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Brokerage platforms can be the link between self-directed investors and advisers: US study

Brokerage platforms are understandably wary of nudging clients away from their products, but if they want to be full service providers they need to entertain the idea of linking investors to advisers, according to a new US report.

If brokerage platforms want to position themselves as full-service providers to the kind of unadvised investors who are comfortable trading equities online, they should provide a comprehensive offering that includes linking those investors with financial advisers.

That’s the word coming out of US advice consultancy Cerulli Associates, who encourage platform providers and brokers to make it easier for investors to establish contact with advisers on a short-term basis at least, with scope for the relationship to develop into broader financial advice services.

These investors might see themselves as independent, Cerulli’s U.S Retail Investor Products and Platforms 2024 Report states, but 55 per cent of them say it’s either “important” or “somewhat important” to have human specialist linked to their account. And these investors – at least in the US – are willing to pay for it, with 42 per cent saying they would be “at least likely” to fork out money to speak to a specialist.

  • The only block, then, is the brokerage platforms themselves. But that shouldn’t be the case, says research analyst John McKenna, who contributes for the Cerulli Report.

    “If a full-service provider’s objective of offering self-directed brokerage accounts is to eventually transition those customers into advice relationships, they must make those interpersonal services visible to those clients,” McKenna says. “Early awareness, through targeted e-mail and notification campaigns at a given milestone, can boost this awareness. With this increased awareness, clients may become more likely to stay in-house for future financial advice.”  

    Larger, more vertically integrated firms with multiple investment service offerings also need to put more attention towards linking their brokerage platform with their advice offering, he explained, if they are to take advantage of the business model. According to Cerulli, “the pathway to closer engagement can be highly efficient if the walls between units are lowered”.

    The banking advice channel may be effectively extinct in Australia (outside of private banking), but the lesson could apply to the remaining large advice providers in the country.

    “A critical mass of customers want greater financial advice, particularly younger customers in the direct banking channel, but might not know when or how to acquire it on their own,” McKenna says.

    “By identifying the moments of greatest need, transitioning clients to more advised relationships can lead to increased walletshare and more harmonious one-stop shopping for all financial needs, creating loyal customers for decades to come.”

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