Secrets of Success: You don't have to be poor to prefer DIY

In most walks of life, people like to know what their fellows are doing; and it is clear that investing is no different.

In most walks of life, people like to know what their fellows are doing; and it is clear that investing is no different. Most professional fund managers are almost duty-bound to follow the behaviour of their peers, as their livelihood depends on the relative performance of their funds, even though (a nice paradox) their success in beating the market consistently depends on them doing something different from the bulk of their fellows.

But what about private investors? My impression, rightly or wrongly, is that they are just as keen to know what other investors are doing with their money. There is after all some psychological comfort in knowing that others are doing the same thing as you, although the consequences of being a conformist are much the same as for professionals.

It was interesting to note in this context some findings from an exercise carried out by Tulip Research, which specialises in surveying the investment habits of the rich. It has detected an interesting trend amongst high net-worth individuals to do more of their own stockpicking, in preference to using financial advisers of one sort or another to give them advice.

Specifically, its latest survey found that a third of those it surveyed take no advice from anyone before choosing shares for their portfolios. What is more, the wealthier the individuals were, the more likely they were to make their own decisions. The DIY investors had average liquid assets of just under £1m, while those who relied on advisers had about £650,000. The cut-off point for inclusion in the survey was a minimum of £250,000.

Of those who did rely on advisers to handle their investments, the most popular choice of adviser was IFAs, followed by stockbrokers, accountants and banks. A further interesting detail was that those who had opted for DIY solutions had some 40 per cent of their liquid assets in individual company shares, whereas those who relied on IFAs had only 25 per cent. The latter group had a greater proportionate exposure to unit trusts and cash or cash equivalents.

What is one to make of this pattern of behaviour? The trend towards DIY investing has accelerated in the last couple of years. In 2002, only 20 per cent of this high net-worth group claimed to be investing their money directly themselves. John Clemens, the managing partner of Tulip Research, thinks there are two main factors: (1) the bear market, which has left many wealthy people unimpressed by the performance of their advisers; and (2) the fact that many advisers are seen to be failing to keep up to date with the newest investment fads, of which "structured products" are perhaps the most notable example.

(If you are one of the many for whom the term structured product does not mean a lot, it refers to a wide and growing range of funds, or bonds, that use derivatives to "guarantee" return of capital and/or returns over a period of years, subject to certain conditions being fulfilled. It is one of the biggest growth areas in the investment business, although they are by their nature difficult to analyse. The "precipice bonds" sold to hapless investors in recent years are an example of how structured products can go badly wrong if you do not understand what you are buying.)

Mr Clemens also makes the point that many of the high net-worth individuals he surveys are professionals or business people who are now retired or working part-time. They have the time to spend more time on their investments and of course now have the advantage of being able to use the internet to get information and buy or sell shares cheaply in a way that was not anything like as easy before.

In this context, incidentally, it is interesting to see the latest Compeer survey carried out by the Association of Private Client Investment Managers and Stockbrokers, showing that execution-only trading by private investors reached a new high in the first quarter of this year. As always happens with new technologies, the real benefits of the internet bubble are only now beginning to appear in the shape of fast and comprehensive applications (such as instant portfolio valuations) that replace services traditionally provided for a fee by intermediaries such as brokers.

According to Tulip Research, what the high net-worth individuals are mostly buying are well-known blue-chip Footsie shares. This, one suspects, is not necessarily because they regard them as particularly good value - high net-worth individuals are inevitably more interested in owning diversified portfolios than they are in picking the best-performing stocks - but because they are confident that they can buy and sell them without being blindsided or shortchanged.

Almost certainly, too, they feel confident from their experience in business or professional life that they can make just as good judgements on investments from their own knowledge and contacts as to which shares are likely to do well as they can by relying on advisers to help them. While generalisations are dangerous, there is plenty of evidence that acting on buy and sell advice from the average IFA or broker is an unrewarding activity. You will most likely do just as well by buying an index fund or doing it yourself.

Is this trend towards DIY investing here to stay? I suspect that it is. Private client advisers have been going through a tough time in the last few years, beset by dull markets and a mounting regulatory burden. The industry is consolidating, as weaker firms go to the wall. But do high net-worth investors really need to know more about structured products? That is a different question.

My guess is that one of the reasons why advisory firms are struggling is not just that their advice is not always productive - there are as always honourable exceptions - but that they are struggling to come up with the level of service that private investors, especially the wealthier ones, think they deserve. The smart ones might even find it better to step back on the advisory front and do more to keep their clients informed and feeling well cared for.

jd@intelligent-investor.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Sport
Premier League Live
footballLIVE Follow all the Premier League action as it happens
News
The slice of Prince Charles and Princess Diana's wedding cake and the original box from 29 July 1981
newsPiece of Charles and Diana's wedding cake sold at auction in US
Life and Style
3D printed bump keys can access almost any lock
gadgets + echSoftware needs photo of lock and not much more
News
James Argent from Towie is missing, police say
peopleTV star had been reported missing
PROMOTED VIDEO
Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
News
i100(and it's got nothing to do with the Great British Bake Off)
Arts and Entertainment
Inside the gallery at Frederick Bremer School in Walthamstow
tvSimon Usborne goes behind the scenes to watch the latest series
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
newsThe industry's trade body issued the moratorium on Friday
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
Life and Style
Silvia says of her famous creation: 'I never stopped wearing it. Because I like to wear things when they are off the radar'
fashionThe fashion house celebrated fifteen years of the punchy pouch with a weighty tome
News
i100
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

    £35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

    DevOps Engineer (Systems Administration, Linux, Shell, Bash)

    £50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...

    Data Scientist (SQL, PHP, RSPSS, CPLEX, SARS, AI) - London

    £60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...

    Financial Technical Consultant (C++, C#, Finance, MSc, PhD)

    £50000 per annum: Harrington Starr: Financial Technical Consultant (C++, C#, F...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone