Yahoo Finance DIY investors are on the rise. Who are they and why do they do it?
There has been a rise in do-it-yourself (DIY) investors, with the share of investors with financial advisers slipping from 69 per cent in 2020, to 61 per cent in 2024, the Conference Board of Canada says in a recent report.
In the meantime, 45 per cent of all investors now have a DIY investment account.
Alan Chaffe, associate director on the Conference Board’s economic research team, noted that, despite the rise in DIY investing, most Canadian investors still work with a financial adviser.
DIY investors tend to be men, skew younger in age and are more likely to be small-scale investors who are making “piecemeal investments” and aren’t investing a large amount of funds, Chaffe said.
Retail investor advocacy organization FAIR Canada has also tracked a substantial rise in DIY accounts, from 6 million to 11 million between 2018 and 2022. Jean-Paul Bureaud, FAIR Canada’s executive director, noted that, in the beginning of that period, $400 billion were in DIY accounts. By 2022, this had ballooned to about $700 billion.
“We definitely saw a big spike during COVID-19,” said Bureaud. “We think that some people had more time and were spending more time online and probably wanted more control over their financial affairs and started opening up trading accounts.”
Why are people making DIY investments
Dylan Wilson, portfolio manager at Verecan Capital Management Inc., pointed to the increasing accessibility of DIY investment platforms. In his experience, Wilson said he has seen clients open DIY accounts when there are certain investments they are interested in that aren’t in the standard portfolio the firm has set for its clients.
He is concerned DIY investors may take on more risks, compared to clients working with advisers.
“There aren’t too many DIY investors reading balance sheets, reviewing the businesses that they’re buying, taking a look at what growth plans they have,” Wilson said. “A lot of it is momentum- and sentiment-based.”
However, recent research from FAIR Canada indicated DIY-only investors overall were less likely to feel confident about investing or make risky investments, compared with hybrid investors who have some DIY investments but also work with a financial adviser.
It’s kind of like their ‘play money’ or going to a casino
Jean-Paul Bureaud
For example, hybrid investors were nearly twice as likely as DIY-only investors to trade options, futures or over-the-counter derivatives, which are considered riskier and more speculative instruments. Hybrid investors were also more prone to borrowing by using credit or margin (borrowing money from a brokerage) to finance their investments.
Bureaud thinks it is likely hybrid investors take some comfort in the fact some of their investments are managed with a financial adviser, which could raise their confidence levels when they are trading on their own.
Hybrid investors might take more risks with their DIY accounts to experiment or make bigger bets with speculative stocks, knowing that most of their investments are safe with their advisor, Bureaud suggested.
“It’s kind of like their ‘play money’ or going to a casino, maybe,” Bureaud said.
Pitfalls with DIY investing
He cautions there are some pitfalls with DIY investing to look out for, as well.
Some platforms use gamification techniques to encourage investors to trade more, even when it is not in their best interests. “You think you’re in control, but you’re not, because you’re being nudged,” said Bureaud.
For example, you might see a balloon float across your screen after you make a trade, asking if you would like to make another. Some platforms might even have leaderboards, similar to ones you see in video games, to encourage investors to make more trades in order to move up the ranks.
You think you’re in control, but you’re not, because you’re being nudged
Jean-Paul Bureaud
A recent report from the Ontario Securities Commission revealed that social engagement techniques can influence investor behaviour and potentially lead to hazardous decisions, like under-diversification or excessive risk-taking.
The research found those who saw stocks being promoted on a social feed traded 12 per cent more in those stocks, and those who had the option to copy the trades of a “high performing” user traded 18 per cent more in the promoted stocks, as well.
The other problem is whether DIY investors are getting their information from reliable sources.
Social media as a source of information
The Conference Board found more than half (53 per cent) of Canadians use social media for investment information, up from 35 per cent four years ago. This figure climbed to 82 per cent for Canadians aged 18–24 and 75 per cent for those aged 25–34.
“In my view, it’s crucial to practise multi-sourcing information and seek out professional advice from knowledgeable experts (like) financial advisers,” cautioned Chaffe, adding that not everybody has the knowledge or the time to manage their own investments.
“Advice needs to be customized,” said Verecan’s Wilson, who feels it is important for investors to work with a financial professional. “The problem with online advice is it paints everybody with a broad stroke.”
However, FAIR Canada found that nearly four-in-10 DIY-only investors do not trust investment advisers, compared with about three-in-10 hybrid investors who felt the same.
It is possible some of these DIY-only investors have worked with investment advisers before and had negative experiences with them, Bureaud said. Others might have concerns that investment advisers won’t have their best interests at heart, especially if they are earning a commission on products they recommend.
“I think there’s a lot of confusion really about who to trust,” he said, explaining that amid a profusion of financial products and financial professionals, it can be difficult for the average investor to determine who is trustworthy and reliable. “There’s no easy way to figure that out.”
It is important for investors to ask questions before working with an adviser, like asking what training they have, how they’re getting paid, who regulates them and what kinds of products they can give advice about, Bureaud said.
The cost of hiring an investment adviser
Another factor that could be prompting Canadians to open a DIY investment account is the cost of hiring an investment adviser.
“If you’re a high-net worth individual, there are a lot of good advisers out there for you,” Bureaud noted. “But a lot of Canadians don’t have (more than $250,000) to invest and they may not be getting that kind of quality advice they want. So, cost is an issue.”
FAIR Canada research shows the largest demographic of DIY-only investors are people younger than 35 (27 per cent), and about 60 per cent of DIY-only investors make less than $100,000 a year.
Bureaud speculated this might be the “beginning of a wave” in which younger Canadians, who tend to be more tech-savvy and are starting to accumulate more assets, are more willing to do their investing online without the help of an adviser.
“I wouldn’t be surprised if, over time, we start to see more and more people going online to do their own investing.”
That said, Bureaud added that, if doing it themselves doesn’t produce the results they are looking for, and as they age and have more assets to invest, investors may end up turning to professionals.
• Email: slouis@postmedia.com
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