In 2020, there were 10.9 billion trades per day on average, the most in 12 years. That volume could be blown out of the water in 2021.
In January, after months of plotting on Reddit, retail investors coordinated a short squeeze. They began buying call options on video game retailer GameStop, and nearly blew up a $12.5 billion hedge fund. Average daily trades in January hit 15 billion and a one-day record of 24 billion trades was established.
After Reddit users drove up GameStop’s stock price, the Securities and Exchange Commission started cracking down on the use of social media to tout trades. Institutional investors admitted the saga influenced their trades (although they don’t fully trust the Reddit mob). Other “meme stocks” had a less prominent turn in the limelight since then, too.
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But investors are not abandoning professional wealth managers in favor of going it on their own. The opposite is occurring.
The multitude of securities and ways investors can engage the market, coupled with the fastest-ever equity bear market and then a rebound last year, has led to an increased number of investors seeking formal professional help with their investments, according to a May report by Cerulli Associates, a Boston-based research and consulting firm.
“Recent data collected indicates that self-directed investors are increasingly interested in formal financial assistance and willing to pay for that advice,” Scott Smith, a director at Cerulli, said in a statement.
With that in mind, Cerulli says financial advisors should consider how they engage Millennial and Gen-Z investors who are increasingly trading. Speculative bets aren’t inherently bad, and advisors should focus on framing and giving context to market swings and other phenomena like herding biases.
“Keeping abreast of the influences and influencers shaping discussions in public forums can help advisors frame these conversations on the clients’ terms while ensuring that the best laid financial plans are not squandered by [a] temporary craze,” Smith said.
Cerulli also found that investors are more trusting of financial institutions than they have been in years, if not ever. That’s great news for wealth managers, who have little to offer clients for inspection and analysis. Their reputations are “at the heart of their potential appeal,” according to Cerulli.
“The future of wealth management is dependent upon not only maintaining but also increasing clients’ confidence that providers are truly committed to partnering with them to optimize clients' long-term financial position,” the researcher said in its latest report.
“In recent years, the U.S. has experienced notably increased levels of debate as to whether the media, tech giants, and even individuals at the highest levels of the federal government itself are acting in the best interests of the nation or are more focused on their own interests. With these fundamentals in doubt, it becomes even more crucial that wealth management providers strive to achieve the highest levels of integrity within both the letter and the spirit of a fiduciary framework.”
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.