Close Close

Financial Planning > Behavioral Finance

Direct Providers Threaten Advisors’ Client Base: Cerulli

Your article was successfully shared with the contacts you provided.

Advisors stand to lose clients to direct providers, according to new data from Cerulli, and most do not even know that their clients may maintain direct accounts.

Those advisors most in jeopardy are those who compete most directly with providers such as Schwab, Fidelity and E*Trade. Those providers have devoted considerable time and expense to building platforms that offer a broad range of services also offered by full-service brokers such as Merrill Lynch and other wirehouses. In addition, they have not suffered the reputational damage that the financial crisis of 2008 brought to many of the largest names in the business.

However, even if you are an independent advisor and not connected with a wirehouse, the threat looms for you as well–particularly if your client base has investable assets of between $100,000 and $2 million in investable assets. Your clients may have direct accounts that you are unaware of, and they may have chosen not to enlighten you.

So said Katharine Wolf, associate director at Cerulli Associates, in a statement. “For clients with between $100,000 and $2 million in investable assets, direct firms and advisors compete head-on for client relationships,” Wolf explained. “Investors who do not want to pay for advice or who have not been approached by an advisor often default into the direct model, as direct firms generally have well-known brands and solid reputations.”

But what’s this about secret accounts? Simple–clients may not want you to know about them, for a variety of reasons. And there are plenty of them. Wolf said, “Even after hiring financial advisors, investors maintain multiple financial relationships, often intentionally concealing outside direct accounts from their primary advisor.”

In its report, Cerulli says, “Clients think of their direct accounts as a place to try their own investing ideas or as an emergency fund, which is segregated from their main pool of assets. Advisors vastly underestimate the number of their clients who maintain a direct account, reporting that only 20% of their clients maintain accounts of this type, versus Cerulli’s survey of clients who use a financial advisor, revealing that 76% of clients own direct accounts.”

Therefore, direct accounts compete head to head with advisors. In fact, says Cerulli, “We contend that these clients may choose to remain in the direct channel, content with their service through managed account programs and direct representatives.”

“Of course,” the report continues, “financial advisors still offer more robust services and can differentiate themselves by offering more personalized advice, including detailed financial planning.”


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.