The traditional brokerage industry is going to change with retail investors looking at more unbundled financial services, where they can pick their own tools and platforms, Dan Raju, CEO of Tradier, said.
“I expect a lot more retail products to be created. I expect aggregate commissions to basically be zero, but I do expect ‘freemium’ products paid based on value to be created,” Raju told Traders Magazine. “I also expect the actual retail consumer base to continue to grow.”
Raju added that he expects broker-dealers and platform providers to offer more value-added services.
“I expect much of that to basically go into the subscription-based model. But so you have almost a freemium kind of model in the industry, when you get engaged with a lot less friction when you buy into where your value gets created,” he commented.
The 2021/22 migration is more traditional retail investors have come into the market from 2016 to 2020, Raju said, adding that he sees a larger chunk of them “graduating to doing more active trading”.
“And I see this influx of new customers coming into the broker space kind of slowing down a little bit,” he noted.
If you look on the macro level of almost 16 months, retail volumes have grown, but if you start tracking the post pandemic time, or the last three to four months, equity share volumes on the retail side have kind of tapered off,” he added.
According to Raju, retail has become very predominant.
“Looking at last month, there were days when 30-35% of the total options volume was actually retail. If you think about it, 30 to 35% becomes a single block influential force,” he said.
Raju said that the industry as a whole is dealing with a “different kind of retail investor, and also a differently empowered retail investor”.
When commenting on what is driving the growth in retail, Raju said it is because of “active investors”, who have “basically got graduated sophisticated, and got institutional grade tools in front of them”.
He said the Covid pandemic added another 12 million new investors to the market: “Then you have another what we call as a hypersensitive investor who’s got trained on high volatile markets.”
Raju said that regulation is always a good thing, adding: “I expect the regulation to evolve and change and keep on top of that.”
Raju thinks, however, that much of this regulation is not going to be focused on the back office, but rather on how communication is being done.
“I think the customer side of the regulation is bound to have a lot more an influx of new structures, new regulations, new mitigating controls, and and I think it will force broker-dealers to support those initiatives,” he said.
