Financial Mail - Investors Monthly
DIY — easy as 1, 2, 3
More people are investing via online platforms, writes Pedro van Gaalen
ven before Covid changed the industry, platform-based fintech innovation was “Uberising” investing by offering investors easy access to a broader investment universe.
“More consumers were choosing to invest via online platforms because it is easy and affordable, with very low or no minimums,” says Duma Mxenge, business development manager at Satrix.
The pandemic spurred exponential growth in investment app downloads and online platform registrations as retail investors used the extra time and financial resources at their disposal to capitalise on the market volatility.
In the US, the fee-free Robinhood trading platform grew revenues by 245%, from $277.5m in 2019 to $958.8m in 2020. Local online trading platform EasyEquities had similar growth, with registered investment accounts growing by 161% between 2020 and 2021 and assets under management rising 70.3% year on year to R26.9bn.
Charles Savage, CEO and founder of EasyEquities, says: “We have worked to democratise access to investing by focusing on three fundamental friction points inherent in the traditional stockbroking model.”
These are: eliminating minimums; improving share price discovery; and amplifying reach.
“High investment minimums
Eand brokerage fees excluded about 95% of potential retail investors from accessing the market,” says Savage.
The need to buy whole shares imposed another form of minimum, precluding many from investing in the world’s most valuable companies.
Online trading platforms effectively addressed these pain points with low-cost, user-friendly access to markets, and EasyEquities took this a step further by offering fractional ownership of individual shares and in share portfolios.
“Our interface is intuitive, engaging and educational — the antithesis to traditional stockbroking. These features gave us access to the mass market, which radically transformed our business,” Savage says.
Effectively addressing these friction points positioned EasyEquities favourably to capitalise on the digital-led DIY investment revolution.
“Covid … triggered the boom in DIY investing because it forced everyone to live a digital life,” adds Savage.
EasyEquities now has 1.2million registered customers and 600,000 active investors.
Savage believes the world won’t go back to pre-pandemic usage and consumption patterns. “Hybrid models that blend digital and physical services will [be] the future of investing, and more investors will add an element of DIY investing to their portfolios.”
Various market factors will sustain this new model, says Savage. “Instant, easy, low-cost access to markets and faster information flows allow investors to react in real time to trade and invest during volatile periods.”
Platforms such as SatrixNow also provide investors with educational content to inform investment decisions.
Mxenge says: “DIY investors should commit to learning as much as they can about basic investment principles, asset classes and suitable investment horizons. Ultimately, investing should form part of a long-term financial plan that aims to achieve specific saving and investment goals.”
When coupled with responsive online platforms and other resources such as automated robo-advisers, educational and market information helps bring investing to the forefront of what retail investors think about or read. “These factors empower investors to become active participants in the market,” says Savage.
And DIY investors can access numerous investments, including stocks, unit trusts or retirement annuity products.
“For DIY investors who want more than just equity exposure, multiasset balanced funds offer access to investments across asset classes, including equities, bonds, property and cash,” says Mxenge.
In addition, online trading platforms give DIY investors opportunities to trade in contracts for difference, currencies and cryptocurrencies, as well as alternative investments.
Savage adds that EasyEquities also offers retail investors fractional ownership opportunities in unlisted residential property investments.
“Property is another asset class that presents investors with significant friction points. Leveraging an online platform model has created investment opportunities in this asset class without the hassle.
“In just over a year, investors have invested in a property portfolio worth more than R120m.”
Other investments that are ready for platform-based democratisation include venture capital and private equity, believes Savage.
“Massive minimums and complicated exits characterise these investments.
“However, online platforms will broaden access by offering proper and transparent price discovery and will create a secondary market for investors,” he says. ●