Self-directed investors do better with advisors, says report

Self-directed investors who got advice had accounts with better diversification and higher balances

By Leo Almazora

Nov 28, 2018

Self-directed investors may want to be at the wheel of their portfolios, but a new study suggests that they’d be better off with a financial professional riding shotgun.

In its latest SDBA Indicators Report, Charles Schwab found that self-directed brokerage account (SDBA) owners had higher balances, a more diversified asset-allocation mix, and less exposure to individual stocks when compared with non-advised participants.

SDBAs, which are featured in certain US retirement plans, are used to invest in different types of securities, including stocks, bonds, ETFs, and mutual funds. The 19% of SBDA participants in the study who said they chose to use an advisor reported an average balance of US$449,552; in contrast, non-advised participants reported only US$234,643.

Among advised accounts, the highest percentage of participant assets continued to be held in mutual funds (approximately 50%). The second largest allocation was in ETFs (22%), followed by equities (20%), cash (4%), and fixed income (4%).

For non-advised accounts, on the other hand, equities held the highest allocation (35%). Mutual funds were a close second (32%), followed by cash (16%), ETFs (15%), and fixed income (4%).

For both advised and non-advised participants, the top three equity holdings were Amazon, Apple, and Berkshire Hathaway. But non-advised participants’ positions in Apple and Amazon were nearly double that of their counterparts who had advisors. In addition, advised participants invested in more blue-chip, value companies, while totally self-directed investors tended to allocate more to growth stocks.

“The report highlights the benefits of working with an advisor,” said Larry Bohrer, vice president, Corporate Brokerage Retirement Services at Charles Schwab. “In general, participants who had professional help were more diversified across all of their holdings. In addition, advisors typically rebalance a portfolio more often and keep their clients invested.”

Other findings of the study were:

In the third quarter of 2018, the average SDBA account balance for all participants was US$265,902, which was 3.5% higher quarter-on-quarter and 24% higher year-on-year
Advised accounts saw an average of 9.5 trades in the third quarter compared to 5.5 trades among non-advised participants;
The majority of advised accounts belonged to Baby Boomers (45.4%), followed by Gen Xers (42.2%) and millennials (8.5%)

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