By John Drachman
As COVID and digital personalization at a distance continue to transform the market landscape, investor preferences too have been undergoing a makeover.
Once upon a time, investors typically belonged to two groups; either the ranks of free-spirited “Do It-Yourselfers” who managed their money alone – or “Delegators” who counted on expert advice.
Now a growing number of investors are choosing a middle path that combines both styles into a kind of semi self-directed approach.
Termed “Validators” by Forrester Research, these investors want the best of both worlds: the benefits of financial guidance and the comfort and control that comes with being in the driver’s seat. Just as they insist on gathering their own information and making their own decisions, they also demand validation for their ideas from an investment expert.
The Validation Mind-Set
The gigantic acquisition of TD Ameritrade by Charles Schwab in 2019 brought together more than $5 trillion in combined assets under one roof. It also provided a petri dish for observing investor behaviors up close. While the legacy Schwab side was busy upselling financial advisory services to the 51% of TD Ameritrade’s base who could afford them, legions of younger, newer mass affluent individuals were drawn to the firm’s digital toolbox.
Making up a third of Schwab’s client base are the Validators according to Forrester senior analyst, Vijay Raghavan. “These younger, educated investors are eager to get a second opinion on their investment choices,” he said, “but often find it difficult to attract the attention of advisors” because of their lower asset level.
Are You a Validator?
If you’re a Do-It-Yourselfer who’s own wealth profile has been changing to the point where family responsibilities and greater wealth require more of your time and attention, you are not alone. While you may not be ready to fully engage with your first professional advisor, you too can join the growing number of Validators who tend to agree with statements like these:
- “I feel I have most of the knowledge and skills I need to make the lion’s share of my own investment decisions.”
- “I enjoy learning about and working with new online tools to manage my personal and business affairs.”
- “Occasionally I wish I could bounce my ideas off a professional expert to get a second opinion.”
Know Your Motivation
The urge to validate assumptions can be very positive – as long as a cognitive bias called “Choice Avoidance” doesn’t get in the way. According to a landmark study on Organizational Behavior and Human Decision Processes individuals often turn to validation and delegation not to improve outcomes but to escape blame when events go sideways. If your investment objectives don’t include “passing the buck” however the semi self-directed approach can offer real advantages: the control you want with the expertise you need.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.