Many investors, especially millennials, have increasingly shifted their investing behaviour over the past several years, segmenting advice from securities execution. This is a surprising move given more uncertain and unpredictable financial markets and economic conditions.
Last month, ISS Market Intelligence issued a report describing an increase in new online discount accounts and online trading activity at firms with zero-commission trading, measured over the year ended June 2022.
At about the same time, the B.C. Securities Commission released a study highlighting an upward trend in trading in self-managed accounts and higher-risk investing by younger investors through single stocks instead of bundled investment products such as ETFs. About half of these younger adults invested more than half of their assets through self-managed accounts, the report said.
The burst of popularity of online self-directed accounts and expanded trading through these accounts — notably zero-commission-trading accounts — resumes an earlier strong uptrend in digital investing following the 2008 financial crash. The loss of trust and confidence in financial institutions, especially U.S. institutions forced into bankruptcy or restructured acquisitions, triggered greater reliance on self-managed accounts, especially among millennials. The shift to digital investing was reinforced by skepticism about the stability and long-term viability of financial markets.
Moreover, these younger investors, more adaptable to financial technology, switched to digital platforms for trading and accessing account information and research. The eager embrace of video conferencing during the pandemic also reflects receptivity to digital technology.
However, the more recent pronounced and sudden shift to self-managed online accounts and digital investing comes at a curious time — when advice is needed to interpret the difficult post-pandemic economic conditions and understand the direction of monetary policy and interest rates. Further, the absence of a clear trend in equity prices or sectors to enable momentum investing and help guide investment decisions contradicts the greater reliance on do-it-yourself trading. Finally, increased reliance on self-managed investing counters evidence that advice improves returns, whether for small or large portfolios, although investors with self-managed accounts may also access direct advice online.
There may be another key reason to reduce reliance on, or at least complement, traditional financial advice. Investors have experienced a rapid succession of profound exogeneous shocks in recent years that have damaged short- and long-term returns: the 2008–09 global financial crisis, the pandemic, the emergence of high and rising inflation rates and related interest rate hikes, the ongoing climate crisis and remedial actions that weaken corporate earnings and economic growth, and ongoing geopolitical events like the invasion of the Ukraine and moves from a belligerent China.
In response, many investors, especially millennials, have turned to social media for extensive information and opinion on a range of factors — extending beyond economics and finance — that are influencing stock prices.
As such, the recent shift to online self-managed accounts or do-it-yourself investing may reflect the segmentation of advice and securities execution, as investors navigate more tumultuous financial markets. That shift comes amid the expanding range of advice options — from the traditional advisor model, to an array of online advice on evolving multi-faceted dealer platforms, to social media.
Ian Russell is a partner with Russell Deacon & Company and past president of the Investment Industry Association of Canada.