Creating a More Diverse Investor Pool
How traditional brokerages should adapt to the internet age with specific adjustments to their marketing strategies and user experiences
Wall street whales have been historically old and whitewashed. Many of the top brokerage firms C-level executives are older and typically white, and their services target the same demographic. In a country where this majority is on the decline, industry leaders must adapt to maintain relevance. However, race is not the only issue, and is certainly not the easiest to resolve. With the average age at the leading investment platforms being above 50, the negligence towards Millennials and Gen Z is obvious.
Younger people have less time in the workforce, meaning they do not have as much money as their older counterparts. This does not mean that they are financially inferior when it comes to making decisions. Previously, the barrier of entry for these investment services has been quite high, requiring account minimums and charging costly trade premiums. Internet based investment platforms have capitalized on this emerging market, helping increase the stance of retail investors in the realm of wall street giants.
The Robinhood Method
Despite recent controversies, many lessons can be taken away from both the rise and fall of Robinhood, a millennial focused stock trading app that was founded to “democratize finance for all”. The approach of $0 account minimums, fractional share trading, and commission free trading disrupted the market. Prior to this, trade premiums ranged from $5 — $8 industry wide. Robinhood amassed over 13 million users in the 7 years since creation, holding an average user age of 31 years old. Something was working. The business plan was succeeding, undercutting the prior average age of investors at other institutions by almost 20 years.
After the early success of Robinhood, others started to follow their steps. Charles Schwab, Fidelity, JP Morgan, Vanguard, and TD Ameritrade all began offering commission free trading in late 2018 to early 2019. Other companies even began offering fractional shares trading, such as Fidelity’s “Stocks by the Slice”introduced in January 2020. Nothing could match the growth of Robinhood. In fact, the same companies that followed Robinhood’s revolutionary services still increased in average user age, quite the opposite of what needs to be occurring.
Increasing Youth Participation in the Market
Three steps towards captivating the ever allusive sub-30 demographic.
Target through Social Media
Even after copying the same services offered by Robinhood, companies failed to match the true deciding factor when it comes to attracting younger investors, the marketing strategy. Apps like Robinhood and Webull stormed social media platforms such as YouTube, Instagram, and Reddit with marketing campaigns pushing the ease of use. Despite all controversy surrounding the company at the time, Robinhood purchased a Super Bowl ad documenting how easy it is to incorporate investing with Robinhood into their everyday lives.
Webull took this idea and went even further, paying for sponsored content with popular YouTubers in the world of finance. Graham Stephen, personal finance content creator with nearly 3 million subscribers and an average of 1 million views per video, has a brand deal with Webull. At the beginning of most videos, the app is plugged with his sign-up code, granting both Graham and the new user 2 free stocks if used. With Graham’s primary demographic being people ages 18–24, this tactic provides incentive for users to begin using the app.
Simplify User Interface
Robinhood takes the cake when it comes to simplifying user interface. Alex Bond, senior product designer at Robinhood who lead the charge on simplifying the app, claimed that “we make use of simple colors to remove as much information as possible, so that it’s clear to the user what’s happening”. Through aforementioned marketing campaigns, the priority here is simplicity. Younger investors are, usually, not as well versed in the markets as seasoned institutional investors. By stripping transactions down to the necessary values, users are presented with a welcoming screen, one not crowded with analytics and changing values that are useless to the majority.
Increase Educational Opportunities
A large issue with younger investors is that they are simply not educated about investing in general. Unless pursued individually, no formal financial education is provided in secondary-level education. This, along with the negative connotation of finance in regard to taking on debt, lead many to turn to the “ignorance is bliss” rationale of money. Both Robinhood and Fidelity have taken on this issue by incorporating educational aspects to the investment process, providing users a basic knowledge of what they are getting themselves into. Robinhood’s “Options Knowledge Center” is one of the main reasons why the app is one of the most used platforms for options trading in 2020, passing industry leaders of TD Ameritrade and E*Trade.
Where to go from here?
Traditional investment firms are nearing a point of no return in terms of attracting younger clientele. Many are already losing this battle to established internet companies like Robinhood and Webull. Although more traditional platforms are complacent in their current spot. Their 50-year-old customer will shortly be no longer — and if no steps are made to attract younger customers, they will follow suit. Efforts must be made on both the marketing and development side of the business in order to ground themselves in the millennial age range.
Written as apart of Professor Ash Faulkner’s Professional Communications in Business class at the University of North Florida
