Why brokers should take investor education seriously
In a triumph for collective action, sparked by online forums such as Reddit, the GME saga saw traders and retail investors take hold of Wall Street, and the influence of the retail crowd was far greater. bigger than we could have imagined.
Without a doubt, there are now well paid analysts and quants scouring the web for the next portal like Reddit or the next GME. As headline-generating as it is, it also highlighted the need to educate the trading masses about more than zero commission or how to use well-designed trading apps.
Robin Hood have faced significant risks throughout this saga and have appeared “on the Wall Street side” when the dust settled, given the trade restrictions they were forced to implement.
Once Robinhood caved in to trade pressure and lockdown investors, GameStop shares fell 79%, leaving many retail investors with big losses. The frustration felt by clients unable to execute their positions led to public outcry and allegations of market manipulation in favor of the “big cats” of Wall Street that Robinhood was morally opposed to. Further, by appearing to work with the Wall Street establishment, rather than working for “the little guy” as they claim to serve, Robinhood has seemed to undermine their business model and reputation.
While the event left analysts divided, the move has undoubtedly highlighted that in the future, investor education covering many topics requires considerable improvement and attention. It is now incumbent on brokers to react accordingly, through clear and consistent communication with clients. Without it, the underlying market forces could mean that the next time a Reddit rebellion occurs, it won’t play out in the same way in favor of the retail investor.
Risks for brokers
For those with experience in the industry, Robinhood’s decision to limit the positions of its clients made sense. Too many clients accumulating in transactions, all in one direction, can prove to be very dangerous for the brokerage and its traders. Robinhood and her clients struggled to find common ground on this topic and as a result the brokerage found itself with a black eye.
However, those who have held accounts with brokerage houses will experience the frustration of seeing orders rejected or slipped at unfavorable prices. It’s natural to look for someone to blame in this situation, and you don’t want someone telling you that your position is “unable to perform.” Unsettled positions and unsettled orders will cause a quick and visceral outcry against these financial institutions – still reeling from the reputational fallout from the previous financial crisis.
Lessons to be learned
Skilling, and no doubt all of our counterparts, watched Robinhood’s reaction with curiosity. This is a case study in marketing messages and crisis communication. The skills appeal to both new and experienced traders, as does Robinhood, which has caused us to take a careful look at our position and how we educate and communicate with our client base.
Communication and perception problems can sting for a long time. I suspect that for the quarters or years to come, Robinhood will have to contend with a fair share of “detractors” offering warning messages to potential account holders when they seek advice through online forums, message boards. , messaging apps or social media. Those who have been through the wise GME will likely tell their story for years to come.
Michael Kamerman is CEO of Skilling.