Don’t diminish the importance of retail investors. No, they’re not perfect. Far from it. They don’t have Bloomberg terminals and the other fancy accoutrements possessed by the professionals, but there’s much more to the story.
A new State Street Investment Management survey contains this interesting nugget: 20.5% of equity trades in the U.S. are completed by retail market participants, exceeding the 15% driven by hedge funds and long-only institutional investors.
Alright, so that factoid probably isn’t enough to move the needle for advisors, but there are multiple other areas of interest for wealth managers as it relates to retail investors. For starters, many aren’t as adventurous or frivolous as they’re portrayed. Second, according to State Street, nearly 60% of these investors currently don’t work with advisors, implying there’s substantial opportunity with this cohort.
Upon closer examination, it’s clear that many retail investors should be working with advisors and that the latter can add substantial long-term value for the former.
Retail Investors Are Surprisingly Cautious
All the chatter about retail investors’ flair for risk belies the point that, in aggregate, these market participants are cautious. Perhaps overly so.
“Almost 90% of investors have a savings account, and 75% use a tax-advantaged account like a 401(k) or IRA,” according to State Street. “But fewer than half (48%) have a personal brokerage account, suggesting many may be delaying taxable investing, possibly due to income constraints, risk aversion, or uncertainty about where to begin.”
That’s a stunningly small percentage of retail investors with taxable brokerage accounts and it underscores the point that many are intimidated by investing or don’t believe they have the time or capital needed to get going in adequate fashion. Obviously, advisors can ease those burdens. It’s a good thing, too, because many retail investors acknowledge they should be investing more.
“One-third most strongly agree that investing helps them achieve long-term goals—yet only 10% most strongly agree that gains from investing outweigh the risks,” adds State Street. “Translation: investors recognize the purpose of investing, but not necessarily the payoff. Even when investors have money left over each month, they’re more likely to tuck it into savings (56%) than put it into the market (44%).”
Retail’s Focused on Retirement
Perhaps it’s indicated by the aforementioned prudence and lack of exposure to taxable accounts, but many retail investors are prioritizing retirement. That’s a positive for advisors because retirement-focused clients are not only likely to be open to advice and education, but they’re also likely to be long-term clients.
In general, better retirement planning confirms more investors should work with advisors. So does expected retirement age. Many of today’s, try more than eight in 10, envision working past the age of 60, according to State Street. Indeed, retirement is fertile territory for better connecting with today’s self-directed retail investors because they have a lot of related questions.
“Retirement planning is top of mind for most retail investors. Two-thirds of investors (67%) say one of their top five financial goals is having enough money to last through retirement,” notes the asset manager. “And nearly half of investors want to maintain their lifestyle in retirement (48%) and be prepared for healthcare costs (46%)—all signs that long-term security is paramount.”