‘Extremely difficult’ DIY platforms ‘refuse to deal’ with advisers

‘Extremely difficult’ DIY platforms ‘refuse to deal’ with advisers

As do-it-yourself investment accounts hit all time high of 9.54 million

The DIY investment market ended 2022 at £345bn ($415bn, €392bn), a small increase of 3.8% for the quarter, according to research firm Boring Money.

But it closed the year 8% lower due to market struggle and consumer confidence falling.

The research also found that the number of user accounts continues to grow and has hit an all-time high of 9.54 million accounts, up from 5.7 million in Q4 2019.

The rise of DIY investors begs the question – can advice firms take them on as clients or is it too unfeasible?

Strained relations

Phil Billingham, director of Perceptive Planning, said: “The potential is to take the DIY investors on via a fee retainer basis. Unfortunately, the platforms do their very best to make that extremely difficult.

“In an ideal world, planners and advisers would be these platforms’ best friends because we could be diverting a lot of money to them with smaller clients, where we just do some planning, and they can do their own investing.

“In reality, they refuse to deal with us, which leaves the smaller investors without advice, because they don’t get any help from the platform. They are in a difficult position.

“Some of the DIY investors do very well, build up funds, and then either something goes wrong, and they get scared and jump to cash, or they put too much money into one sector and suffer. Then they realise that perhaps there is more to this than meets the eye and they get some proper advice.

“We take clients on when they reach a certain size and it gets scary, and they don’t want to make mistakes. But I think the short answer is, it should be simpler for advisers, clients and DIY platforms to work together – but the DIY platforms don’t want to do it.”

Planning more of an issue

The technical support of an adviser can come in all shapes and forms e.g. estate planning, inheritance tax and trusts. This is likely to catch the eye of a DIY investor than investment help.

Billingham added: “I think the truth is a lot of them do have assets that if they wanted to be looked after by planners, they would be cost effective. I don’t think that size is necessarily the only barrier here. I think it is a perception of value. It’s also about complexity.

“In some ways, I agree with the clients. If they’ve got £200,000 in a ISA and all they are doing is topping up their ISA into a very boring 60/40 fund, then I would agree with a lot of them that there is no reason for them to have an ongoing adviser.

“They might need a planner to look after the rest of their financial affairs e.g. children, property and assets. But the investment might be very straightforward. The truth is these people are pretty invisible from an advisory point of view, they have chosen not to engage with the adviser and planning profession for whatever reason.

“What we see is that people then choose to engage with us as planners, when a point of complexity hits their life, for example, suddenly coming to retirement, and they’ve suddenly got other pots, income streams and how to manage decumulation. They then ask for help. It tends to be at that point, but it’s very difficult otherwise.

“If somebody’s only got £50,000 in two funds and they’re putting £50 a month into that, then they don’t really need to pay somebody a lot of money just to do the same thing.”

Chris Lean, director at Aisa International, added: “I am not sure many advice firms would want to take on a lot of DIY investors. I also wonder why DIY investors would want to start using an advice firm- other than those who perhaps realise that they could be better off handing over the responsibility to appropriately qualified advisers.

“Firstly, an investment adviser needs to be allowed to choose and recommend funds going forward. I suspect a lot of DIY clients may have different opinions on the recommended funds, which is fine, but this may then lead to time consuming discussions with the client and may tie the hands of the new adviser.

“Also, many DIY investors are extremely price conscious and do not differentiate between cost and value. The value that a professional advice firm provides. Therefore, many are not likely to accept ongoing advice fees or be willing to pay them.”

Helping hand

But DIY investors may understand what they want to do but the execution of how they approach the market may end up being flawed.

Professionals have expertise which can be helpful for DIY investors, who get scared during market turmoil and close their account to “jump to cash”.

Paul Surguy, head of investment management at Kingswood, said: “We have many concerns on behalf of DIY investors. First is the risk element. Building a portfolio that will not only generate long-term returns but also avoids large losses involves assessing the true risk an investor is willing to take and matching the portfolio to that level of risk.

“Second is that the trend is not always your friend. Many DIY investors will invest in assets or regions that have performed well recently; couple this with point one and portfolios can become very skewed.

“Then there is time. Professional investors spend all day, and night on occasion, selecting the best assets and setting the most efficient asset allocation, and then adjusting this when things change. DIY investors often do not have the time to do this, in addition to their day job.

“Finally, the ability to remove human emotion from investing is hard enough for professional investors, let alone DIY individuals who are more likely to be caught up in short-term noise.”

Source: PA