Report | Oct 21, 2024
Image: Funding the Future (Conference Board of Canada)
More Canadians are Managing Their Own Investments, Using Digital Tools and Taking Control of Their Finances
A new report from The Conference Board of Canada (CBOB) called ‘Funding the Future: The Economic Impact of Canada’s Investment Funds Industry” shows that the way Canadians invest is changing quickly with more people choosing to manage their own investments. People who use financial advisors has declined from 69% in 2020 to 61% in 2024, while at the same time 45% of investors now have a DIY investment account. This is an important shift to track and understand its implications.
Why Are More Canadians Turning to DIY Investing?
While everyone’s situation is different, there are many trends driving people towards DIY investing.
- DIY investors want more control and like having a say in deciding where their money goes whether it be in public or private markets. A do it yourself approach is especially appealing to people who want to personalize their investment strategy, such as someone who wants to support the transition to a cleaner, more environmentally future.
See: Fintech Fridays EP63: From Angel Investor to Change-Maker: Investing with Impact
- Let’s be honest. While hiring financial advisors can be the best decision for those in need, many DIY investors want a cheaper option and to avoid paying high fees that will adversely impact their investment accounts and retirement savings. For Canadians investment accounts under $250k, financial advisory fees can be a burden. The report says about 60% of DIY investors make less than $100,000 a year, so for them, DIY platforms and tools offer a cheaper way to invest.
- Investing online and access to easy to use digital tools has made investing simpler than ever. People can trade from from anywhere, and usually access market information very quickly. The Covid 19 pandemic boosted online self-directed investing and the number of DIY investment accounts growing from 6 million to 11 million between 2018 and 2022.
So Who Are the DIY Investors?
While anyone can be a DIY investor, the CBOB says the typical DIY investor in Canada tends to be male, younger and more tech-savvy. The data shows that the fastest demographic in the DIY investing space is between 18-24 years old. This segment is digitally native, and they are very comfortable with online platforms allowing them to explore all of their options (online of course ;).
Strategies and Tools for DIY Investors
- Low Cost Online Brokers – Platforms like Wealthsimple Trade and Questrade are popular because they offer low fees and offer a wide variety of investment options like stocks and ETFs. ETFs are hugely popular with ETF investments growing from $77 billion in 2014 to $382 billion by 2023.
- Robo-advisors like Wealthsimple are a mix of automation and some personal touch. They create and manage investment portfolios using algorithms, but still cater a bit to individual needs, which is a great solution for people who want some guidance but don’t want to pay the high fees with a full ‘human financial advisor’. Younger investors especially are flocking to these options.
See: AI’s Double-Edged Sword of Retail Investing
- Digital currencies and crypto like Bitcoin and Ethereum have caught the attention of many DIY investors looking for something different from the usual stock market. There are many Canadian crypto platforms like Wealthsimple Crypto or WonderFi. Many DIY investors choose crypto for the appeal of large returns that are independent of the banks. While crypto regulations in Canada have been progressing, they are still evolving and crypto markets are very volatile and risky.
- Online Research and Sharing on Social Media – websites like Morningstar and Yahoo Finance can provide DIY investors with a lot of information on what’s trending in the market and expert reviews, and even tools to help investors make better decisions without needing an advisor. According to the report, over half of Canadians now use social media to find investment advice which is significantly up from 35% just a few years ago. To put this into perspective, 82% of 18-24 year olds use platforms like Reddit and Twitter to discuss investment ideas, learn about market trends and even consider joining forces on certain investment strategies.
- Investment Crowdfunding platforms like FrontFundr and Equivesto let DIY investors put their money directly into private startups and small companies in exchange for equity participation (shares). It appeals to those who want to support innovation while enjoying the process of selecting their own private investments.
The Impact of DIY Investing on the Economy
- To compete with DIY investors, traditional financial advisors are offering services that blend digital tools with personal advice to stay competitive.
- The growth in digital DIY investing tools and services is a boost for fintech that has created jobs and encouraged innovation.
- There’s more people active in the stock market which can help liquidity (making it easier to buy/sell stocks), however social media influence can quickly impact stock prices causing volatility to watch out for (see meme stocks like gamestop as an example).
- Equity crowdfunding means more startup funding directly from regular investors. This helps small businesses find new sources of money and lets everyday people invest in innovative ideas in sectors they care about such as clean energy or a local business venture.
- DIY investing can impact government taxes since many smaller investors typically trade from within tax-friendly accounts, meaning taxes are delayed until retirement (RRSP) or considered tax free (TFSA).
See: A Look Inside 2024 DIY Investing Trends in Canada
- Smaller DIY or retail investors are more unpredictable since they often trade on trends which can cause stock prices to gyrate up or down quickly.
- DIY investing platforms have helped younger and lower income Canadians gain access to investment opportunities whether it be via ETFs or backing private companies directly. This democratization of access helps more people growth wealth which can lead to a more equitable distribution of investment wealth across different income levels.
- The growth in DIY investing has also ignited discussions around the increased need for better financial education and literacy. As more Canadians learn about the market they make better decisions which helps create a more stable investment environment.
- Some investing apps use features similar to video games like gaming notifications and ranking leaderboards to encourage more trading. These game like features can encourage risky behaviour and impulse trading which is not good for long term financial success.
The Future of DIY Investing in Canada
This DIY investing shift is expected to keep growing as artificial intelligence significantly ramps up the digital tools for investors making it easier and even better to use. Younger Canadians are likely to continue managing their own investments to grow wealth.
See: ESMA Releases Statement on AI in Retail Investment Services
Some many eventually seek assistance from traditional financial advisors but many will prefer more control, lower costs and the flexibility that comes with managing their own investments. There’s definitely a good opportunity for fintechs to help DIY investors reduce their risks!
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada’s Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org