Tuesday, 9 October 2018
Technology has revolutionized how we do business.
Travel agents have become an endangered species with the advent of online ticketing; you can order food, clothes, books and nearly anything else with a swipe of your phone; and email and texts have made actual handwritten letters and phone calls practically extinct.
The same goes for managing money—investors can transact in many types of securities and investment alternatives without ever talking to a human being.
DIY (or “self-directed") investing enables a person to take control of investment decisions, but there are trade-offs. Doing business online on your own, to be sure, can be fast and easy—you don't have to wait for someone to call you back, and you can operate from anywhere in the world any time you can snag a Wi-Fi signal (and that includes bed on a Sunday morning). And investing on an online platform may be less expensive than costs associated with full service financial advisors, generally with a flat fee from around $5-$20 per trade, depending on the platform you use.
DIY investing may work for people who have a good understanding of how markets work (an Accenture study found that 6 in 10 Millennials felt they had as much knowledge about their holdings as a professional). Some platforms try to make it as easy as possible by pre-packaging portfolios designed with the investor's risk tolerance, age and interests in mind; other basic options are general index funds, which are mutual funds that generally follow the ups and downs of a market index (such as the Standard & Poor's 500, or other indexes that track small or foreign companies, or bond markets).
Unless you're an investment professional, you don't know what you don't know. A dedicated advisor understands your goals, as well as the complexities of the market.
Your financial consultant can help guide your thinking as your investing becomes more nuanced—for example, if your family grows, if you plan to retire soon, if you become unable to work, or if you come into a windfall. An advisor can also help talk you down in moments of sheer panic or elation, helping you to avoid costly mistakes borne from impatience and ignorance. He or she can also introduce you to products, funds and companies you may not have known about otherwise.
Finally, a hybrid model may be the answer for those who want lower fees but some level of guidance. A 2018 J.D. Power study shows that this could be a recipe for DIY investing success as online trading firms step up their customer service and advisor capacity for those who have the money to invest, said J.D. Power's senior director of the Wealth Management Practice, Mike Foy, in a press release.
The study also found that the more customers had contact with advisors, the higher their satisfaction in the firm was. Those who received no personal contact scored their satisfaction an average 758 out of 1,000 points; those who discussed performance, assets, allocations, goals and changes with an advisor ranked their satisfaction at 878.
“While firms cannot expect to deliver the level of personalized attention investors would receive from a higher-cost dedicated financial advisor, they can close the gap between the two, in part by effectively using technology to empower more frequent and meaningful human interaction," Foy said.
For information about investment products and services available through BBVA Investments, please contact one of our professional advisors.
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