The line between investing and trading certainly blurred this year. As the long-term rise of the retail investor converged with commission-free trading, both Fidelity and Charles Schwab I enjoyed a stellar year. But no one stood out like Robinhood. With a friendly app and zero trading fees for stocks, options, and cryptocurrencies, the company insists its goal is to “democratize investing.” Investing shouldn’t be just easy or cheap, they say; the time has come for it to be fun.
Judging from the frantic retail business activity on the platform during the crash, including GameStop
Not quite. The new evidence suggests that wealth managers who preach patience shouldn’t worry about their target audience switching to Robinhood anytime soon. However, I’m also here to tell you: don’t be too complacent. For money managers, the business boom of 2021 reveals three crucial lessons.
Why Robinhood is not the future of wealth management
Trading has been a recreational activity long before Robinhood burst onto the scene. But in 2021, between the lockdown and social distancing, trading for fun definitely became an easier sale. With the closed closings coming to an end, the evidence shows that the intraday trading bonanza is cool down quickly. Those who combined gambling with investing are moving toward other interests.
But these were never true prospects for wealth managers. What about the enthusiastic investor who truly believes that frequent trading offers long-term financial returns?
For this customer segment, Robinhood will struggle to deliver on its promise. Decades of research repeatedly claim the same result: frequent trading leaves investors poorer. In Robinhood, commercial activity is already much higher compared to other platforms. During the first quarter of 2020, its users traded nine times more shares than E-Trade clients and 40 times more shares than Schwab clients.
And now, new research shows that’s only half the problem. The Robinhood app shows far fewer stock tickers compared to other brokerage platforms. Instead, the app highlights lists of stocks, such as “Top Movers,” which present stocks with the largest daily price movements.
Mixing simplified information with user inexperience is a dangerous cocktail, the study showed. It leads to attention-driven buying and buying-side grazing events, usually followed by negative returns.
When it comes to real money, young investors like it boring
Trading is not like investing, but do retail investors know? According to Vanguard, the answer is a resounding Yes. The asset management giant tracked more than five million of its retail home customers, from 2015 to the first quarter of 2020. How the United States Invests The report reveals that, among customers who trade, only a third characterize themselves as “frequent traders.”
His trading enthusiasts are not young people either. The typical “individual security enthusiast” is in their 50s, almost 20 years older than the typical “ETF enthusiast.”
Not only are young investors more likely to invest in ETFs, they also tend to be more bearish on average (compared to their older peers) and hold much of their capital in money funds. It is mostly the advised young cohorts that are allocating more of their holdings to high-yielding assets.
Wealth managers: don’t let a good crisis go to waste
That the DNA of the advisors is the polar opposite of Robinhood’s values is not a problem, it is a business advantage. The 2021 intraday trading fever may have eased, but the real lesson is how well emotional messaging works. Here are three ways wealth managers can be smart about their marketing by showing how much they are doing. Unlike Robin Hood:
1. Make it about someone.
Robinhood tells clients that he is opening up the sacred financial corridors, once reserved for the greats, and letting everyone in. For wealth managers, the opposite of being for everyone is for someone. For years I’ve been saying: pay attention to Millennials, they are an important segment. Now, as the cohort digs deeper into investing, becoming relevant to a particular niche is just as important.
As I said in my previous Forbes column, it may not be about age at all. Instead, focus on behavior and life stage events. Some Millennials don’t want to rely on technology when they receive updates on their investments and prefer to hear directly from you. Similarly, you may have Baby Boomer customers who don’t want a call or email unless it’s an urgent situation and prefer to access a website or app for routine news and account updates.
2. Make it about emotion.
Last year, just as the pandemic was unraveling, I wrote for the FT:
“Asset managers must not forget that emotional appeal is vital to effective marketing, especially when the products and services themselves are quite similar.”
In a year of loss, stress, anxiety, this has only become more true: the emotional opposite of gambling is safety. Financial decisions are inevitably risky; But, while trading will offer excitement and excitement, for important financial decisions, clients want the exact opposite emotional. Clients want to be sure that they can achieve their financial goals without having their lives at the mercy of Elon Musk’s tweets. Marketers must seize the opportunity and appeal to the emotions of comfort, security, and tranquility.
3. Seize the goal.
When I recently moderated the Nucoro webinar, The rise of the digital retail investor, panelists commented on how savers, investors, and traders are different types of customers. But we agree that all money management eventually comes down to securing the client’s financial future.
Robinhood chooses to focus users’ attention on risky products and the very short-term future. But its emotional trigger is telling clients that they can access privileges previously reserved for a select few.
For wealth managers, that’s what it takes. Make your marketing tap into the same powerful emotional desire, but in the long run. It could be having a wonderful vacation in the year or a beautiful property in five. Beyond the pandemic, beyond the lockdowns, customers in 2021 want to hear – it’s within their grasp.