Financial and Monetary Systems

Retail investors are here to stay - here’s what capital markets players should do

Image: Yiorgos Ntrahas/Unsplash

Akash Shah
Chief Growth Officer, BNY Mellon
Laura Astorino
Managing Director, Capital Markets, Accenture
Matthew Blake
Head of Centre for Financial and Monetary Systems; Executive Committee Member, World Economic Forum
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Financial and Monetary Systems

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  • Retail investors need a responsible capital markets ecosystem, and the industry has an opportunity to address this need right now.
  • Three-quarters of retail investors would invest more if they had better opportunities to learn about investing.
  • A new report by the World Economic Forum, Accenture and BNY Mellon looks at how capital markets should interact responsibly with retail investors.
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Investing in capital markets could help individuals grow their wealth over the long term - typically more than savings alone can do. And consequently, many individuals are doing just that. This class of individual or retail investors is taking control of their financial destiny, whether by choice or necessity.

Amidst the current market volatility, and despite stock market sell-offs, soaring inflation and recession fears, retail investors have remained resilient. In fact, a July 2022 survey by eToro showed that two-thirds of US investors held their investments steady during the turbulent stock market sell-off. It seems this cohort of investors is here to stay, and they have their eye on long-term financial planning.

Over the past six months, the World Economic Forum has been taking stock of this trend and delved into the tailwinds driving global retail investor growth in The Future of Capital Markets initiative.

Here we highlight some of our research where we argue for changes that would better serve retail investors and the broader industry.

Room for improvement

Despite recent growth in retail investing, a significant part of the global population still does not invest in capital markets. Our research found that many individuals chose not to participate for fear of losing money and because of a keen awareness of the knowledge gap (i.e., no opportunities to learn about investing).

Even existing retail investors share that a lack of opportunity to learn is holding them back. According to a BNY Mellon and World Economic Forum Global Retail Investing survey, launched as part of the Future of Capital Markets initiative, three-quarters of current retail investors would invest more if they had more opportunities to learn about investing. For those not currently investing, 70% said investing in education would make them more likely to do so.

Image: World Economic Forum

We also found that there are major gaps in product awareness and personalized advice for all retail investors, particularly those on the lower end of the wealth spectrum.

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How is the World Economic Forum ensuring sustainable global markets?

Access, education, and trust

Our research also shows that access, education, and trust are central to enabling the different players in the capital markets ecosystem to work together to help responsibly grow wealth. These three levers are interrelated, and the dynamism between them plays out in unique ways across geographies.

By addressing these three areas, we could empower investors to access, learn about and trust financial services. A collaborative focus on enabling the empowered investor will help spur a responsible investing ecosystem.

How can the capital markets industry help?

In leading the Future of Capital Markets initiative, we convened over 35 organizations operating across the capital markets ecosystem. We explored these trends and challenges and discussed possible solutions. In our whitepaper, we lay out specific calls to action for different stakeholders. They centre around three key themes:

1) Financial literacy and investor education

Personal finance education – from setting a budget to learning how to secure one's retirement – is integral to building wealth responsibly. Collective efforts among industry players should focus on increasing widespread basic financial literacy, promoting responsible investing strategies and improving proactive retirement planning (in non-pension markets). However, providing the information is not enough – content must be fit for purpose with efforts to make it as understandable and usable as possible.

While the public sector has an important role to play here, private sector actors could also improve their tactics to meet the needs of today's investors. Both short- and long-term steps are needed to achieve this vision.

2) Personalized, outcome-oriented advice for the masses

All investors, regardless of wealth tier, should have access to the tools and guidance they need to be successful participants in the capital markets. The BNY Mellon and World Economic Forum survey found that 80% of current investors state that being able to speak with an advisor is necessary for making an investment decision, but only 48% can turn to a financial advisor or wealth manager for advice.

The industry should democratize personalized advice and scale services to meet increasing retail investor demand. Though this is a huge undertaking and will require significant investment, firms must begin the journey now.

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    3) Collaboration and public-private partnership

    The change will require collaboration. Parties such as brokerages, wealth managers and exchanges will be vital parts of this effort due to their proximity to retail investors and the speed at which they can enact change. However, they can't solve this alone - public-private partnerships will also be essential. Solutions like education efforts and initiatives to lower the barriers to entry for retail investors would require collaboration with the public sector.

    Our research has shown that, overall, market democratization is a positive phenomenon. If the capital markets industry can secure proper infrastructure and protections, it will empower individuals to optimize their financial decisions and investments that build lasting wealth.

    Global capital markets are at an inflection point. More than ever, retail investors need a responsible capital markets ecosystem. The industry has an opportunity to address this need, and the time to begin is now.

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