Gamestop Stock – Weekend Essay: How to make financial advice more attractive to younger investors
The first time I heard the word “Bitcoin” was in 2016, after I asked a classmate from my Chinese course the slightly intrusive question “What do you do for a living?”.
He replied he was buying and selling “Bitcoins”, an answer I found puzzling, as I had absolutely no idea about cryptocurrencies. After further explanation, I understood it was a digital currency, the value of which is constantly fluctuating, but you cannot use it to purchase goods or services.
I have always been a sceptical person, and so quite naturally deemed Bitcoin as highly suspicious. It really sounded like a scam to me; it could not be that easy to earn money.
Three years passed and I hadn’t heard of Bitcoin again, until a childhood friend at a high school reunion said he had been investing in Bitcoin, forecasting its value would skyrocket in the coming years.
He quickly became the laughing stock of the evening, but no one knew we were just a few months before the outbreak of Covid-19 and the ensuing economic crisis.
Ironically, many of those who mocked him in the spring of 2019, were purchasing Bitcoins and other cryptocurrencies in the autumn of 2020, scared by the prophecies of doom. Some of them would also board the GameStop train a few months later.
My empirical observations corroborate with recent research from Charles Schwab UK, revealing that Millennials and Zoomers are much more likely to funnel their money in high-risk assets such as cryptocurrencies and hot stocks. To be more specific, 51% of younger investors hold cryptocurrencies, whereas only 25% of them said they hold equities.
The fear of missing out (FOMO) plays a great deal in this phenomenon and is particularly fuelled by influencers.
I don’t know to which extent Elon Musk would qualify as an influencer, but he certainly has the capacity of setting trends.
Interestingly, some of my acquaintances started purchasing Dogecoins, after Tesla’s boss tweeted he had bought some himself.
I have since then become the “odd man out” because of my lack of enthusiasm for cryptocurrencies. Until recently, I was receiving the exact same messages every morning, asking me when I would finally “buy some cryptos”. You may call it peer pressure.
That being said, my mobile has become a little bit more quiet since Bitcoin dropped 10%, after a simple tweet from Elon Musk.
Weekend Essay: How influencers became financial advisers
Since the start of the pandemic, we have been trapped at home with more time on our hands to browse the different social media platforms where influencers operate, as financial planner Martin Bamford remarked.
Everything will be fine
But is it necessarily bad news that younger investors are opting for high-risk assets? Hargreaves Lansdown head of external relations Danny Cox thinks there are some positive aspects in this trend.
“The positive side of the recent social media fuelled growth in risky investing is that it is attracting new and younger people to investing and hopefully to more stable and safer financial products,” analysed Cox.
Indeed, cryptocurrencies and GameStop’s stocks may have been the entrance gate to investing for a whole generation without us realising it.
It is not unlikely at all that Millennials and Generation Z will switch to more stable assets and look for financial advice once their financial problems become more complex with mortgages, pension savings, children, etc…
“You do look at life in a different way as you progress through generational shifts,” said Charles Schwab UK managing director Richard Flynn.
There is also a chance that younger people will shy away from online influencers if their investment strategies don’t prove successful in the future.
“All investors and savers build up their experience as they go, and ultimately, if they see value in financial advice, I don’t see that some dabbling in speculative investments in their younger years will prove any impediment,” said AJ Bell financial analyst Laith Khalaf.
Or maybe not
This is the optimistic scenario that we will hopefully see in the coming years. However, I think we should also consider a pessimistic scenario in which everything does not pan out as expected.
Danny Cox from Hargreaves Lansdown doesn’t exclude the possibility that the industry could miss a generation, if (or once) those who have invested in cryptocurrencies and hot stocks suffer financial losses.
How will they react if their first investment experiments are tainted with substantial financial losses?
The Occupy Wall Street Movement 10 years ago should remind us that the financial world is not particularly popular. We should also bear in mind that some of those who bought GameStop’s stocks did so solely to wage war against finance.
A 28-year-old software engineer from Leeds told The Guardian back in January: “When they make the film about this in years to come, I’ll know I was there at the frontline with a bunch of idiots on the internet, trying to bring down Wall Street.”
Will those potentially upcoming financial losses be the straw that will break the camel’s back?
Another question that should be asked is whether younger investors can tell online influencers and certified financial planners apart?
A pedagogic role
This is why I believe the industry has to step up to the plate and engage with younger generations where they are.
Firms could take on a pedagogic role by providing educational content on social media platforms. This is especially true of platforms appealing to a younger audience such as TikTok, Instagram and YouTube.
By doing so, firms would also draw a clear line between themselves and online tipsters.
Martin Bamford suggests that the FCA has a role to play in that regard as well. Certainly, as the industry regulator, it should be at the forefront in the battle to protect both future customers from misleading tips and firms from an undeserved reputation.
If there is something I have noticed in my personal sphere, it is that many cannot tell the difference between long-term investment and speculation. They are stacking Bitcoins, Dogecoins, Ethereum, you name it, thinking the value of their investments will grow exponentially in the coming months.
In other words, they see a speculative asset as a long-term investment. Do they take into account that the bubble could burst tomorrow? I don’t know.
I don’t think there is anything wrong with investing in cryptocurrencies nor with speculating, as long as you know what you are doing.
It all takes us back to the discussion around the lack of financial education. In fact, Charles Schwab UK’s research also shows that 70% of younger investors are unsure about how to adapt their strategies to protect against losses in the current financial climate.
I think financial firms could bridge this gap in financial education while clearing their name from potential misunderstanding.
By teaching younger investors how to protect themselves from ill-advice and scams and giving them a basic knowledge of sound financial investing, firms will build trust with future customers.
This process will also be essential for firms to reclaim for themselves Millennials and Generation Z, who are for now the captive clientele of online influencers.
Embracing younger investors
Many firms, advisers and observers alike agree that the industry does not interact enough with younger generations.
With the shortage of financial advisers in the UK, younger investors are not a priority. Their financial problems are not very complex, and they also have less money to invest.
Older generations are understandably the most judicious market. They have a larger budget and a need for more in-depth advice.
There are however potential risks further down the line if the industry neglects Millenials and Generation Z.
“Any business, regardless of the industry, which is not constantly bringing in new younger customers, is slowly dying,” warns Financial Technology Research Centre director Ian McKenna.
McKenna observes that consolidators are increasingly asking firms the following questions: What is the average age of the client base? How many more years are left in the current clients? How will their assets decline?
It does not mean that the industry has to throw its current customers overboard, but it should make sure that there will still be passengers to take on a financial journey tomorrow.
Building brand awareness is certainly the first step, and again social media platforms are the best place to do so.
It is probably true that financial advising do not lend itself particularly well to social media. Firms tends to rely on word of mouth to attract new customers, but this is precisely why they can’t write-off social media platforms, as they have to be where the discussions take place. Just think about the talks something as simple as a witty post or answer on Twitter can trigger.
Millennials and Generation Z have their own consumption habits that are probably here to stay. Any industry willing to conquer this segment of the market will have to approach them wherever they are.
Younger planners have a key-role to play
Social media is an area where younger planners can make a difference, according to NextGen Planners director and head of content Adam Owen.
“There is a real potential for younger financial planners to utilise the tools that are available on social media to reach out to younger investors in a different way and to innovate in that space. They are natives of social media and social media provides the tools of life to them. It’s an awful lot easier for them to utilise those tools to build connections with people. And if you build really great connections with people, then there’s a much stronger chance to build trust. And if you build trust, then there’s a real opportunity of that person becoming a client,” he said.
Weekend Essay: Doing our bit to build trust
Age should not matter when you are looking for financial advice, but Owen noticed that there is de facto an intergenerational divide when it comes to people feeling comfortable when seeking financial advice.
Owen adds that younger investors do not necessarily want to be advised by the same person who advises their parents. Younger planners can also communicate in a way that align with their values.
What can platforms learn from Big Tech?
As the first generations “native” to digital tools, Millennials and Generation Z are particularly attracted to platforms, especially those available on mobile phones. The firms I have exchanged with all agree that mobile is the way forward.
“Millennials aren’t likely to ditch their iPhones just because they turn 40, so advice firms do need to think about how to harness the power of mobile technology to reach new audiences,” said Laith Khalaf.
Martin Bamford considers there is certainly a thing or two the financial advice industry could learn from big tech companies.
Of course, selling a smartphone or streaming services differ greatly from selling financial advices, but there are areas, where big tech’s methods could be applied.
For example, the gamification experience with different unlockable achievements rewarded with badges.
This approach is not an invention of big tech, but rather an importation from the video game industry. It means that big tech has been able to successfully appropriate itself a tool from a different universe. As digital tools, I don’t see any reason why platforms could not do the same.
A tailored approach
For Millennials and Generation Z, a tailored approach with products suitable for their needs is often the way to go.
It is true that younger investors do not have very complex financial needs. But it does not mean either that financial advice firms have nothing to offer them. For example, Dynamic Planner created a financial plan specially designed for Generation Z. It maps out the ideal amount of saving through the different life stages from the age of 20 up to the late 90s.
While younger investors might not be thinking of their pension for now, older Millennials are reaching an age where they might be interested in advices for mortgages and protections.
This is where advisers can start building the relationship with them, by offering advices for that type of financial products. If these experiences are positive, they will eventually lead to more in-depth financial planning in time.
There are reasonable expectations that Millennials and Zoomers will not differ from previous generations and eventually adopt more sensible consumption and investment habits as they age. It would lead them naturally to seek the services of the financial advice industry.
However, I believe that an ounce of prevention is better than a pound of cure. The industry should not take Millennials and Zoomers for granted. This is why, I think it should try to make itself more appealing to them, may it be by taking on a pedagogic role or offering financial products tailored for their needs.