Capital Markets Insights

The Future of Investment Advising: Self-Serve or Investment Advisor

Investment advising has undergone significant changes recently, with the rise of self-serve investment services such as Wealthsimple and Robinhood. While these services offer a convenient and cost-effective way for investors to manage their money, they lack the personalized touch and expertise that traditional investment advisors provide. In this article, we explore the current state of investment advising, the role of traditional advisors, and the impact of self-serve platforms on Private Placements.

The Investment Advisory Business

Investment advising is a significant industry in Canada and the United States. According to a report by IBISWorld, Canada's financial planning and investment advisory industry in Canada had revenues of CA $11.9 billion in revenues in 2021. In the United States, the industry was worth over $130 billion in 2020, according to the Bureau of Labor Statistics.

The number of investment advisors in both countries is substantial. For example, there were over 28,000 registered investment advisors in Canada in 2020, according to the Investment Industry Regulatory Organization of Canada (IIROC). In the United States, the number of advisors is estimated to be around 300,000, according to the Certified Financial Planner Board of Standards.

Self-Serve Investment Services

Self-serve investment services and platforms have been around for a few decades. The first online brokerage, E*TRADE, was launched in 1982, allowing investors to trade stocks and other securities online. Since then, numerous platforms have emerged, such as Wealthsimple, Questrade, and Robinhood.

Self-serve platforms are best suited for investors who are comfortable managing their money independently and understand the public markets well. These platforms offer low fees and a user-friendly interface that allows investors to buy and sell securities quickly and easily. They also provide a range of investment options, including stocks, bonds, ETFs, and mutual funds.

Investment Advisors

Traditional investment advisors offer a more personalized approach to investing. They work closely with clients to understand their financial goals, risk tolerance, and investment preferences. Advisors use this information to create a customized investment portfolio that aligns with the client's objectives.

Investment advisors are experts in their field and deeply understand the various investment options available. They also offer financial planning services that cover topics such as retirement planning, estate planning, and tax planning. Traditional investment or financial advisors also us a number of innovative, powerful tools and software–such as Katipult DealFlow–to help offer their clients a broad range of investment opportunities.

Traditional Investment Advisors can help prevent their clients from making rash decisions in times of turmoil and market volatility to make informed investment decisions. They can also provide emotional support and guidance that self-serve platforms cannot offer, helping to keep investors on track focussing on both their short and long term goals.

The Changing Role of Investment Advisors

The role of investment advisors is evolving. While they still offer personalized advice and expertise, they are increasingly using technology to enhance their services. For example, advisors use tools such as robo-advisors, which use algorithms to create investment portfolios based on a client's risk profile and investment goals.

Advisors also focus on providing a holistic approach to financial planning and are better positioned to consider Private Placement investments and other alternative investments.

Working with the Younger Generation

Younger investors have more access to information than ever and increasingly use self-serve investment platforms. Investment advisors are adapting to this trend by offering a hybrid approach that combines the convenience of self-serve platforms with the expertise of a traditional advisor.

Advisors are using technology to reach younger clients and offer a more personalized approach to investing. For example, they use video conferencing and other online tools to connect with clients and offer services such as mobile apps that allow clients to track their investments in real time.

Full Serve Versus Self Serve for Private Placements

Private placements are investments in non-publicly traded securities unavailable on public exchanges. These investments can offer higher returns than traditional investments but also have higher risks. Private placements are offered by companies seeking funding for growth, and they are not subject to the same regulations as publicly traded securities.

Full-service investment advisors are often better equipped to handle private placements than self-serve platforms. Advisors have access to a broader range of investment opportunities and have the expertise to evaluate the risks associated with private placements. They can also provide personalized advice and guidance to investors, helping them to make informed decisions about private placements.

Some self-serve platforms may not accept privately traded securities, in part because private placements are often illiquid and not easy to trade. When trying to transfer privately held securities from a traditional full serve brokerage to a self-serve platform, these shares could be rejected. Which is something for investors to consider in their research if they have an appetite for these types of high risk high reward investments.

There are some self-serve platforms that enable investors to access private placements and other Alternative Investments. These platforms are typically aimed at accredited investors who meet certain net worth and income requirements. They provide a self serve route for investors to connect with private companies seeking funding and offer a streamlined process for investing in private placements.

While these systems can offer investors routes to participate in alternative investment opportunities, they also come with risks. As there are significantly different regulations for private placements, investors must conduct thorough due diligence before investing in these opportunities. Investment advisors can provide valuable guidance and expertise in evaluating private placement opportunities and assessing the associated risks.

In conclusion, the future of investment advising is a mix of self-serve platforms and traditional advisors. While self-serve services offer convenience and accessibility, traditional advisors provide expertise and personalized advice that technology cannot replicate. Investors should consider their financial goals and investment preferences before choosing between self-serve services and traditional advisors. Ultimately, the choice depends on the individual's needs and investment objectives.