The Rise of Generation Investor (Gen I)

A Conversation with Lisa Kidd Hunt, Charles Schwab

In this episode of our Wealth Management Leadership podcast series, SIFMA President & CEO Kenneth E. Bentsen, Jr. is joined by Lisa Kidd Hunt, Executive Vice President, International Services, for Charles Schwab & Co., Inc., for a discussion on the rise of Generation Investor (Gen-I) and the findings from Schwab’s new investor survey.

Gen-I is not bound by when they were born, but when they began investing. With a recent surge in first-time investors, we’ll take a look at what sets them apart and what drives them to save, as well as discuss the important role education and technology have played in shaping their financial futures.

About SIFMA’s Wealth Management Leadership Podcast Series

The financial advisor-retail client relationship is critical to helping retail investors accomplish their unique financial goals, including saving for retirement, funding a child’s education, buying a home or creating a legacy.

In this podcast series, SIFMA President & CEO Kenneth E. Bentsen, Jr. speaks with wealth management industry leaders for an insider’s look into the advisor-client relationship. The financial services industry deeply believes we must boost retirement savings, enable Americans to save more, promote financial literacy and support a strong retail investor culture. This exciting new podcast series looks at how SIFMA member firms have enhanced the client experience by exploring innovative approaches to drive client engagement including teaming, exploring demographic trends and the role technology plays in wealth management.

Transcript

Edited for clarity

Ken Bentsen: I’m Ken Bentsen, president and CEO of SIFMA. I want to welcome you to the SIFMA wealth management leadership podcast series, where we speak with industry leaders on industry trends and approaches to enhancing the investor-client relationship.

Today we’re joined by Lisa Kidd Hunt, managing director, head of international services and business initiatives at Charles Schwab and Company. For a discussion on this past year and what Schwab is calling the rise of Generation Investor. Lisa has more than three decades of experience in the securities industry and has spent the last 29 years at Schwab and currently is head of its international business. In 2018 Lisa served as SIFMA’s chair and continues to serve on SIFMA’s board of directors and executive committee.

Lisa, thank you for joining us today. We’ve worked together for many years and we’ve seen a lot of new trends, achievements, and challenges with the industry’s approach to serving clients, but the good news is that the industry continues to adapt and evolve to encourage new investors to enter the capital markets, as well as improve our clients’ services, particularly under the challenges of the pandemic over the last 18 or more months. Now we’re about to enter the fourth quarter of the year, and I’m curious. How would you sum up or characterize the first nine months of 2021?

Lisa Kidd Hunt: Well, hi, Ken. It’s great to be here. Thanks for having me. That’s a really good question. I think it’s best answered really framed in the context of the historic growth and engagement we saw all across the industry this last year.

I believe J.D. Power said that more than 10 million new brokerage accounts were opened in 2020, and many by first-time investors. At Schwab, we saw that momentum continue into 2021. It’s been unprecedented, really.

Just to give you an example of how engaged individuals are right now, Schwab opened 4.7 million new accounts in the first half of the year. Again, so much new interest in investing. That’s really exciting to see. I mean, a whole new generation of investors. Nothing makes me happier than thinking about people planning for their financial futures and taking action. Maybe one of the few positives to come out of the pandemic.

Ken: That’s great news. As an industry, we know the benefits of saving and investing, which is why we encourage investors to start saving early. I think what’s really interesting is the number of young people, even first-time investors, that aren’t necessarily young, who have taken the initiative to invest in their financial future. Has Schwab dug into that at all, and are there any insights that you can share?

Lisa: Well, you can bet we have, Ken. Schwab did a new investor study earlier this year, and we looked specifically at these new investors and what they have in common. We actually gave them a name. We call them Generation Investor. They’re not a generation bound by when they were born, like most generations are, but really, Generation Investor is bound by when they began investing. Gen-I, as we call it, is younger than those who began investing before 2020. We’ve seen a shift, a median age of 35, compared to 48 in the past. But this new generation of investors spans all age groups.

We think the surge in first-time investors and the increased engagement we have seen in existing investors has a lot to do with a few things: first, the evolution toward trading costs and recent moves by many firms down to zero commission; greater ease and accessibility of products and services; and of course, the investing opportunities driven by market volatility. Ken, we also learned that Generation I is responsible, and they’re focused on successful, long-term investors. This is not just a group of traders looking to flip stocks or make a quick profit. They are optimistic about the future of the stock market and what that means to their future, and they plan to continue investing, and that’s a good thing for everyone, right?

Ken: Absolutely. I mean, really interesting, interesting outcomes of what you’ve found. Is there anything else unique about these individuals? What drives them to invest? Is there any unique approach to your advisors’ take for Generation I folks who are just starting out?

Lisa: Yeah. We do know a little bit more about these investors. They’re eager to learn, grow, and build wealth for the long term. We saw this play out as we welcome so many more investors to Schwab in the last 18 months or so. Last year alone we saw a nearly 30 percent growth in traffic to our insights and ideas educational content and a 50 percent jump in visits to our learning center, which offers an in-depth training education.

Schwab representatives are critical. They’re the relationship builders of our firm, they’re the face of the company in their individual communities, and there’s great power in the combination of people and technology, as we know. As you’d expect, many of these younger investors entering into the market are digital natives. While they favor primarily digital engagement, it would be a mistake for us to think that that replaces the need for personal interaction or human support. In fact, we’re finding that human connection remains as important as ever, but it often comes in different forms. Remember, interaction can occur onscreen rather than a traditional face-to-face meeting, as we have been doing throughout this pandemic. That’s just one example of where the relationship continues to evolve.

Ken: As you mentioned about technology and being digital native, we’ve seen and read a lot of so-called gamification of investing in the press. Did that come through at all in this study?

Lisa: Absolutely. There’s a lot of discussion, as you said, Ken, right now around this notion of gamification, which is really the prodding, nudging, or incenting to trade regardless of the risk.

I think we need to be clear about the difference between the idea of gamification versus creating an engaging, information-based, and simple way to invest for all investors, including our newest clients.

What our studies showed is that Generation Investor does not consider investing a game. To the majority of this group, that’s just not who they are. Even with the challenges of a global pandemic, this new generation of investor buckled down and started investing. They saw the opportunity that they had in the market and they made it happen. 72 percent of these new investors expect to buy and hold for the long term; 90 percent say they wanted educational content to improve their investing skill; and nearly 40 percent of them had a written financial plan in place, which we think is critical for long-term success.

Our head of trading and education at Schwab he and his team have seen the same thing in the active trader community at Schwab. In a recent poll survey they did with our clients, active traders revealed that they aren’t just buying meme stocks on a whim. Whatever they’re investing in, they’re conducting significant research and seeking out more trading education than ever before, which is fantastic, and we should encourage this and continue to build better and engaging forums of digital education. As an industry, we really have an obligation to do that. They say that the boom is here to stay when it comes to trading activity. That’s what we’re hearing from our new retail investors. So we need to do everything we can to help them be successful here.

Ken: Yeah. Those are really important points of how investors are becoming educated, accessing information, and planning, how technology plays a role in that, that’s much more complex than some of the things that are written up in the press. It’s extremely encouraging to hear what you’re learning from your study of how investors are planning for the long haul. Investing is certainly more accessible to a broader pool of investors, but going further, maybe, what role has technology played in that accessibility, and more importantly, where do we go from here?

Lisa: Yeah. I mean, Ken, you and I could talk for hours about what it used to be like to trade and invest decades ago when we were starting in this business. Things sure have changed. I’ve said it before, and I think I’ve said it before at SIFMA conferences. Simplicity is the latest innovation. Investors love seeing an opportunity and being able to move on it quickly, and that alone drives engagement.

Today’s investors also expect personalized experiences and solutions, reflecting their unique values and beliefs. We know, when we make things easier, they’re automatically more accessible, whether it’s placing a trade in your car because you’re listening to news and you hear something about a particular company, although we’d really want you to make sure you pull over and park your car first, or during lunch break, having conversations with colleagues that might give you an idea. When it’s easy and uncomplicated, people will take action. Firms like Schwab, we have a lot to be responsive to our clients’ needs. They demand efficiency and simplicity in everything that touches their lives.

There’s no greater example of this than what we saw during the pandemic, which really accelerated digital adoption across virtually every industry. Everything was online. It was touchless. So many things, industries, people found efficiency that way. Take a look at grocery shopping and how much that has changed. I can’t remember the last time I was in a grocery store. Everyone took advantage of it, even those who weren’t technology first in their lives. Those things that helped people, that made their life just a little bit easier they’ll live on, even after we all return back to a more normal way of working. The financial services industry meeting clients and investors where they are, it’s what’s next. It’s what we do. That isn’t gamification of investing. It’s simplification and making wealth creation something everyone can participate in. That’s great for the investor, and it’s great for the markets.

Ken: Well, if you think about what’s next, with all that’s going on, what are you most excited about?

Lisa: I mean, I’m really excited about the future. So much has changed in the last 10 years, a lot of it driven by technology, and I know that pace of change will only accelerate. So I get excited about the future growth in the industry and what technology will mean for all of us, not just for the investors or clients, but really what it will also mean for our firms.

Another great outcome of the pandemic was the industry’s ability to keep everything working, everyone working and working efficiently, including our ability to recruit and train new employees and get them registered and certified and doing all of that virtually. I mean, our firms have hired thousands of employees who have actually, probably, never stepped foot into our offices yet. They will someday, and we can’t wait for that, but that’s pretty remarkable.

A big win here was how everything that happened in 2020 is really impacting the industry’s focus on diversity and inclusion right now and specifically recruiting a truly diverse group of employees going forward. SIFMA is doing some great work here with their partnership with historically black colleges and universities and really helping our firm build that important pipeline. But success here means getting future employees interested in careers in financial services way before they’re looking for a job, but in high school and college.

I’m so excited about the leadership Schwab and the SIFMA Foundation continue to demonstrate in financial literacy for young people. Unfortunately, financial literacy isn’t part of most school curriculums yet, so it’s so important the industry does all it can to see young people have the tools they need when it comes to understanding personal finance. It will also ensure they’re educated and prepared when they’re ready to invest. I’m proud of our work here and the platforms we have built to help. There’s a lot of good that we can deliver when we all work together.

Ken, one more thing. I’m so excited about something super brand new that we are starting. Can I give you a quick preview?

Ken: Yeah, please do.

Lisa: We talked about this already, but today only 21 states require high school students to take a personal financial course to graduate, and today more than 92 percent of low-income students, according to the next-gen personal finance study of 2021, lack access to a required personal finance course in high school. Carrie Schwab-Pomerantz, who heads the Charles Schwab Foundation, is leading this for our firm, but by 2025 we aim to mobilize 25 percent of our workforce to teach financial literacy skills to teens across the country.

The program is called MoneyWise America. It’s a financial literacy program designed to help level the economic playing field to high-quality financial education for teens across the country and really focuses on reaching youths in under-resourced communities and schools. There’s two core components to it, a standards-based financial literacy curriculum and a core of Schwab employee volunteers trained to facilitate it for teens across the country. Our employees are so jazzed about this, as am I. It’s really exciting. So thanks for letting me share that with you. Those are a few things I’m pretty excited about.

Ken: That’s really incredible, and to really draw on the talent of the Schwab workforce to go out into the field and in the schools and train kids is unbelievable and is very exciting.

Lisa, I want to thank you so much for joining us today, to give us your vantage point of what’s going on and learning so much about what you and Schwab are doing, not just in the client-advisor space, but even more broadly, in the financial literacy space.

Lisa: Thank you, Ken. It’s always a privilege to spend time with you. Appreciate it.

Ken: Right. Well, thank you. For more information on the advisor-client relationship, go to www.sifma.org for information on this and other matters involving the U.S. capital markets. Thank you.

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Lisa Kidd Hunt is the Executive Vice President of International Services and Business Initiatives for Charles Schwab & Co., Inc., where she leads global products and services along with four broker dealers outside the United States, and drives strategic initiatives for the firm.

Kenneth E. Bentsen, Jr. is President and CEO of SIFMA. Mr. Bentsen is also the CEO of the Global Financial Markets Association (GFMA), SIFMA’s global affiliate.