A Revolution in Retail Investment

One of the unexpected side-effects of the pandemic has undoubtedly been the revolution in retail investment. Over the course of the last 12 months, due to the majority of the population having been stuck at home not spending money, the everyman has saved more and taken large strides to asserting their financial independence. Markets that once seemed too complex for the wider population to be involved in have become more accessible, and there is money to be made.

There have been plentiful recent examples where the little guy has been trying to stick it to the old guard and these anecdotes have dominated headlines over the last few weeks. Investments in volatile markets have attracted an army of retail investors seeking to beat the returns of more traditional, straight-forward vehicles such as stocks and shares ISAs.

The masses have exposed Wall Street’s short positions and driven the second wave of cryptocurrency investment to the point where big institutions are having to take notice.  However, has it fundamentally changed the game?

A perfect storm

One thing is for certain; recent conditions have provided an enticing opportunity for personal investment platforms who have been rubbing their hands together with glee. AJ Bell, interactive investor and Hargreaves Lansdown have all seen a surge in costumers over the last 12 months, many of them being retail investors are here to stay. Nevertheless, it will not all be smooth sailing for these investment platforms. They have to tread a thin line between encouraging financial independence by providing people with the tools to invest themselves, and protecting their customers from the dangers of risky trades.

The democratisation of the stock market is a double-edged sword; it both giveth and taketh away. There is no better example of this than GameStop which has crashed quicker than it rose to fame.

However, so far, the UK based investment platforms have by and large got it right. All of them have been encouraging people to take part but flagging the risks these types of investment come with. Indeed, this sentiment is best captured by Myron Jobson of interactive investor who was quick to remind that “platforms have a duty of care to help first-time investors”.

Nevertheless, these investment platforms must be increasingly careful. We have seen over the last few months that public sentiment is intense, yet fickle. Yes, new customer numbers were incredibly high last year, but the market is moving quickly so can ill-afford to spook the retail army if they want to remain in the sun. Robinhood took a battering over its decision to halt trading on short-sell stocks and the UK based investment platforms who have experienced short blackout periods have caused online stirrings.

Investment platforms have a unique opportunity at present, but it is increasingly imperative to keep a clean track record, remain flexible, and pioneer consumer protections or this increasingly influential market risks turning on them at a moment’s notice.