The wave of new retail investors flowing into brokerage firms in the wake of federal stimulus checks during the pandemic included many younger clients from historically excluded groups.
A few years ago, the GameStop short squeeze and the larger “meme stock” movement led to a surge in new customers. The growth of non-retirement investment accounts was faster among Black, Hispanic and Asian Americans compared to whites in the U.S. during the six years ending in 2021, according to a Jan. 10 report by the FINRA Investor Education Foundation. Black and Hispanic investors represent, on average, an especially younger group with less wealth than the industry’s traditional older, more affluent client base. The slideshow below displays the takeaways from FINRA’s research and education arm.
“While the increase is encouraging, these new investors of color are navigating uncharted waters with little guidance and are actively looking for someone who understands their situation to help them learn more about investing,” the report said. “Financial education leaders, policymakers and regulators will need to adapt in order to reach these audiences (non-white investors, younger investors).”
For an industry promoting financial literacy as one aspect of removing the barriers of access to wealth-building tools and connecting with a new generation of clients and financial advisors, the report presented a glimpse into some of the inherent challenges.
To convert the new brokerage customers into long-term wealth management clients and professionals, the industry will need to adopt new methods using the examples of innovators and of Black and Hispanic Americans themselves, according to Eugenié George, the author of “Our Money Stories” and the head of content and strategy with Changing How Individuals Prosper (CHIP), a client matchmaking service for Black and Latino customers and financial professionals. In an email, she offered four ideas for the industry at large:
“Acknowledge that this work takes time. Build trust and hold workshops in places that you would never go to understand what people are interested in. A few years ago I went to a workshop with Celeste Revelli and she taught a class about money pro bono in Philadelphia, and the demographic was predominantly Black and Hispanic. We had a great time, but it helped put things into perspective to hear what people wanted for their families. “Reframe what milestones look like for investing: Historically, we’ve been successful at savings; look at the Freedman’s Savings Bank or even with first-generation Black and Hispanic Americans with remittances so if we know what steps they take based on savings, i.e., family, security. We should market in a communal sense. “Sliding scale: this is a concept that I’ve seen plenty of yoga teachers take on. It’s using a scale pay method. Many folks pay the premium price, but they offer different tiers and only offer three seats. “Finding folks who are hungry for change. We know that Black and Hispanic female business owners are on the rise. So create a method where we can help them organize their wealth first, through milestones. So find business accelerators and business groups that have women, and ask them what are they interested in.”
The report’s findings reminded FinLit Tech Chief Education Officer Mac Gardner — a longtime wealth management professional who’s the author of “The Four Money Bears” and the founder of a college planning fraternity — of the movie about the GameStop saga, “Dumb Money.” As much as the incoming group of younger and more diverse investors reflects a positive sign, the ease of trading through Robinhood and other digital platforms brings real risks, Gardner said.
“You have to have education in knowing that what goes up will eventually come down,” he said. “It’s almost like a loaded weapon, but you’re not teaching them how to use that weapon.”
For the most interesting research from the FINRA Foundation’s report, “Investors of Color in the United States,” scroll down the slideshow. And follow the links below for Financial Planning’s coverage of other reports by the FINRA Foundation:
Note: All of the data comes from the FINRA Foundation National Financial Capability Study, an online survey of 2,756 U.S. adults between July and December 2021 who said they have non-retirement investment accounts. Researchers then conducted six online focus groups last March with groups of minority investors aged between 21 and 34.