Broadridge Finds Increased ‘Democratization’ in Discretionary Investing

The financial firm mined millions of retail investors to learn about investing trends from the last five years.

Discretionary investing outside of workplace retirement plans is being done by a broader range of people in part due to the rise of online trading apps and the continued rise of low-cost investment options such as exchange-traded funds, according to Broadridge Financial Solutions’ latest U.S. Investor Study, which was released on Monday.

“This is discretionary money that people are investing outside of their 401(k) plans,” says Andrew Guillette, Broadridge’s vice president of global insights, who led the study. “What’s startling is the range of people investing, even if at smaller amounts, that shows a real democratization of the space.”

Between 2018 and 2022, Millennials (born 1981 through 1996), Gen Xers (born 1965 through 1980) and Baby Boomers (born 1946 through 1964) have seen more households with less than $100,000 in liquid investable assets investing in markets outside of workplace retirement plans, according to Broadridge. In addition, investments by Millennials and Gen Xers increased for households with less than $3,500 in assets under management, which Guillette says was a trend that started during the pandemic and has continued.

“People were home, with expendable money … and easy access to investment tools,” he says. “It’s important to note that the dollars they are investing are smaller, but these are also people who will be generating wealth in the long term.”

Millennial AUM, while growing, was still just 5% of total investments in 2022, Guillette notes, while mass market households—those with less than $100,000 in investable assets—make up about 7% of total AUM.

Broadridge created the study by mining its proprietary access to millions of retail investor households investing through financial intermediaries such as broker/dealers, digital platforms, registered investment advisers and wirehouses. The firm analyzed ETFs, closed-end funds, open-end mutual funds and U.S. equities held in both taxable and individual retirement accounts from 2018 to 2022.

Online Shopping

Compared to four years ago, more investors, particularly young ones, have adopted the online discount channel by a large amount, according to the study. Online investing rose by at least 13% across all age groups, with AUM in online investment channels also up by at least 10% across all groups. Meanwhile, broker/dealer channels, RIAs and wirehouses all remained relatively flat across all groups, Broadridge found.

Part of that shift has happened due to investors looking for increased personalization, according to Guillette. They may still, however, be working with a financial adviser or interested in doing so, he notes.

“Very often they may be doing it with the guidance of a financial adviser, or at least making them aware of the investments in terms of their whole portfolios,” he says.

In a related survey done by Broadridge, 47% of Millennials said they sought investment advice from apps, and 60% said they are likely to use a financial adviser in the next two years.

Active Mutual Funds Down

Meanwhile, mutual funds, once the mainstay of investor portfolios, have declined across every generation and wealth segment in the last four years, according to the study, and a years-long shift toward ETFs and equity investing has continued.

“Active Mutual Fund Investor” households—those with more than half of their assets in active mutual funds—made up 44% of households in 2022, a 14% decline from 2018. These households were also more likely to be lower earners making $100,000 or less and to be heavy users of the broker/dealer channel.

Guillette says Broadridge is not surprised by the trends, as actively managed mutual funds have fallen out of favor due to investors seeking more customization. He expects further shifts to separately managed accounts and direct indexing, which can provide even further personalization.

The Broadridge report also noted the potential rise of more workplace retirement plans following the December 2022 passage of the SECURE 2.0 Act of 2022. That trend may create a “softening” of mass market non-workplace investing, according to the firm.

But Guillette says that even if there is a slowdown, he believes the trends toward customization and personalization of investor needs will continue.

“For years, we’ve been working without the end user in mind, and there is great opportunity in learning more about the investors,” he says.