This article reflects the opinions of its author and not necessarily those of ShareSoc.
A thematic summary of a recent event hosted by New Financial
Retail participation in equity markets
Investing in public equity markets can be a great way for individuals to improve their long-term financial security. It can also help to democratize wealth creation, connect issuers to their owners, and connect the financial services industry with the people it exists to serve.
However, retail engagement in equity markets and retail investment has fallen over the past few decades in the UK and in many other European countries. There are a number of reasons for this, including:
- A lack of understanding of how equity markets work
- A perception that investing is risky
- The high cost of investing
- The lack of a widespread equity culture
The role of technology
Technology can play a key role in widening retail participation in equity markets. By making it easier and cheaper for people to invest, technology can help to overcome some of the barriers that currently exist. For example, investment platforms and trading apps have made it much easier for people to start investing, and they have also helped to lower the cost of investing.
The future of retail participation
Despite the challenges, there are some signs that retail participation in equity markets is starting to turn a corner. The emergence of new technologies, such as artificial intelligence and blockchain, has the potential to make investing even more accessible and affordable for a wider range of people. Additionally, there is a growing awareness of the importance of investing for long-term financial security.
As a result, I believe that we are likely to see a continued increase in retail participation in equity markets in the years to come. This is good news for individuals, companies, and the economy as a whole.
And here are some ideas that might help make it happen:
- Nudge, nudge (1): introduce automated prompts that advise people with more than £10,000 in their bank accounts on how the value of their money is eroding and that they could invest the money instead.
- Nudge, nudge (2): as above, but instead of an automated prompt banks would go ahead and open stocks & shares ISAs for people at a certain threshold.
- Nudge, nudge (3): as above, but with personalised advice and guidance based on open finance principles.
- A single point of access: use open finance to give people access to a single dashboard where they can see all their assets (and liabilities) in one place: savings, investments, insurance, mortgage, and pensions…
- On the telly: find / create / promote a UK version of CNBC’s Jim Cramer.
- The Korean way: give people access to an ‘alter ego’ who is financially savvy and invests a small amount of money every month to show them what they might be missing out on.
- An early start (1): offer better financial education in schools (ShareSoc www.InvestingBasics.org can help with this) and give kids small amounts of real money to play with so that they can implement what they learn.
- An early start (2): assign a random selection of free shares to children (or their parents) at birth and require them to hold these over a certain amount of time to introduce them to the world of investing.
- Shop windows for stock exchanges: launch a series of regional ‘shop windows’ for the stock market across the country like Nasdaq’s base in Times Square in New York to raise the profile of local listed companies and drive more engagement with equity markets.
This is a short thematic summary of a recent event New Financial hosted on widening retail participation in European equity markets. The discussion will inform a New Financial research report on the value of retail participation and how the industry and government can leverage different aspects of technology to increase it – see initial findings here. Euroclear and PrimaryBid supported New Financial in this work.
Cliff Weight, Member of ShareSoc.
The korean way seems smart and personal.
Some of the other nudges need some what of the cash was for a reason how to cash out exit.
Some of the reasons with the whys would be good as people are more agreeable when goven the why explanation
Whilst I applaud the general principles espoused in this article, I am rather wary of some of the suggestions here. Personally, I wouldn’t use a service such as “Open finance” – it’s a dream for marketeers and the unscrupulous, who might be able to access an individual’s complete financial profile. It’s the sort of data that I regard as highly sensitive and would want to keep a tight lock on.
I’m also horrified about the idea of a “UK version of CNBC’s Jim Cramer”. Cramer’s hyperbole and pumping of favoured stocks is the antithesis of how sensible investors should operate – there is even a “short Cramer” ETF (SJIM)! We do have some good and telegenic commentators in the UK, such as Justin Urquhart Stewart. It would be good to see more of such people on the TV and more programmes about investing in general.
I also don’t think it’s a sensible or practical proposition to automatically open stocks & shares ISAs for people, for a variety of reasons.