D&S: Narrowing the gap

The Do-It-Yourself (DIY) industry has grown exponentially over the last decade. Stores like Home Depot and Rona allow people from all walks of life to take on the home renovation jobs they might not have considered attempting a generation ago. Then there are the channels—HGTV, the DIY Channel and others dedicated to weekend warriors who fancy themselves hammer-ready to tackle any job.

This mentality has becoming entrenched in the investment industry as well. The main motivations behind the DIY phenomenon are the satisfaction of doing something yourself and the opportunity to save a lot of money. For investors, the idea is to save money on the front end and make money through prudent investing. That’s what makes the results of this year’s Dollars & Sense survey data around DIYers who hold Exchange Traded Funds (ETFs) so interesting.

The survey shows advisors who manage more than $50 million are more likely to find ETFs in their clients’ DIY accounts than advisors who manage less than $50 million. About 40% of advisors with assets above $50 million found ETFs in their clients’ DIY accounts, while the figure for advisors below that asset level is about 25%.

“The advisors with the larger book [values], are probably fee-based and that would lead to ETFs, because the vast majority of ETFs do not have any compensation embedded for advisors,” says Howard Atkinson, president of Horizons ETFs. As a result, he notes, “those advisors operating on a fee base are talking to clients about ETFs and educating clients about ETFs, and these investors may then do it on their own.”

In other words, advisors with higher book values are already being compensated in other areas and can afford to speak to clients more about ETFs and investments for which they would not normally be compensated. In those cases, the client would likely manage the accounts on their own.

Mary Anne Wiley, managing director, and head of iShares Distribution with BlackRock Asset Management Canada, says there is a pattern in the way high-net-worth investors are behaving. “High-net-worth investors are turning to many sources for information. Advisors are one, but they’re also using online sources, for example. They’re an informed group of investors. As a result they are embracing new investment tools like ETFs—they see the value in them and are starting to incorporate them into their investing behaviour.”

Given the investment savvy of higher-net-worth investors and their desire to seek out alternative investments, it is no surprise to see a high degree of DIY activity among high-net-worth investors.

Som Seif, president and CEO of Claymore Investments, notes that “[h]igh net worth clients are more prone to have dual accounts—one with an advisor and one DIY account. And of course, more and more DIY accounts are using ETFs.”

Seif goes on to say that many clients believe they have to buy ETFs through their DIY accounts because their advisor is not going to recommend it to them or be open to them. “I think this should be a message to advisors to wake up and say, ‘If I start at least introducing [ETFs] to my clients then they’ll become more open and friendly about doing ETF purchases with me as well.”

Wiley says BlockRock’s own internal data shows ETF assets under management grew by 8.4% in 2008 and by 66.8% in 2009, in Canada.

She notes the increase isn’t restricted to advisors with larger books. “Our own business shows an increase in the use of ETFs across the board, and that includes from the individual all the way up to the largest, most sophisticated institution.”

The Dollars & Sense survey also noted investments such as GICs, term deposits and t-bills would more likely appear in the DIY accounts of clients who have advisors with less than $50 million. Atkinson attributes this to “financial planning 101.” He says “smaller books, assuming smaller average clients, are in earlier stages of wealth accumulation and they would gravitate towards the least risky asset classes and products.”

As far as ETFs and DIY accounts, Seif says this is a teaching moment for advisors. “There is an opportunity to gain assets and go after DIYers, but to do it you have to be open-minded. There is an opportunity for all advisors—you can go after that client the big guy isn’t going after. Everybody has a chance to go after these assets.”