Financial democratization: the stock market for all cannot do without enlightened investors!

Will 2020 be remembered as the year when the democratization of the stock markets kicked off? One thing is certain, under the impetus of a growing number of bloggers and influencers, financial topics have suddenly emerged from the shadows of expert offices to find themselves projected onto the front of the web scene.

Par Christian Staub, Managing Director Europe, Fidelity International

At a time when financial knowledge has never been so readily available, the information gap between experts and amateur investors seems to be narrowing. So much so that more and more individuals now feel ready to enter the financial markets.

Thanks to a thriving offer of online platforms and low-cost brokers, trading has become trendy. If only a few years ago, stocks were considered by young people to be the preserve of the richest, even as an almost diabolical work, today abandoning the stock market would be almost suspect. ‘Gamestop action (triggered by a handful of reckless young people in the online community Reddit) clearly show the possible drifts of this development.

Needless to say: speculating and investing are not synonymous, and a long-term commitment to a company action should certainly not turn into a purely speculative game.

Therefore, in order to enable all individuals to lead a healthy financial life over the long term, we must ensure that “digital natives”, in other words these children lulled by digital technology, are also “financial natives”.

The latter would then be able to make informed, conscious and reliable investment decisions; either on their own through a realistic understanding of investment opportunities and inherent risks, or in collaboration with trusted financial advisers.

If bloggers and financial influencers can now congratulate themselves on having started a fundamental trend, other initiatives must follow. To cite just a few avenues: economic education should finally be taught in schools, and administrative and regulatory burdens deserve in some respects to be reduced. Striking the right balance between the protection of individual investors and the ease of access to financial markets is indeed essential.

Asset managers must also contribute to the democratization of the investment world: through greater transparency on costs, the sustainability of products, opportunities and risks, but also through new accessible communication formats, through information on the financial situation available to end investors (for example via online dashboards), and above all through increased digitization of the investor experience.

In this sense, the next step on this path is to simplify access to private markets. Research shows that investments in this unlisted market segment are generally made over the longer term, but can also provide multiple opportunities for returns.

Unlisted FinTech companies can provide access to large groups of investors to asset classes previously reserved for a minority.

As financial intermediaries, therefore, we must strive to further simplify access to equity and private markets by removing barriers to entry. If until now only wealthy or professional investors have been able to engage in the most promising private markets, the democratization of the markets must be accelerated in the interest of the greatest number. The more individuals become enlightened investors, the more successful financial democratization will be!

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