Digital-Savvy Retail Investors – How Can the Financial Industry and Regulation Help Them to Prosper?
Digitalisation and technology are dramatically changing how retail investors invest. Four emerging trends are shaping retail investors’ behavior: the use of mobile apps, robo-advice, social media platforms, and the rising interest in crypto investment. On the one hand, such changes offer easier access to investment (e.g. at lower cost), raising retail investors’ interest and helping them to define a strategic allocation and rebalancing of their portfolio. On the other hand, they may also have unexpected negative impacts on investment behaviour and amplify investment biases (e.g. return chasing, disposition effect). To address these challenges and eliminate potential risks, the financial industry should educate investors and promote financial literacy, expand and adapt their product offering and services to the needs and behaviours of investors, as well as attract new generations of investors against their ‘digital’ competitors (e.g. finfluencers).
Regarding the regulatory and supervisory framework, it should become innovation-friendly, technologically neutral, and sufficiently future-proof to be fit for the digital age. This may require improving the regulatory framework regarding online disclosure, marketing communications and practices on social media and through third parties, and digital engagement techniques (e.g. nudging, gamification). Moreover, it is also important to continue strengthening supervisory enforcement, especially in the context of the growth of digital channels, particularly with the cross-border provision of services in mind.
Marie Brière is Head of Investor Intelligence & Academic Partnerships at Amundi; Affiliate Researcher at Paris-Dauphine Université; Senior Affiliate Researcher at the Université Libre de Bruxelles; and Member of the Academic Committee at ECMI.
Apostolos Thomadakis, Ph.D., is Head of Research at the European Capital Markets Institute (ECMI); and Research Fellow at the Financial Markets and Institutions Unit at the Centre for European Policy Studies (CEPS).
The authors would like to thank Pascal Buisson, Laura Fiorot, Matteo Germano, Cécile Moreau, Chris Morgan, Paula Niall, Myriam Oucouc, Ernst Osinga and Fannie Wurtz for their valuable comments.