While the 2010s may feel like a lifetime ago, their populist legacy lives on. From the transformation of the news (with Twitter and Medium vying with CNN and The New York Times) to the evolution of the entertainment industry (with TikTok and Clubhouse taking share from E! and iHeartRadio), the people have taken their seats at the proverbial table and are ensuring that their voices are heard. With such shifts, we’ve witnessed decentralized and democratized content creation and culture curation dislodge incumbent tastemakers’ stronghold over our time and attention.
Yet, the world is only just waking up to one the greatest populist successes of our lifetime—the appropriation of the financial markets. As a former trading floor Analyst, I am delighted to say, Welcome to (the new) Wall Street!
Occupy Wall Street & The Widening Wealth Gap
As Boomer bankers can attest, today’s market momentum began brewing with 2011’s Occupy Wall Street protests, a movement that sought to empower the 99% to challenge economic inequality and corporate greed. Over the past decade, anger and outrage have, accordingly, spread surrounding Wall Street’s supposed “fixing” of the financial system—particularly among younger demographics. While Occupy Wall Street’s early revolutionaries struggled to get past Goldman Sachs’ security guards, they’ve more recently found tech-enabled unlocks via platforms ranging from Reddit to the aptly named investing platform, Robinhood. While commentators ranging from the Chairman of the SEC to your local Starbucks barista are only now taking note, the writing was already on the wall—or, in this case, on wallstreetbets.
Corporate America has long propped itself up on the backs of hard working Americans. While the rich have gotten richer, the rest of the country has had to work harder and harder to make ends meet as a result of stagnating wage growth and a rising cost of living. The secret to this widening wealth gap has been ownership. While the top 10% of net worth have always controlled 70–80% of the stock market since record-keeping began, this percentage has continued to creep up over time, reaching a peak of 88.1% in the fourth quarter of 2019. Yet, the people—armed with a greater awareness of the financial markets and a slew of mobile-friendly applications ranging from E*TRADE to Wealthfront—are now saying “no more.” Over the past year, we’ve witnessed retail investors emerge as the marginal price setter in a market now sitting at all-time highs.
Supported by frictionless and low cost access to the capital markets, record low interest rates, elevated consumer savings levels, and government-sponsored stimulus programs, conditions have, arguably, never been more conducive to such a retail run.
While professing a role reversal would be an overstatement, we are seeing a generational shift from an era of institutional dominance to the ongoing retail reckoning—and the markets have only just begun to reflect this rebalancing of power.
Transforming the Trading Floor
Tomorrow’s traders will look quite different than those of the past—gone are the Hermes ties and bulge bracket bank business cards, in are the Gen Z activists and on-the-go apps. So as today’s empowered investors continue their takeover of the trading floor, what structural shifts are needed? We at Obvious foresee four areas of opportunity as individuals enhance their understanding of the markets and claim control of their financial futures:
A Better Bloomberg
Used by 300K of the world’s most powerful market participants, Bloomberg has traditionally served as the digital town square of the financial markets. Bloomberg not only connects its users to groundbreaking data, research, news, and analytics (think all of the market information that’s fit to print), but it also serves as the primary communication and charting application for Wall Street (think the Microsoft Office of the markets).
However, with an annual price tag of $20–25K per person, equal access to this operating system comes at a very steep cost. Looking ahead, given our societal understanding that social mobility is dependent upon enhanced access to educational and economic opportunity, we should begin to build out similar systems for the masses.
We believe that these new applications will invite in retail investors as actively engaged participants (instead of blocking them out like Bloomberg has). Accordingly, such platforms are likely to feel more like a consumer social or gaming application than a formal and formulaic financial services provider. In such offerings, the social orientation embodied in platforms like Commonstock and the frictionless information access offered by applications like Atom Finance may gradually become standard.
So what role will community play in welcoming underrepresented demographics into the financial markets? And how might such systems effectively educate and incentivize retail investors to prudently allocate capital in a way that manages downside risk while retaining upside opportunity?
Equal Access to Alternatives
Ask any institutional investor or ultra-high-net-worth individual about portfolio construction and they’ll happily tell you about the alpha (defined as the outperformance vs. the market) they’re generating in alternative assets. So what are alternatives? Alternative assets encompass real estate, fine art, collectibles, foreign currencies, venture capital, private equity, and crypto, among other investible vehicles (aka “the fun stuff”). Known to provide attractive return potential, alternative assets have historically remained out of reach for the 99% due to high minimum investment thresholds, complicated custodian dynamics, and opacity in discoverability.
However, fractional ownership through platforms like Rally, more flexible infrastructure through systems like Alto, and increasing awareness through search engines like MoneyMade are finally bringing this asset class to the masses. With equity markets sitting at frothy all-time highs, we expect to see retail investors continue to double down on alternative assets moving forward, enhanced by crypto’s continued creep into the mainstream (NFTs, anyone?) and the increasing influence such assets are having in pop culture.
So how can we ensure that Main Street has access to the same caliber of opportunities as Wall Street? And will cultural relevance continue to be a defining characteristic of attractive assets for GenZennial investors moving forward?
The infrastructure of the capital markets is about as complex as Axe Capital’s investment approach. Built for hedge funds and investment banks, the legacy architecture has done little to support or enfranchise smaller-scale investors facing costly and technology-intensive barriers to entry. However, with the ongoing market rebalancing towards greater retail participation, we believe that a new class of connectors is primed to scale alongside the asset allocators of tomorrow.
Looking ahead, APIs and data interoperability will facilitate greater personalization of underwriting and offerings through providers like Alpaca, while autonomous finance through platforms like eToro will drive down costs and expand access across demographics. Fractionalization and frictionless underwriting of new assets through platforms like Cadence will remain critical to investor acquisition and retention, and cross-platform communication will increasingly become table stakes through platforms like Galileo.
So will existing online brokerages effectively expand their offerings, or will we see a broadening distribution of wealth across ecosystems as investors optimize for access and affordability? And could fintech’s ongoing proliferation across sectors make every platform an investing platform longer term?
Innovation in Investor Relations
Historically, the only thing whiter than a Fortune 100 C-suite is the white-glove service they’ve provided to their institutional shareholders. Investor Relations (IR) departments have, accordingly, served as the primary conduit between a company’s executive team and its most important investors. In this capacity, IR has communicated an up-to-date account of existing affairs while (ideally) painting a positive picture of the future. However, the format (like highbrow Analyst Days) and features (like banker-organized bus tours) that have historically engaged institutional allocators are unlikely to have the same appeal for retail investors who are now prioritizing factors like cultural resonance and ESG aptitude. In the same way that we’ve seen customer service evolve into customer success, we expect to see expanding efforts on behalf of companies to proactively engage retail investors through Investor Engagement (IE) by leveraging systems like Stockperks.
So will a broadening base of brands incorporate Investor Engagement into their day-to-day consumer-facing offerings through programs ranging from shareholder discounts to customer stock options? And will companies’ share prices increasingly reflect their ability to effectively engage Main Street, or will Wall Street successfully retain its historic hold?
As with any stock chart (Tesla included), there will be ups and downs to the retail rebalancing. The market will correct. Liquidity for less conventional assets will dry up. Well-intentioned individuals will lose their life savings to misinformed investment strategies (diversify, diversify, diversify!). And the Fed, SEC, and Consumer Financial Protection Bureau (CFPB) will attempt to temper the carnage with limited success. Yet, with the right systems in place, we should be able to support the broadest base of longer-term wealth creation that our generation has ever seen.
At Obvious, we ultimately see profit and purpose as a virtuous circle. In the right combination, we believe that they form a flywheel that will deliver enormous financial returns while transforming capitalism in a world positive way. If you’re working on enabling wealth creation with such direct intention, we’d love to hear from you.