Direct investment platforms are competing more aggressively for wallet share among investors who maintain both direct and traditional advisory accounts, according to a report from Boston-based research firm Cerulli Associates, Inc.
At the same time, Cerulli indicates that advisors are vastly underestimating the number of clients who maintain a direct account, with advisors reporting that only 20 percent of their clients maintain such accounts. However, when Cerulli queried clients who use a financial advisor, 76 percent said they own direct accounts.
Cerulli says direct platforms have become more competitive the past decade by advancing their advice and guidance services. At the most basic level, direct investment platform representatives are trained to identify client needs, recommend an allocation, and help clients populate their portfolios.
At the next level, direct platforms offer managed account programs that provide ongoing investment management for an asset-based fee. At the highest level, private client services at direct providers offer investors a dedicated relationship, often with a certified financial planner.
"For clients with between $100,000 and $2 million in investable assets, direct firms and advisors compete head-on for client relationships," says Cerulli associate director Katharine Wolf.
"Investors who do not want to pay for advice or who have not been approached by an advisor often default into the direct model, as direct firms generally have well-known brands and solid reputations," Wolf says.
Wolf says the greatest threat is to advisors who serve clients with between $100,000 and $2 million in investable assets. Investors in this range may choose to remain in the direct channel, content with their service through managed account programs and direct representatives.
Wolf notes that direct firms are also successfully competing for clients who have already sought out and retained a financial advisor.
"Even after hiring financial advisors, investors maintain multiple financial relationships, often intentionally concealing outside direct accounts from their primary advisor," Wolf says.
Scott Smith, associate director at Cerulli, says financial advisors still offer more robust services and can differentiate themselves by offering more personalized advice, including detailed financial planning.
Other findings in Cerulli's study include:
Dually-registered advisors are increasingly managing assets under the auspices of their own RIA registration rather than on broker/dealer platforms.
Despite assumptions of pending fee compression, many high-net-worth providers have actually increased client fees in recent years.
Advisors prefer alternative strategies because of their ability to stabilize portfolio returns, rather than their ability to generate alpha.