The rise of newly empowered retail investors

How they’re changing customer expectations and investing dynamics

Recent dynamics in retail investing suggest that there is an emerging class of individual retail investors with distinctive motivations and behaviors. Here, we take a closer look at the factors that contributed to the rise of these empowered investors and what they mean for financial institutions.

Emerging trends in retail investing

In January 2021 alone, roughly six million Americans downloaded a retail brokerage trading app, joining well over 10 million Americans who opened a new brokerage account in 2020. There are likely several reasons why so many new individuals have embraced stock investing. The pandemic no doubt contributed to the spike in interest. Millions of individuals suddenly found themselves with extra cash, and more time on their hands.

It may be tempting to dismiss these newly empowered retail investors as gullible or clueless. However, ignoring them may be short-sighted for several reasons, not the least of which is that they could be an attractive customer segment down the road.

Adapting to this shift could be critical for financial institutions to continue serving the needs of customers. As a first step, it is important for firms to consider how retail investing might continue to evolve.

Learn more about the rise of newly empowered retail investors.

A new breed of investor, empowered by new platforms

The new segment of retail investors generally falls into two buckets. The first tends to be younger, first-time investors with limited discretionary income. As novices, they are not yet as knowledgeable, and can be heavily influenced by various sources of information. The second bucket is comprised of savvier, more experienced investors with more money at their disposal. For both groups of investors, social media tends to play an extremely vital role in how they receive and process information, as well as how they make investment decisions.

One of the fundamental shifts fueling the retail investment boom is the growth of digital trading platforms and rollout of new products and services across brokerage firms that help make investing more accessible to underserved markets.

Market regulation and consumer protection

Recent market events have pushed regulators to increase their focus on upholding consumer protection and strengthening the stability of market infrastructure. As a result, agency officials have announced they’re looking more closely at the design of trading platforms and firms’ processes for overseeing transactions, as well as the clearing and settlement cycle and other potential vulnerabilities in market infrastructure.

Strengthening resilience and accelerating transformation

The growing influence of retail investors should have an enormous impact on established brokerage firms and their operations. To stay ahead of the sea changes taking place, financial institutions need to begin assessing how they can adapt their business model and pricing strategy to accommodate the expanding segment of empowered investors. These evaluations should also consider changing preferences for the customer experience, and where they may need to reimagine technology, relationship management and staff training to meet those demands.

Bracing for a new phase in retail investing

While the degree to which empowered investors will be able to retain their growing influence once the pandemic subsides is unclear, it is safe to assume that many of these trends and behaviors are bound to persist. As a result, retail investor activity could continue to have reverberating effects on the market, and may further shift dynamics between clearing firms, market makers, brokerages, wealth managers and hedge funds. Taking steps to facilitate strategic transformation and shore up resiliency could be key for firms stay ahead of this next step in the evolution of retail investing.

Contact us

Monica O’Reilly
Vice Chair

US Financial Services Industry Leader
Deloitte LLP
+1 415 309 7544

Val Srinivas, PhD
Research Leader, Banking
& Capital Markets
Deloitte Center for Financial Services
Deloitte Services LP
+1 212 436 3384

Larry Rosenberg

Audit & Assurance
Deloitte & Touche LLP
+1 212 436 4869

Kristina Davis
Risk & Financial Advisory

Asset Management Leader
Deloitte & Touche LLP
+1 617 877 8756

Karl Ehrsam

Deloitte Risk & Financial Advisory
Deloitte & Touche LLP
+1 212 436 3153

Irena Gecas-Mccarthy

Deloitte Risk & Financial Advisory
FSI Director, Center for Regulatory Strategy
Deloitte & Touche LLP
+1 212 436 5316

Robert (Bob) Walley

Deloitte Risk & Financial Advisory
Deloitte & Touche LLP
+1 212 436 3212

Jim Eckenrode
Managing Director
Deloitte Center for Financial Services
Deloitte Services LP
+1 617 585 4877



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