Direct-to-Investor Model Rakes in Assets After 2008

Direct-to-investor assets have nearly doubled since 2008, outpacing traditional advisory channels, according to new research from Boston-based consulting firm Cerulli Associates.

While still the smallest segment of the market by assets, direct investing, which includes online providers such as E*TRADE and Charles Schwab, has grown to account for around $4.3 trillion of $26.6 trillion of total investable retail assets, Cerulli reported. That number approaches the $5.2 trillion held by wirehouse firms, which still hold the largest market share according to the study.

"We've seen tremendous growth in direct-to-investor distribution models, predominantly discount trading platforms that are transforming into comprehensive advice providers," Roger Stamper, a senior analyst at Cerulli, said in a statement. "Formerly considered the tool for do-it-yourself investors, these firms now provide a suite of services to investors across wealth and service tiers, providing legitimate competition to their traditional advisory peers."

In a direct-to-investor model, the firm is responsible for the majority of the marketing, prospect generation, advice generation and other brokerage services that would be the responsibility of an individual advisor at a traditional advisory firm.

These models have grown in popularity as investors lost trust in major financial firms following the 2008 crisis and direct-to-investor providers expanded their services to meet demand, Cerulli said. Advances in technology have also made information more readily available for self-directed investors, Cerulli said.

“Recent trends have pointed toward a reduced reliance on traditional advisor relationships, which is supported by an increase in self-directed investors,” Cerulli wrote. “The ubiquitous growth of available information and the lingering concerns of the financial crisis have combined to convince more investors that they do not require the ongoing services of traditional advisors.”

Cerulli said that traditional advisory firms would have to focus on emphasizing more personalized advice, connecting with the next generation of investors and embracing a fiduciary standard-based planning model.

“As this is a market in transition, stakeholders in the financial services market need to publicly address the benefits of personalized advice while finding new ways to connect with emerging wealth,” Cerulli said. “As investor comprehension of financial relationship dynamics emerge, Cerulli believes that firms should embrace upholding fiduciary standards in all client interactions in order to gain market share.”

For reprint and licensing requests for this article, click here.
Wirehouses
MORE FROM FINANCIAL PLANNING