Financial advisors

Self-directed investors turn to human financial advisors


Volatile markets, the limits of trading apps and the power of social media are driving self-directed investors to seek  formal financial advice and are also willing to pay for it, according to the latest Cerulli Edge—U.S. Retail Investor Edition.

The Boston-headquartered research firm that specializes in global asset management and distribution analytics, in its 2Q 2021 Issue, found that early adopters of digital platforms are now acknowledging the potential benefits of human advice and are moving on to long-established systems.

The GameStop saga in the U.S. earlier this year triggered huge swings in some share prices. An average of 15 billion trades per day executed in January 2021, higher than the 10.9 billion trade average in 2020 (itself a 12-year high), with January 27, 2021 setting a one-day record with 24 billion trades. Trading app Robinhood alone accounted for more than 25% of retail trades during this time, according to Bloomberg News.

The ease with which investors can trade on Robinhood has earned it a following among Millennial and Gen-Z investors investors looking to get their start in the world of investing.

Yet the multitude of ways to engage in financial markets, from stocks and exchange-traded funds (ETFs) to options and short-squeezes, plus the gyrations of the markets in the past year, have led these investors to consider asking for formal help at an increased rate, according to Cerulli.

“Recent data collected indicates that self-directed investors are increasingly interested in formal financial assistance and willing to pay for that advice,” Scott Smith, director at Cerulli said.

The “meme stock” craze of 1Q 2021 has some lessons for advisors

“While these niche stocks accounted for less than 0.1% of market activity at the time, it highlights the need for advisors to keep tabs on how their clients consume and act on financial information, particularly on forums like Reddit,” Smith added.

Though the “democratization of finance” can be seen as a net positive for getting average investors engaged in the stock market with few barriers to entry, this freedom does not come without risk. As quickly as the “meme stocks” spiked, they fell just as fast, and have been volatile ever since, which can lead to large losses for investors who bought at inopportune moments.

While this should not necessarily lead advisors to dissuade their clients from making high-risk investments, it does become important for advisors to frame these market swings in the context of financial history and clients’ long-term goals in order to combat herding biases.

“Keeping abreast of the influences and influencers shaping discussions in public forums can help advisors frame these conversations on the clients’ terms while ensuring that the best laid financial plans are not squandered by temporary craze,” Smith concluded.

Human advisors provide customized, holistic solutions and can adapt to life’s curve balls in a way that even the best artificial intelligence can’t manage just yet. Plus you can always pick up the phone and talk to your financial advisor to ask questions and make sure you’re on the right track. The value of a two-sided conversation is worth its weight in gold.

Kurt Cerulli founded Cerulli Associates in 1992. Since the company’s founding, the research has grown to eight practices globally with offices located in the United States, the United Kingdom, and Singapore.