At the 2016 Chicago Online Broker Summit, we began the panel discussions with the return of a crowd favourite; Market Trends. The panel explored the retail investor landscape and what opportunities exist for firms to deepen their client experience. What are the key trends in North America? How can online brokers remove friction for investors and provide a smooth user experience?
Jamie McClelland, a former board member at Recognia moderated the star studded panel which featured columnists Rob Carrick from Globe and Mail and Theresa Carey from Barron's, as well as industry expert Ryan Szakacs of BlackRock. Their combined insight on current market trends and investor needs, provided an actionable analysis which online broker guests found to be directly relevant to their business.
Worry and the generational divide
Investors are thinking conservatively. They’re worried about interest rates and risk, but still want decent returns. This is leading them into dividend funds and low-volatility products.
There are two primary cohorts affecting investor trends right now; Millennials and Baby Boomers– each with drastically different wants and needs.
- Millennials (born 1980-1996): High levels of student debt and low financial sophistication create a barrier to entry. Many are unaware of most of the options available to them. To attract millennials, online broker’s should offer simple and quick, mobile-based solutions.
- Baby Boomers (born 1946-1964): These investors are keenly interested in retirement and are looking for information on how to protect what they have. This provides an opportunity for brokers to get this information into their boomer clients’ hands.
The concerns of today’s digital investor
Despite its’ recent growth in popularity, many investors are still hesitant about online investing. According to a reader survey Carey conducted, the largest concern remains with security. “They were sure somebody was going to jump in and steal their portfolio out from under them,” she said. “And given recent data breaches at major credit card companies, I can understand their anxiety.”
Online brokers need to combat this misinformation. Many Canadian brokers have security guarantees, added Carrick, and investor assets are often held at third parties covered by the Canadian Investor Protection Fund. Brokers should emphasize these points to help their clients feel more secure about investing online.
The key to success
After 15 years of studying the market, Carey believes the brokers who outperform are the ones offering the most customization. For example, successful websites are often tailored to respond to each client using them, making things more accessible. “Figure out which tools I’m using and keep them available, so I don’t have to dig and find them again.”
Simplicity is also important to today’s investors. “I’m tired of the jargon,” Carrick expressed. “Look at the way robo-advisors are tracking this. When you want to find out what the fees are, they use the word pricing. Not fees. Pricing. Because people simply want to know the price.”
ETFs and liquidity
Szakacs noted that investors have voiced concern with the lack of liquidity in certain ETFs. “Never be afraid of liquidity,” he explained. “Every ETF has it, even municipal bond ETFs. For the notional amount that you’re generally going to be putting into any of these ETFs, there shouldn’t be an issue.”
He also noted that many improvements have been made to the ETF market since the mini-flash crash of August 2015. Stock exchanges, issuers and market makers have implemented solutions to make sure the market structure doesn’t break down the way that it did last August. Auction collars have been expanded, imbalances have been pushed out further and stop orders have been eliminated from the New York Stock Exchange.
To Jargon or Not to Jargon - A View from Recognia
Online broker platforms are filled with research and education that uses investing jargon, and the critics say it's time to simplify like the robo-advisors are doing. The debate is on: to jargon, or not to jargon, as we compete to help consumers at large manage their own investments.
Online trading platforms shot up out of the 90's as more brokers took advantage of the rise of the PC and internet to develop software that connects the public directly to the markets. Initially, content and tools were crafted by industry experts to serve the niche of traders who enjoyed the intellectual challenge of digging into the textbooks and learning the craft. With self-directed investing expanding faster than non self-directed investing, the demographics are expanding as well. Should online brokers follow the path of robo-advisors by reducing their use of industry jargon? Perhaps the best answer is: "sometimes".
Online brokers have a mission to empower people to take direct control of their financial futures. Certainly, if we are to invite people in and get them involved, we will get further with simple clear language that drops the jargon and uses colorful stories to illustrate the possibilities and to show we care. But along with this comes the duty to invite people into a long-established body of knowledge from which other market participants already benefit. We have a responsibility to introduce consumers to the relevant investing terms so they can participate to the extent that they desire.
Here at Recognia, we're focused on building products that provide computational assistance to people as they perform their own investing research. We reach into the bodies of knowledge around "technical" and "fundamental" analysis (there's the jargon!) to do the heavy lifting for retail investors. Meanwhile we explore ways to educate about analysis while striking a balance with simpler explanations and stories and UX design practices that allow more and more people to wade in... to the depth that suits them.
There's no black-and-white answer to jargon or not to jargon. The winners will make the right choice in the right moments for the investors they serve.