Evolving investor education in the age of meme stocks

Every investor has their own catalyst for engaging with the markets and starting to think about their long-term financial plans, whether it’s enrolling in their first 401(k), receiving stock options in a compensation package or just striking up a financial conversation with a knowledgeable friend. For many younger investors today, that catalyst has turned out to be app-driven investing platforms and the meme stock phenomenon. I have seen this firsthand with my own young adult children.

While many of us would agree that getting young people interested in taking control of their financial future and learning about basic investing concepts is a good thing, we would also agree that getting investing advice from message-board influencers with fanciful online nicknames is … less so.

With this in mind, we commend the Financial Industry Regulatory Authority Inc. for its recently launched initiative to gather information on best practices for providing financial education to today’s younger investors, whether they first ventured into the markets through a zero-fee trading app or more traditional channels.

We submitted a comment letter on this topic to the Finra in late August, providing the regulator with an in-depth view of some of the key practices that — based on the experience of FSI members — are proving effective in educating the current generation of rising investors.

Some important takeaways included:

1. "Financial influencers" hold outsized sway over younger, "online-native" investors — but sounder voices can prevail through patience and persistence. There is more information available on investing today than at any other time in history, much of it accessible with just a few taps or swipes on a phone. Rather than creating a more informed population of younger investors, though, this deluge of data has driven many young people to gravitate toward the largest, loudest and most popular financial influencers on various message boards and online video channels.

The fact that many of these voices are earning money on advertising or brand deals is seen as just a common feature of the influencer business model, rather than as a potentially serious conflict of interest, leaving many new investors chasing golden-ticket stocks rather than thinking about serious long-term plans.

Fortunately, our members are finding that consistent, patient engagement with younger investors can often help them develop a broader perspective on the need for cohesive planning and professional guidance. This is especially true as these investors begin to realize that it can be time-intensive to go it alone, and that investors who work with live advisers consistently realize higher long-term returns.

2. Starting with immediately actionable concepts can drive longer-term, big picture educational engagement. Our members have found it useful in educating younger investors to start with concepts that are already top of mind. One topic that generates consistent interest, for example, is how to develop appropriate strategies for when to buy and sell a stock.

Helping young people understand research-based approaches to determine when a stock should be sold based on percentage gains; when portfolios should be rebalanced across asset classes; and the importance of sticking with objective guidelines for buying and selling during volatile markets gives them information that can be deployed immediately to strengthen their portfolios and take a more strategic approach to money management.

These tactical conversations can then lead to broader conversations about other key concepts like taxes, leveraging retirement accounts as early as possible and others. The important thing, our members report, is to help younger investors get started on their educational journey as early as possible — while compounding can provide the most powerful positive difference in their lives.

3. The delivery medium matters. Be flexible enough to meet younger investors where they are — and be responsive. Different investors respond positively to different methods of outreach and interaction. In our members’ experience, the trick is to be persistent, patient and flexible enough to determine which method will resonate with each investor. In-person or Zoom meetings still tend to be among the most effective means of interaction, but not always. Some investors will respond to podcasts; others to webinars; still others to social media posts.

One of the most important factors our members report is being available and responsive when younger investors have questions. Being there when they need more context in deciphering a recent headline about unfamiliar terms like SPACs or DeFi can make all the difference in establishing an adviser, teacher or other educator as the go-to person for financial guidance.

We are very pleased that Finra is taking productive steps to advance financial education for today’s younger investors. We look forward to providing continued insight to help this initiative move forward.

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Dale E. Brown is president and CEO of the Financial Services Institute.