How digital platforms can be more accessible to minority investors

The way that firms design digital investing platforms can make them more accessible to women of color and other groups traditionally excluded by the financial services industry, according to a study from retail investing company Public.com and financial nonprofit Commonwealth.

The companies initiated a pilot program that gave 241 women, 84% of whom were Black or Latina with little or no investing experience, $250 to investing on Public.com’s platform. Participants also had the option to link external bank accounts or debit cards to add additional money to the portfolio, though it was made clear that this was not required.

By tracking how the investors used the money, the pilot program uncovered three ways that investing platforms can incorporate to foster a more inclusive and accessible environment for those living on a low to moderate income.

The first is that providing seed funding helps overcome the biggest barrier keeping many from participating in capital markets: a lack of resources. By giving participants $250 to start, the program created an entry point to consider investing for those who don’t feel comfortable enough to commit their own funds, the study found. Eighty percent of the participants reported that without the seed funding, they would not have been able to start investing, and 88% said they plan to continue investing in the future.

[More: New thinking on neurodiversity opens doors for advisers]

During the pilot, 31% deposited their own money into the account, and 82% said they plan to contribute more funds to their investing accounts using their own money, meaning that providing a small amount of money to get people started can also be beneficial to investment firms, the Commonwealth report said.

“Seed funding gave participants the opportunity to learn without taking significant monetary risk, and this opportunity to learn through experience increased their willingness to contribute their own funds to their investing portfolio,” the report said. “Platforms may find that even a small amount of seed funding can have a significant impact on broadening their customer base by providing people who would not normally consider investing the opportunity to develop actionable knowledge before risking their own money.”

The research also found that building opportunities for community engagement into digital investment platforms can increase feelings of comfort and belonging. Perceptions of who a typical investor is and what is needed to participate in markets remain a barrier to entry, and connecting investors with others like them shows that investing can be for everyone, the researchers found.

In addition, the research suggests that community engagement is a key learning channel for new investors, and participants rated it as more useful than any other source.

Finally, Commonwealth found that embedding learning opportunities directly into the investing experience can make information more actionable and accessible. While many digital investing platforms offer educational materials, they are often separated from the investing experience. Free content and hands-on experience offered directly inside of the platform can change investing from an intimidating undertaking to an educational and social opportunity to build wealth, the report stated.

In-app learning resources were rated as the second most useful sources of investing knowledge.

“Learning by doing provides an effective alternative to treating investor education as a prerequisite for participation,” the researchers noted. “Giving users the opportunity to learn while doing makes investing more accessible to many who might not normally be willing or able to access separate investor education programs or initiatives.”

One-quarter of the participants said they were comfortable making investment decisions at the beginning of the Commonwealth and Public.com pilot program. At the end, the number had increased to 65%. These design changes can help close the persistent racial and gender gaps that remain an obstacle for low to moderate income families, the researchers said.

The median Black family in the U.S. has $24,100 in wealth, just one-eighth of the wealth of the median white family ($188,200), according to Commonwealth. Single Black women under the age of 35 have a median wealth of just $101, compared with $1,550 for single Black men and $22,640 for single white men in the same age bracket.

Data and analysis from the Financial Industry Regulatory Authority Inc. shows that 46% of African Americans don’t own either a taxable or retirement investment account.

[More: Scholarship targets people underrepresented in financial planning]