Let’s start with an experiment. If you see the phrase, “Life is a highway” and are able to complete the next line, you will probably have an ear worm for the rest of the day (you’re welcome).
If you view this phrase as a simple platitude or remember hearing it for the first time from the Pixar movie Cars (released in June, 2006), then it’s likely you are part of a generation of investors stepping into the world of self-directed investing for the first time, and a group of increasing importance to Canadian online brokerages.
Last month, RBC Direct Investing published the results of a recently conducted survey that focused on understanding the perspectives of younger investors about the world of investing online. The catalyst: nearly half of new clients of RBC Direct Investing that joined during the pandemic were under the age of 35.
President and CEO of RBC Direct Investing, Lori Darlington, sat down with Sparx Trading to discuss the latest results of this survey, and provide context and perspective on how younger investors are going to impact the world of self-directed investing. She also provides insight into how RBC Direct Investing plans to adapt to this new client group.
Young Investors: A Market Mover
Those new to the world of Canadian online brokerages would likely be aware of RBC Direct Investing as the online brokerage arm of one of Canada’s largest and well-known banks, RBC. Unless you’ve been watching the online brokerage segment for more than the past eight years, however, what you may not know is the influence RBC Direct Investing wields in the Canadian online brokerage marketplace.
For a quick history lesson, RBC Direct Investing was the catalyst that drove stock trading commission prices down from the $20+ per trade range for bank-owned online brokerages to just under $10 in 2014, where most of these online brokerages price their trading commissions today.
Certainly, a lot in the online investing world has changed since 2014. However, in that time, nothing has changed so dramatically and so rapidly as the composition of online investors over the past two years. When a shift of this size impacts one of the most influential online brokerages in Canada, it’s likely to have a ripple effect throughout the Canadian online brokerage industry.
Though it is not a ‘new’ story at this point, the impact of the surge in new investor interest is still unfolding. Recent data we collected from the US online brokerage market, for example, highlights the trend and pace of investors opening online brokerage accounts. Even today, those numbers remain elevated relative to the start of the pandemic.
It is against this backdrop that the latest poll conducted by RBC Direct Investing is of interest to not only online investors, but also to anyone tracking the online brokerage space in Canada more broadly.
Before diving into the findings, it’s important to highlight the methodology to get a sense of what was being measured in the survey. The study, which was conducted by Ipsos, took place between October 26 and November 5, 2021, and focused on individuals between the ages of 18-34 (defined as “younger investors”). There were 529 individuals in this age range who responded to the survey and whose answers constituted the data referenced in the press release relating to younger investors.
Eager to Learn
Although there were a number of takeaways from the data collected in the RBC Direct Investing young investor insights poll, one of the most important themes was the willingness of younger investors to learn about investing.
According to the poll, 45% of younger investors have learned more about investing during the pandemic, and 82% of current and potential self-directed younger investors would like to learn more about investing.
Darlington stated, “They’re looking to learn more, they are learning more, but I think there’s an even bigger opportunity as we continue to support these young investors.”
More deeply, this appetite to learn more about investing could be governed by another interesting finding from the survey: younger investors wished their parents had talked to them more about investing. As it turns out, the number one response that younger investors stated they wished their parents had given them advice about was investing (57%), followed by saving (46%) or budgeting (44%).
The dominant narrative behind younger investors rushing into the market has been ‘to get rich quick,’ especially on the backs of meme stocks or heightened volatility during the outset of the pandemic.
In reality, however, the data from the latest RBC Direct Investing poll, as well as other research, supports another narrative: that younger individuals view investing as a means to effectively grow wealth, especially in a world where interest rates have been historically low and home ownership – an aspiration of many young people in Canada – continues to become increasingly more challenging.
Impressions & Expectations
Another important theme that came out of the discussion with Darlington was expectations.
For younger investors, especially the large numbers that decided to jump into self-directed investing during the pandemic, the conditions of stock markets formed that very important first impression.
That reality was shaped by volatility in household name stocks, as well as the emergence of new communities of investors and influencers online, especially on Reddit. Though older or more experienced investors know that the stock markets during the pandemic were anything but normal, the conditions during the pandemic will undoubtedly form a lasting memory of what stock markets are capable of.
Probably the most astounding observation in hindsight: instead of fleeing volatility, younger investors flocked to self-directed investing because of it.
A perspective offered by Darlington with regards to younger investors was that younger investors were already comfortable with technology and transacting online, including on mobile devices, by the time the pandemic struck. These factors enabled younger investors to have an easier time adopting trading platforms, as well as consuming information related to investing online.
Service outages and customer service delays were also a reality at that time among many online brokerages. Especially vexing for new investors was the friction to opening an online brokerage account when wanting to act on what was clearly a once in a generation world event.
When asked about what RBC Direct Investing has done over the course of the pandemic to specifically address some of the technical and service gaps that impacted online investors, Darlington stated that there has been considerable investment in technological infrastructure as well as continued efforts to prioritize client service.
Bridging the Generational Divide
The fact that there has been a study commissioned to understand the needs of a new client segment is telling. RBC Direct Investing is intent on listening to this new group of investors because they represent the next chapter in the online investing story for this online broker.
Although the playbook for navigating the influx of new investors is being written (or rewritten) in real time, there are some good case studies of what’s happening in the US online brokerage market to draw lessons from. The takeaway south of the border is that providing the right kind of investing experience is what ultimately wins loyalty and earns new business.
When asked what RBC Direct Investing is or could be doing to support younger investors, Darlington cited a number of important touch points already in place for RBC Direct Investing clients. Resources
Darlington believes that online brokerages such as RBC Direct Investing “have a responsibility to bring the right tools and resources to the table so the younger investors getting into it have the information and the tools that they need at their fingertips to make the best decisions for themselves.”
Continuing the Conversation
The trend among Canadian online brokerages to focus on younger investors undoubtedly hit an inflection point during the pandemic. Features like preferred pricing or waiving of fees were the first steps being taken by several firms.
Now, however, the fact that a much bigger online brokerage has taken on the task of understanding younger investors, presumably to better cater service to this group, indicates that even more change could be on the horizon.
RBC Direct Investing has created a strong ecosystem of investor content as well as a unique online community that should serve it well in its pursuit to deliver value to online investors. That said, there are also significantly higher expectations around being able to get things right.
After all, the perception of bank-owned online brokerages is that they’re not hurting for financial resources, and as long as commission prices per trade remain high, investors are certainly going to be demanding value-added features.
To navigate the new normal among clients who have very different takes on markets and beliefs about money, RBC Direct Investing – and other Canadian online brokerages – can come back to a point that younger investors stated in the survey about creating meaningful conversations around investing.
When asked what Darlington wished she had learned from her parents’ generation, she largely agreed with the sentiment of investors from the new generation. Learning about investing, or even learning how to talk about investing, is clearly something investors of all generations could benefit from. Not every market is going to be like the past two years. If Canadian online brokerages like RBC Direct Investing can figure out how to continue the conversation about investing, then there’s a road ahead younger investors can look forward to travelling, regardless of the bumps and turns.