information and providing context at the same time, so that they may make informed choices when it comes to their finances.
"Trust is massive when it comes to money and having a safe space to learn and grow is extremely important. There is a natural pathway between information brands such as Financielle and professional advisers where an individual will be ready for advice and eager to have a personalised financial planning experience."
Do we need to embrace this client group now? I would argue that this is an essential part of the succession planning process. Clients requiring a simple plan are perfect for junior planners.
Planners can create a plan for the client to then manage their own investments, or if a self-directed investor already uses a platform and knowledge source that they are confident with and are enjoying, the planner can incorporate this within the wider plan.
As the client’s wealth and complexity increases, the relationship with the planner will continue to grow and 10 years later, this young self-directed investor/consumer could be a significant client for your business.
Sally Plant is head of financial planning at the Chartered Institute for Securities & Investment
