The New Demographics

The Democratization Of Investing

How technology has opened opportunities in the mass-market

by Andrew Guillette

Mr. Guillette is Vice President of Distribution Insights at Broadridge Financial Solutions, a data and intelligence fin-tech. Visit broadridge.com.

In the not-so-distant past, financial advisors had very little motivation or ability to serve investors under a certain wealth threshold. Younger and less wealthy members of society simply did not have enough disposable income to overcome the cost barriers to participate in the investment markets, and the financial services industry could not efficiently offer products and services to meet their needs effectively.

Times have changed, however, and the industry has made great progress in harnessing technology to tap into the vast population of mass market investors. Online trading and low-cost products have erased financial barriers to investing, while robo advisors have filled in an advice gap. With disposable income in their pockets, time on their hands thanks to the pandemic and technology tools at their fingertips, the investment markets have undergone a democratization process. Lower wealth-tier investors have become an increasingly meaningful and participatory swath of the industry.

At Broadridge, we have been studying this market by mining tens of billions of datapoints in our vast data warehouse to extract actionable intelligence. This process has revealed many useful insights about Mass Market investors. In this article, we intend to share some of what we’ve learned and highlight the reasons why advisors should not overlook opportunities to connect with this growing market segment.

Who Are Mass Market Investors?

First off, the Mass Market is comprised of a diverse range of investors. Rather than being focused within one generational segment, Mass Market investors are well represented within each generation—ranging from a high of 60% of Millennials to 45% of Gen-Xers. Even the Silent Generation comprises 15% Mass Market investors. The median age of a Mass Market investor is 52 years old, but more than half (55%) are currently Millennials and Gen-Xers, which means they are on the younger side and still accumulating wealth. Because they are ensconced in each generational segment and their ages vary widely, campaigns targeted at the Mass Market should be blanketed across every age group.

Mass Market investors are earning a median income of about $67,000 per year. Most (67%) own their own homes, and they have a median amount of about $20,000 in taxable accounts and IRAs invested in mutual funds, ETF and equities. Unlike the other wealth tiers, mass market investors are predominantly female (53%). In terms of location, the greatest number live in the South and the lowest percentage are in the Northeast.

What Are Mass Market Investors Investing In?

In their non-workplace investments, Mass Market investors generally hold a median of four mutual funds and ETFs. Their product choices largely reflect the tendencies of the broader investor universe with mutual funds as their dominant holdings. ETFs are making big gains, however, surging to 29% of Mass Market household assets from 20% four years ago. So, although they are relatively new to investing, they are paying attention to these low-cost and tax-efficient portfolio building blocks.

Continuing the trend of making investing available to all, low-cost institutional share classes—once the exclusive domain of the wealthy—are gaining prevalence among all investor wealth segments, including the Mass Market. In fact, for the first time, at least half of the households in each wealth group own institutional class shares, with the Mass Market now standing at 50% (up from 37% in 2017). We see this development as positive across the board, as lower expenses translate into higher returns for all investors.

Finally, Mass Market investors are not shy about delving into alternative investments. More Mass Market investors invested in crypto (24%) compared to higher wealth brackets (14% for Mass Affluent and 13% High Net Worth). The high level of interest is likely owing to the high percentage of Millennials in the Mass Market.

Why Should We Care About Mass Market Investors?

In the old days of wining and dining clients, it may have been easy for advisors to dismiss Mass Market investors as unproductive accounts. High transaction costs and clunky technology necessitated that mindset. Looking ahead, however, model portfolios and digital advice delivery systems—combined with the current attributes of this market segment—provide savvy advisors with new ways to harness significant opportunities.

Continuing the trend of making investing available to all, low-cost institutional share classes—once the exclusive domain of the wealthy—are gaining prevalence among all investor wealth segments, including the Mass Market...

To put the Mass Market in perspective, the trajectory of households included in this wealth tier participating in investment activities is on a significant upswing—growing to 41% of all investor households in 2020 from 30% in 2017. Meanwhile, the Mass Affluent and High Net Worth market segments remained flat or declined during the same period.

In terms of assets under management, the Mass Market owns a 12% asset share (up from 7% in 2017). While this is disproportionate to the 41% of investing households they comprise, they are clearly expanding into a more meaningful slice of the pie. Finding ways to serve this group through digital advice platforms and model portfolios—particularly the younger generations set to grow their careers and to catch generational wealth transfer—would be an investment in the future.

Where Do Advisors Fit In?

Although online and technology solutions are on the rise and offer evidence of a digital revolution, Broadridge data clearly illustrates that advice from humans remains the gold standard. This is true in all wealth segments. More than half of Mass Market investors who reported in our survey that they are not currently using an advisor (52%) said they are likely to do so within the next two years. The three primary motivating factors for seeking out the help of an advisor were concerns about better performance, reducing financial stress and achieving a specific goal.

More than a year after the start of the Covid-19 pandemic, Broadridge research has found that investors continue to express a positive outlook for their financial situation, although cracks are beginning to emerge. Not only has investor outlook for the economy and stock market fallen sharply, but now only 28% (down from 34% in May) are “very confident” about reaching their financial goals. The clear difference between those investors who felt confident and those who did not was that those who felt most confident were working with an advisor and had a formal financial plan.

When they use an advisor, Mass Market investors predominantly (at 60%) rely on someone that Broadridge would classify as residing within the Broker Dealer channel. This includes the Independent Broker Dealers, Regionals and Banks. Nonetheless, the biggest growth from a channel perspective is coming from the Online channel, where investors have undoubtedly gained more comfort and familiarity with trading platforms and extra time during the pandemic.

Indeed, a growing number of investors in all wealth segments have begun trading a portion of their assets without the help of a financial advisor. The most common reason cited for this is enjoyment. In fact, half of all investors have a self-directed brokerage account, with Mass Market reporting in slightly higher with 56%. That’s just behind High Net Worth online brokerage at 57%. The key takeaway from this is that while self-directed accounts may never become huge profit centers for wealth management firms, they may end up being a vital complement to higher value services as investors in all wealth tiers enjoy managing their own account on the side.

What Does All This Mean?

The last several years have seen major changes in the financial services industry landscape, from the way business is conducted to the types of customers being courted. With the greatest generational wealth transfer in history looming just over the horizon, advisors should be taking advantage of technology to host intergenerational conference calls with clients and their adult children. These are golden opportunities to bring future generations into the conversation and learn their needs—whether they bear fruit now or down the road.

In the final analysis, the market for advice is certain. Savvy advisors looking to solidify their futures should focus on learning to interact with Millennials and Gen-Xers, who represent half of the Mass Market. This can be achieved by incorporating online tools, automation and models into their business practices so they can spend more time prospecting for new clients and interacting with existing ones.

 

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