The Many Shades of Self-Directed

An area often debated is that of the self-directed investor. Do they really exist? How are they defined? Do they eventually evolve to advised investors as they accumulate more assets? So many questions!

To answer the first question, yes, the “DIY” investor is alive and well and living just about everywhere. The percentage of investors who are classified as self-directed has even gone up slightly (as they tend to do when the markets are roaring along). The proportion of self-directed investors currently hovers in the 35% to 40% range, give or take a few percentage points, depending on the source.

But if we dig deeper into what constitutes a self-directed investor, we see the line between self-directed and advised is not so clear…and getting blurrier all the time. The 2015 annual “U.S. Self-Directed Investor Satisfaction StudySM” by J.D. Power found that satisfaction is significantly higher for self-directed investors who have a guidance-based relationship than for those who do not. The percentage of investors in the study who describe themselves as true DIY investors is 66% of the total, while 21% classify themselves as validators. These investors like to have an expert from which to solicit feedback on their investment ideas. The remaining 13% consider themselves collaborators, making decisions collectively with an advisor. These numbers go up for younger investors and for women, both fast-growing segments and, subsequently, the subject of increased attention by investment firms.

Does investor behavior change as you move up the food chain, evolving from DIY when one has less assets to advised as one’s assets grow? In general, no. The split between self-directed and advised investors has remained fairly consistent since the initial advent of the discount broker, which enabled the rise of the DIY set. Trying to modify and or change investor involvement preferences has proven mostly unsuccessful; firms that have accepted and capitalized on their strengths in serving their chosen markets are the ones that have proven successful over time.