The rise in do-it-yourself investing and day trading accelerated by the coronavirus pandemic presents both an opportunity and a worry for the advice market, experts have claimed.
Speaking on the FTAdviser podcast, Greg Davies, head of behavioural science at Oxford Risk, said the advice market could benefit from the ongoing trend if it managed to take the new level of engagement and lead people towards good finance habits.
He said: “We have found the proportion of people looking to take advice has increased in 2020, and increased most in the younger population.
“These are the people the financial advice market finds very difficult to engage with their finances, so insofar as we can take this trend and use it to lead to good investment behaviour as opposed to catching falling knives, there’s a good opportunity here for advisers.”
He was discussing the impact of the increase in DIY investing and the growth of retail platforms on the advice market with Martin Bamford, head of client education at Informed Choice.
Bamford agreed the advice market could benefit from the trend providing it did not “ignore it, leave it alone, and expect it all to work out in the end” - and added that advisers should keep on top of the trends which culminated in the price of Gamestop shares rise in value from $20 to $350 in a couple of weeks.
He said: “My main concern is that these day traders will get their fingers burned, inevitably in the end, and they are going to associate it with professional financial advisers.
“They won’t be able to differentiate between what we do and proper investing compared with their first experience of their investment market.”
Davies added: “Once people’s fingers are burnt by any form of finance or investing, they stop engaging with finance for five, 10, 15 years, and that has huge long-term consequences.”
The podcast guests also discussed how advisers could “sell themselves” when competing with a growing trend of investing becoming “cheap” and democratised and the level of responsibility advisers had regarding clients who dabbled in day trading and ‘get rich quick’ investing.
The rise in Gamestop's shares was caused by individual traders using platforms such as Robinhood, who shared tips on forums such as Reddit.
They had targeted Gamestop because it had been shorted by several prominent hedge funds.
imogen.tew@ft.com
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