How can the industry engage with retail investor craze?

As the lockdown-induced spike in retail investing is causing market craziness globally, what can advisers and fund managers do to bring retail investors back to the side of the sane?

Wednesday, March 3rd 2021, 6:45AM

by Daniel Smith

George Carter

At this point everyone has heard of GameStop. The investing craze that started in the backwaters of internet forums has become a by-word for a new breed of investors.

They are largely young, unadvised, inexperienced and many are encountering the turbulence of the market for the first time through investments in highly-fluctuating companies like GameStop.

But this is also a moment of massive engagement in financial systems. Retail investors are discovering for the first time the reality behind concepts such as investment, market fluctuation and returns.

It is a moment that some think could be utilised by the financial advice industry to bring previously unengaged demographics on board.

George Carter, managing director of Nikko AM feels that this moment is exposing a dichotomy between the financial industry and retail investors.

“Speaking from a Nikko perspective, we think about the world from an institutional perspective. We are used to sitting in boardrooms with institutional investors and discussing long-term strategy, risk appetite and portfolio construction.

“For many people that is just boring. It is way more exciting going onto a Sharesies or Robinhood platform and seeing stocks go up and down. It just feels like you are [at] the coal face of the action.

“I believe that a lot of these people are just punting stocks. If you are doing it with a few spare dollars that is fine. If you are doing it with your life savings that is very risky behaviour.”

But Carter also believes that this moment of high investment engagement is an opportunity for the financial services community to engage with people they may not have encountered before.

However the moment will not last – if there is a market correction, “people will lose money unnecessarily. But the longer-term damage is that people will walk away thinking that the stock market is just gambling. And that is a shame because we want to see a rich, vibrant marketplace of investors.”

To avoid losing these investors while they are interested, Carter says they need to be engaged through better stories about what fund managers, and advisers actually do.

“Our industry is built on trust. People are giving us their hard earned money to manage and hold.

“Why would you do that unless you trusted the people [involved]. We talk about financial literacy and education and those are important, but I think that a lot of it comes down to trust.

“I think we need to do a better job of telling people our stories, of explaining who we are as people and what kinds of philosophies we put into managing money.”

David Boyle, head of sales and marketing at Mint AM also believes that this is a moment for the industry to come together and engage with a previously unadvised section of the population.

“One of the things that we could think about as an industry, as fund managers, providers and advisers, is to have some common themes so that when people are talking about this, everyone is saying the same thing in the same way.

“We need continuity [in our message] around investing, around risk and especially around the pitfalls of following those who have no knowledge other than that which serves their own purposes.”

Getting the industry in agreement in key areas around investment advice is Boyle’s first step to getting these young investors on side. Second is to “align that with the regulator and the education they provide, with the FSC and the likes of CFFC as well.

“All of these players should focus on this as an area of concern, if it becomes more systemic which I think it will.

“Education or awareness is one thing, but the best or worst moments that come to pass is when people see the impact on their own pocket.”

Boyle believes that the demographic of investors who are engaging in this area are being missed by many advisers.

“I think the traditional financial advisers are probably not in that network of the millennials and the zoomers.

“But those that are coming into the industry under the new legislation, the mortgage brokers and KiwiSaver [advisers] are dealing with a demographic that is more similar to those that are following this stuff. I think they could be a good starting point.”

Tags: David Boyle George Carter investment advice retail investment young investors