GameStop's new investors should drive new shareholder engagement
An interview with Martin Koopman
The GameStop trading shot heard round the markets served to many as a wake-up call: Retail investors are all in and they're here to stay. The issue is: How will they use their power?
Capital markets have more first-time investors than ever before thanks to mobile platforms appealing to the millennial generation. That's a positive sign despite the growing pains that come with progress in financial markets, an industry that moves thoughtfully rather than quickly, according to Martin Koopman, Broadridge's Investor Communication Solutions president for bank broker dealer services. Broadridge brings together market makers, clearing houses, investors and brokers and has a particular focus on helping their customers to support increasingly influential retail investors.
The value of small-lot trades — a proxy for retail trades — has risen by 85% over the past year, Goldman Sachs said in February, turning such traders into a powerful force.
"It's extremely encouraging because it involves young investors in creating long-term wealth," Koopman said.
Protocol sat down with Koopman to talk about the exponential growth of data and its accompanying challenges, the ways that new technologies are quickly transforming immense amounts of data into valuable insights and how companies should think about digital tools as they look to engage more shareholders outside of the largest funds.
How can we use the GameStop-Robinhood example to amplify shareholder engagement?
All of this engagement is very beneficial because we're seeing record numbers of retail investors come into the market.
The reduced friction of getting into the market is extremely positive in the long term because it involves millennials and other younger investors in creating long-term wealth.
The flip side of that is that once you're investing in the market, you're an owner of shares, and that brings some real opportunities as an owner to influence through voting your shares. And that's not well understood today.
So if I have a point of view and I'm voting on board-diversity initiatives or other issues important to me, there's real power in that. Over time, these new investors will understand their influence, which will be very constructive.
What are the common pitfalls that can be avoided by new investors?
It's helpful if investors who are new to the market understand the importance of owning for the long term versus speculation or trading for the short term. The more that we can help educate investors, the better. They need to know that they have to pay a capital gains tax on sales and that there are benefits to having a diversified portfolio. After all, a buy-and-hold strategy has been proven to create wealth over the time.
Are digitization and the new upstart trading platforms ultimately a good thing for investors?
Anything that brings more investors into the market long term is a very good thing.
They push everyone to continue to innovate. Anything that reduces the friction to get involved in the market is welcome. Putting it on an app and creating a great user experience so it's easier to buy into these great companies, and then delivering it in a way that's meaningful to newer and young investors is really helpful in the long term.
What is it that broker dealers can do to better engage with customers? How can they avoid the kind of situations that we saw with the trading restrictions on GameStop, especially when there's volatility?
Brokers can continue to educate clients about investing for the long term, about the risks of short-term trading and the need to have reasonable constraints around that type of activity.
So a best practice for brokers is to teach clients when they're pushing up against margin requirements, alerting clients when the market is swinging so much that the markets may have to pause because the public stock markets have to hold trades for a while. The industry has now recognized that with technology, this is something that can be improved.
How can companies use technology to boost the participation from shareholders?
New firms have done an excellent job of using technology to attract new entrants into the market leveraging a mobile-first approach and focus on simplicity. This approach has enabled shareholders to engage with their investments when and where they want.
At Broadridge, we tapped into that insight and launched a proxy voting app a few years ago. Many of our clients also offer proxy voting through their apps or through their advisor website, making it easier for shareholders to vote from the same place where they're already going to check their account balance.
We've also developed technology to alert institutional shareholders to proposals that may be of interest to them and will be bringing that capability to retail investors soon. So, for example, if you're a millennial and we know from data analysis or from preferences you've shared that you care greatly about environmental matters, we can send you an alert on your iPhone when a proposal is up so you can vote on it.
What about client-directed voting? Do you see advantages in that?
Everyone in our industry is supportive of retail investors being more engaged in voting their shares. At the moment however, it's a manual process where shareholders have to go line by line through proposals and tick for or against, which adds a bit of friction to the voting process. We know from our personal experiences shopping on Amazon or watching films on Netflix that with less friction, we tend to do something more often.
So the idea is to give that same capability that institutions have to retail investors, where they can set up voting preferences in advance.
For example, if a board director sits on more than five boards, I might hold a view as a shareholder that they're spread too thin and my preference might be to vote against that board director. That would be a choice I would want to pre-populate in my preferences. It's a way to remove the friction and increase voting participation.
What role does big data have in the efforts to inform and educate investors about proxy voting?
Big data can be used to put relevant notifications in front of retail shareholders at the right time that will encourage them to vote.
For example, sending them a pop-up alert on their phone, or notify them in other ways that there's a proposal that we think they're going to care about and then nudging them to act.
What is Broadridge's role in all of this?
We enable better corporate governance and help the industry come together. Be it public companies, banks, broker dealers, institutions or retail shareholders, we help fulfill their corporate governance responsibilities, including and most importantly, proxy voting. We take a really focused approach on innovating in this area and investing in building technology to bring more individual shareholders into the process, to continue to make it relevant to a new generation of investors.
At Broadridge, we harness the power of technology and mobile to make the corporate governance experience as seamless as possible. We will be doing a service to the industry as we continue to educate and engage individual investors, as it benefits not just investors but the industry overall.