After the DIY Surge
Finding a place in the advice channel for do-it-yourself investors
by Mark Burgess
In 2021, as crypto surged and growth stocks posted effortless gains, the number of self-directed trading accounts in Canada spiked.
Momentum has since slowed in financial markets and in do-it-yourself investing. But with millions of investors seeking low-cost access to financial markets, there are concerns about the options available for Canadians. Are the investors who opened millions of trading accounts really suited to managing their own investments? Or is financial advice simply inaccessible to the masses?
In 2020, as stocks rebounded from the brief Covid-induced bear market, the number of online discount brokerage accounts in Canada jumped to 7.6 million, up from 5.9 million at the end of 2019, according to data from ISS Market Intelligence. A year later that figure increased again to almost 10 million accounts (see Table 1).
Canadians continued to open accounts last year, albeit at “a much more stunted level compared to the years prior,” ISS associate director Vince Linsley said.
The growth in DIY investing has largely been considered a side effect of the pandemic: more people were at home, unable to spend money in traditional ways. Some received government cheques replacing lost income. People also saw friends and family making money with apparent ease in growth stocks and crypto. The latter may have driven clients with advisors to try online brokerages if crypto was restricted in their advised accounts.
During the meme stock craze of 2021, when investors organized on social media to take on hedge funds and push up the price of beaten-down stocks such as GameStop, AMC Entertainment Holdings Inc. and BlackBerry Ltd., an anti-establishment narrative developed around DIY investors. The image of the Reddit-posting, diamond-handed die-hard took shape.
However, the people who opened millions of new accounts can’t be neatly categorized. An Ontario Securities Commission (OSC) survey of self-directed investors in 2021 found that only about one-quarter signed in to their accounts daily. Three-quarters of investors made no more than 50 trades per year, with 43% making 10 trades or fewer.
Kendra Thompson, national wealth and investment management leader at Deloitte in Toronto, said a lot of DIY clients log in just to check their balance. Some accounts were opened and never used, she said, while other investors have realized “they’re not day traders, and they ought to pick some good products and stick with them.”
A British Columbia Securities Commission (BCSC) survey conducted last fall showed generational differences in DIY investing approaches. Investors between 18 and 35 increasingly own individual stocks, and the youngest cohort (those under 25) are more likely to be active traders seeking large returns.
Investors under 25 are more confident than older investors about timing the market, the BCSC survey found, and more of them say they trade larger amounts for excitement. Younger investors are also far more likely to trade at least once per week.
The survey also showed trust in investment professionals declined among the youngest cohort.
Regulators have raised concerns about inexperienced investors getting burned and shunning markets. ISS data from online brokerages found younger investors were hurt most by last year’s downturn.
“You can’t insulate people from what the market does, but there’s a real risk that if new investors make bad investments or foolish investments … those people may be gun-shy after,” said Neil Gross, president of Component Strategies Consulting in Toronto. “On a macro level, that’s a problem for society if our capital markets aren’t attracting retail investors anymore.”
of self-directed investors sign in to their accounts daily
sign in weekly
sign in monthly
of self-directed investors make 10 trades or less per year
make 11 to 50 trades per year
make 51 to 350 trades per year
Another theory for the growth in DIY investors is that more people want to manage their investments while benefiting from professional financial planning advice. With no-fee trading, asset-allocation ETFs and other tools that make portfolio construction easier, many in the industry say investing has become a commodity. Investors can cheaply manage portfolios on their own while paying for financial advice that’s not tied to investment products.
However, the market of fee-only financial planners is small. FP Canada only started tracking the category among its membership last year, when 12.8% of CFPs said they charged a fixed-rate fee for service.
And some doubt that many Canadians actually want to manage their investments.
“It’s unlikely that people who are busy living their lives, finding that hard enough to manage, want to take on the challenge of substantially doing their own investment research,” Gross said.
Jason Heath, managing director with Markham, Ont.–based fee-for-service financial planning firm Objective Financial Partners Inc., said most of his clients have advisors who manage their investments.
"It's not like DIY investors and fee-only financial planners are the obvious mix"
Some investment advisors don't offer financial planning, he said, so his practice is complementary for those clients.
“It’s not like DIY investors and fee-only financial planners are the obvious mix,” he said.
While Heath said he’s seen more DIY investors reaching out to fee-only financial planners, “it’s not a huge explosion in my experience.”
Sean Etherington, executive vice-president and co-head of Canadian wealth for CI Financial in Toronto, said there wasn’t a large movement last year from CI’s direct trading and robo platforms to full-service advice, even though client referrals generally increase during market volatility, as investors seek professional advice.
While CI’s advice side is growing faster than the direct businesses, he said, the volume of DIY clients that switched to full service during 2022’s down market was not “meaningfully higher” than in 2021’s bull market.
About one in five investors aged 18–24 said their goal is to “have a chance at a large return and a big profit.” That fell to 15% for the 25–44 segment, to 7% for those aged 45–64, and to 4% for those 65+.
The top reasons advised investors had a secondary self-directed account:
› Enjoyed trading stocks (32%)
› Only wanted their advisor to manage some of their portfolio (28%)
› Wanted to take more risk (27%)
Another theory for the DIY surge is that many Canadians are curious about the platforms. Investors may be “dipping a toe in the water,” Thompson said — trying out direct investing with a small windfall, for example, but maintaining advised accounts.
The 2021 OSC survey found that about three-quarters of DIY investors invested entirely on their own while one-quarter had an advisor as well as a self-directed account.
Heath said that, in his experience, clients either place all their money with an advisor because “they don’t understand the difference between a stock and bond and they would never try to do it on their own,” or they “wouldn’t consider giving money to an investment advisor when they can do it themselves.” He doesn’t have many clients who do both.
But Thompson said having an advisor and a self-directed account could become more common, and advisors need to adapt.
She said it’s time to abandon the notion that direct investing is somehow “cheating on” an advisor. The important thing is to not find out only when a client is closing their account. This means regularly asking if there are services a client is interested in that you haven’t discussed, and about accounts they have elsewhere.
“Typically, if you wait for that moment of transfer, it’s a little too late to have a meaningful and client-centric conversation,” she said.
Of course, the pull of DIY investing could simply come down to cost.
“In the Canadian market, if you’re fee-sensitive, unfortunately the way our framework is set up, direct investing —whether it’s suitable to you or not — is one of the lowest-fee options,” Thompson said.
There are structural barriers to traditional advice that predate Covid. With more advisors chasing high-net-worth clients, Canadians with less than $500,000 to invest may be finding it hard to find advisors.
“They may not be shunning advice. It may just not be available to them,” Gross said.
While the OSC survey found that 44% of DIY investors chose the self-directed route because they enjoy it, more than one-third said they do so because they see advice as too expensive; another quarter said their portfolio is too small to rationalize having an advisor.
“The challenge is how to keep people directed toward advice that’s capable, proficient and affordable,” Gross said.
FP Canada has proposed a refundable federal tax credit to encourage low- and middle-income Canadians to obtain financial planning advice. High earners would not be eligible.
FP Canada president and CEO Tashia Batstone said the proposal is one way to address the cost barrier to advice. “They get initial exposure to [planning] and understand the value of it,” she said, adding that the organization’s discussions with government were still preliminary.
Reasons for not using an advisor
I enjoy managing my own investments
It is too expensive
I am knowledgeable
Not enough money invested to be worth paying someone else to advise me
I can get a better return doing it myself
I do not trust financial advisors
Worried that they would lose my money
I don’t value their advice
I don’t know how to get an advisor
While direct investing may be low-cost, Thompson said few investors are well served by the model.
She said the industry needs to adopt a model where investors can access advice when they need it and aren’t forced to choose between full-service or nothing.
Last year, CI moved its direct trading platform and its direct-investing robo platform onto one landing page. The latter offers financial planning advice through CI professionals.
“The do-it-yourself investor can see there’s a pathway to an automated platform with advice, which I think is the next step a do-it-yourself investor might take to integrate some professional advice into the relationship,” Etherington said.
The firm isn’t reaching out to its direct investing and trading customers who may be suitable for full-service accounts. “We don’t want to force it,” Etherington said. But the firm is working to build awareness about those full-service options.
Heath said advisors also need to learn from what clients like about DIY platforms. This means being easier to access when the competition is an app that can be opened any time.
But he’s also optimistic that DIY investors will realize there’s more to financial planning than stock picking.
“As there’s more DIY investors, there will be more people who need advice from other professionals,” he said.
This article appears in the last print issue of Advisor’s Edge magazine. If you’re a print-only subscriber, learn more about our digital transition and how to continue to receive all the best news and features on Advisor.ca.