By Michael Sprachman, Director of Exchange Traded Solutions, Devexperts
Despite the current volatility and U.S. economic outlook, there is an increasing number of participants in capital markets – and this is occurring across different generations – shifting the landscape of the investment marketplace.
The percentage of adults over 18 that now have taxable investment accounts – non-retirement accounts – in stocks, bonds, mutual funds or other securities is up to 35%, according to this year’s FINRA Industry Snapshot report, continuing the upward trend which began in 2015.
It’s true that the number of brokerage firms that FINRA oversees fell for the fourth-straight year in 2022 to a total of 3,378, according to the report. However, the number of registered representatives increased to 620,882 in 2022, up from 612,435 in 2021 – pointing towards an encouraging trend: More people need help managing their money.
Typically, an individual will get an investment advisor to help manage their portfolio when they retire. However, life expectancy is increasing and the pandemic led to a big wave of retirements, which meant a flood of 401ks required more proactive management over the past couple of years.
Although Millennials may not be at retirement age quite yet, that generation, which entered the market by opening their own brokerage accounts, can see mid-life on the horizon. Against the backdrop of market volatility, high inflation, and a banking crisis, even Gen-Z and younger generations are taking their longer-term savings goals much more seriously.
Perhaps an even more interesting trend that hints at a shift away from traditional markets is the number of transactions that closed outside of normal trading hours. By yearend 2022, nearly 3% of all trades occurred either at closing or during non-exchange hours, according to the FINRA report. And while this number might not sound significant, that’s 3% of the 2.98 trillion shares traded in the previous year.
This could be caused by a number of factors. First, there has been an increase in the number of U.S. market participants by foreign domicile entities and individuals that are likely not on the same market hours, depending upon the type of access that’s provided.
Second, technology and platforms like Robinhood have also enabled a younger generation of investors to enter the market – and that generation is proving they do not want to be boxed in to trading during the traditional 9:30-to-4 cycle.
In fact, according to the report, Gen Z and Millennials have now surpassed the Gen X generation, as a percentage of adults with accounts. Specifically, individuals 26 years and younger, as a percentage, now have more trading accounts than those age 45 to 60 years.
And although not included in the report, the younger generation more readily accepted crypto as an investment asset. As crypto continues to crater, this could mean that those investors will pivot to other asset classes, which will lead to further growth in listed products.
As these trends continue to evolve and impact the market, brokers will have to adapt to their changing user base, particularly smaller brokers. Mobile trading technology will continue to be the forefront of this evolution as systems will need to be built or updated to support multiple asset classes within the same platform.
Providing access to other market centers globally and supporting a 24-hour market cycle are other areas brokers can look to specialize to support younger demographics. Investor interest in these two domains will continue to grow as technology makes each more accessible.
Finally, AI in trading is another frontier that is beginning to pick up steam. We’ve already seen investment in AI based investment advisors, stock ratings and reports, and market intelligence. Providing new AI based tools to users will allow brokers to differentiate themselves in a crowded marketplace.
Given the shift in demographics, brokers will have to either specialize or prepare to go out of business to support the next generation investor.
