The rise of the self-directed investor is increasingly proving a battle ground for financial service players, as their scale and impact increases.

The growth of self-directed investor is being driven by many factors.  Supported by their growing investment balances, higher financial literacy and greater numbers moving to retirement, these investors are proving important for all stakeholders.

Added to the demographic drive are a new breed of online tools are empowering individuals to better inform their decisions and to practically implement their strategies in a more cost effective manner and many of these investors will be lost to advice forever.

CoreData for many years has segmented investors by their focus on financial control. CoreData splits investors across the categories of increasing need for financial control and classifies them as “outsourcer”, “coach seeker” and “controller”.

It is the controller, which has the highest degree of involvement in their personal financial management, and that has the strongest alignment with the self-directed investor. Through exploring this segmentation, the service provider can really gain an understanding of what’s on the mind of those investors and in turn how to best engage them.

These insights can then help differing service providers from advisers, to banks, to superannuation funds, to insurers to develop strategies to effectively target these individuals that have a focus on financial control.

In this range of articles we explore the opportunities and challenges for service providers in their targeting of the self-directed investor.

To have or have not

It’s no surprise to anyone I shouldn’t think that the trend to towards self-directed or do it yourself (DIY) activities and ventures has grown over the last few years or more and is now so pervasive in Australian society, ranging from the growth in DIY home renovations and the popularity of Bunnings and The Block right through to the growth in self-managed super funds.

That’s right the trend towards self-directed investing, whether within or outside of super has also grown and continues to do so, as evidenced in CoreData’s 2013 Direct Investing Report. Within the super space, some funds have reacted to this (and their member and FUM leakage to SMSFs) by launching direct investing options, allowing members to purchase term deposits, shares and ETFs directly.

Though the data is scant or anecdotal, it appears that these haven’t been widely taken up by members, and certainly not by those members which they were targeted at – those most likely to set up an SMSF in future. As such, the leakage to SMSFs continues.

So should all funds be launching direct investment options? Wel…have you talked to your members and gone beyond. “Would you like?” What is promising is that the next wave of funds thinking of launching direct investing options appear to have thought about such as platform a bit further, in actually testing out the concept with members rather than building the product first.

There also appears to have been a lot more thought given to what a fund will need to do in conjunction ‘with’ a direct investing platform in order to retain members. Simply because a direct investment option on its own is unlikely to work as a successful retention tool. In fact, CoreData’s 2013 Member Retention Report shows that relative to other measures and services, both TDs and equities rank lowly as retention factor.

As such some of these funds are focusing on their advice offer to members, targeted communications, advice around direct options from asset allocation (not stock picking) point of view, allowing for a greater number of both super and non-super direct assets on the member direct platform, and even SMSF services.

How successful these strategies will be is something we will see over the longer term, however the fact is that the DIY movement is here to stay and it will be those super funds that tap into these members’ needs and that target them directly with relevance that stand to benefit the most and are likely to see better retention figures.