Online investors need education and advisers can help

Financial services industry research firm Investment Trends has released its 29th semi-annual edition of the 2023 2H Australian Online Investing Report, which analyses the Australian online investing market.

Among the 1.22 million active online investors in Australia during the period, which represents a drop of 5 per cent over the previous six months, a large proportion of these are inexperienced investors.

Specifically, one in two online investors perceive their experience as either novice or advanced beginner.

Among this cohort, three in 10 say they most recently invested in small-cap stock – where the main trigger is “reaching a savings goal” (29 per cent). Investment Trends added that, on a median basis, online investors take one week to decide on an investment, irrespective of self-assessed proficiency level.

“This insight underscores the pivotal role of education in fostering online investing participation. As to how brokers can best support their clients, personalised content (44 per cent), in-depth research on individual companies (43 per cent), and analysis of small and mid-cap companies (38 per cent) emerged as standout priorities,” said Dr Irene Guiamatsia, head of research at Investment Trends.

With such a large base of online investors identifying as novices or advanced beginners, Investment Trends said that education plays a critical role in supporting participation.

“Financial advisers can play an important role in delivering this education, particularly those who acknowledge they have a beginner level knowledge about online investing,” Investment Trends said.

“While this report does not go into the detail of how these retail online investors can be encouraged to work with financial advisers, we can see that financial advisers top the list of trusted sources of education among novice/advanced beginner investors.”

According to the study, 31 per cent cited professional financial advisers as the best source of investment-related information, tied for the top spot with online brokers and above investment newsletters/media, financial media, trading websites, and stock exchanges.

This preference for professional financial advisers as sources of information was marginally higher for the novice and advanced beginner portion of online investors.

Looking at the broader findings of the research, Investment Trends found that there is evidence that access to international equities has helped strengthen dormant client reactivation (registering an increase from 6 per cent to 8 per cent in the past year) – slowing the decline in investor numbers during the reporting period.

It found that 29 per cent of reactivated online investors hold international shares in their portfolio, up from 25 per cent in May 2023 and 23 per cent in November 2022.

“Dormancy has significantly eased compared to six months ago yet remains high. Inflows of new-to-market online investors continue to dwindle while client reactivation is strong and consistent with levels registered since May 2021,” said Dr Guiamatsia.