The regulatory burden on advisors has created time constraints, leading many advisors to increase their account minimums.kate_sept2004/iStockPhoto / Getty Images
Younger investors are increasingly choosing to manage investments on their own as account minimums rise for financial advisors and do-it-yourself (DIY) options become easier to use, a new survey finds.
Vanguard Investments Canada Inc.’s Value of Advice survey, released Tuesday, shows that more younger investors are using online platforms to manage their investments than going to financial advisors. Among Canadians aged 18 to 34, 40 per cent said they use an online brokerage versus 38 per cent who use financial advisors.
That compares with 70 per cent of those 55 and older who rely on an advisor and only 17 per cent using online platforms. Among 35- to 49-year-olds, almost half (49 per cent) were using advisors and one-third (32 per cent) were managing their own investments online.
“It’s a tale of two investor demographics – the older generation and the younger generation,” says Mario Cianfarani, head of distribution with Vanguard Canada.
Mr. Cianfarani says the regulatory burden on advisors has created time constraints, leading many advisors to increase their account minimums. “That’s represented in the data where the younger cohort … is feeling like they need to move to DIY.”
Across all age groups, more than half of Canadians (56 per cent) said they use an advisor versus one-quarter (26 per cent) using an online brokerage. Men were more likely (35 per cent) than women (18 per cent) to manage their own investments online.
Younger clients also said they trusted their advisor less: 35 per cent said they don’t fully trust their advisor, compared with 20 per cent across all age groups.
The findings of the Vanguard survey, which used the Angus Reid Forum in March to poll 1,307 Canadians with investible assets, were similar to those of a much larger survey from the Canadian Securities Administrators (CSA) conducted around the same time and released in July.
The CSA found 61 per cent of investors were working with an advisor, down from 69 per cent in 2020. Almost half (45 per cent) of investors had self-directed investments, and about one-third had opened those accounts in the past two years.
The drop in advisor use was largest among investors under 45, the CSA found, and those with less than $100,000 to invest. There was no drop from previous years in advisor use among investors with portfolios of more than $100,000.
Marissa Sollows, chair of the CSA’s investor education committee and director of communications and public affairs at the New Brunswick Financial and Consumer Services Commission, told Globe Advisor in July that it’s “not entirely a doom-and-gloom scenario” for advisors when it comes to how younger people are investing.
“When we look at the data, there wasn’t a lack of desire to work with a financial advisor,” she said. “It was more about their portfolio size or they felt their needs weren’t as complex to warrant using an advisor. They may want to work with an advisor in the future. They’re just waiting until their portfolio grows or they have more assets.”
Mr. Cianfarani says even those investors without an advisor expressed an interest in professional advice. It’s up to advisors to develop solutions to serve those clients with fewer investible assets, he adds.
Loyalty and value
Among Canadians with an advisor, the Vanguard survey found that 71 per cent were likely to stay. Loyalty was strongest among the older cohort, but also among those receiving financial planning services: 85 per cent of those with a formal financial plan said they’re very likely to stay with their advisor.
Financial planning also contributed to clients’ optimism. The survey found that 40 per cent of clients whose advisor created a financial plan for them expressed a high level of optimism about their financial future, compared with only 22 per cent of those without a formal plan.
Regular communication (at least every month) also contributed to clients having a better future outlook, the survey found.
Mr. Cianfarani says behavioural coaching is where advisors are able to provide a significant amount of value.
“The behavioral coaching comes in times like the pandemic [or] the meme stock craze,” he says. “It’s sticking to that plan – not reacting to headlines and getting into day trading. That adds a tremendous amount of value for investors.”