BONUS Episode: What investors really think about AI, crypto and market volatility

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Speaker A: million global subscribers or engage your existing customers by white labeling our award winning investment content, speak to our team today@, uh, finimize.com business. Welcome to a bonus episode of Retail Investors Decoded. Now it's a special episode because we have just released the Q3 Modern Investor Pulse. That is the survey where we dive into what nearly 3,000 investors all around the world are thinking, feeling and doing right now. Great lessons in there. A trove of data and no one better to get into what that all means for the platforms and the issuers out there than our very own, uh, Fraser Munro, head of partnerships.

Speaker B: Welcome. Thanks Carl. Happy to be back.

Speaker A: Absolutely. Let's dive right in. I mean the headline was the AI stat. 41% of people say they are using AI at least weekly to do investment research and get advice. I mean that's a massive number. A lot's changing in the AI space. What do you make of it all?

Speaker B: Yeah, it's interesting because it's almost like there's the sort of two sides to the coin, isn't there? There's the first bucket being like what do people do to get, get going and then the other being what happens once they do. Right. And AI seems to play a very different role in each. Um, I was thinking about this and this week the analogy for me is like, you know, what is that catalyst that actually gets someone kicked off and going with investing? It's definitely much less AI and much more what happens down the pub. Right. So that ide, um, you know, you're going to the watch the football or commiserate the football maybe. Ah, and you are having a conversation with a friend they're telling you of. You know, six months ago I heard about a stock which is actually, you know, much more interesting than ChatGPT and it's actually about GPUs. And I invested in this thing called Nvidia and that's, that's what they, they claimed is their big um, success story. And you know, they've made some money in ah, it, it was super easy. They did it on XYZ platform and, and that type of story and conversation I think is ultimately still the trigger that gets everyone going. Right. So I think that's like one of the very interesting things to think about for, for the industry is like how do you help facilitate more of that type of thing. Right. So like, how do you become part of the conversation? How do you let you know, ultimately humans talk to other humans because that is how you're going to really get people to, to get started with this thing. And then on the other side of the coin, obviously, once people have got started, you know, great, they're definitely using AI. The uh, findings that we saw is 40, 40 plus percent of people are using it on a weekly basis. But like it's thinking about the stuff that they maybe aren't going to get from AI. Right. I think that's the job for, for the industry there. So it's saying, okay, like, you know, we need to think about, um, some of the, the context that we can give that, that any. I might not be able to. Right. So how do we tie it to something topical, tie it to something timely, give someone a relevant insight for them that's not just regurgitating whatever they can get out of, uh, a prompt themselves.

Speaker A: Yeah, I think it's really interesting. So that stat about getting people started, it's, you know, 40%, give or take, get started after a conversation with someone they Trust and only 5% get started thanks to AI. And I think there's a real opportunity if I'm a, if I'm a platform, if I'm an issuer, uh, we've made so much of a song and dance about democratizing access to investing into finance. And yeah, we've done some of that, but we haven't. The job is nowhere near done. And actually AI is now encroaching on driving that access. We've landed on our summits as the most powerful way to facilitate those conversations. We've been doing them for years. Um, they're getting bigger and better. Uh, we'll have 2,000 people in New York City next year versus 200 and maybe 300 this year. This thing just gets bigger and bigger. We're holding those conversations, we're almost the town square of those conversations around investing for people who are getting started. If you're in that 40% using AI at least weekly for your investment research, being in that conversation, whether people are starting or continuing probably helps you when it comes to AI. Right now this isn't our, uh, specialist area at all, but everyone and their dog is selling AI optimization services. And it's true to say, at least from what I've seen, that AI loves recency, um, it loves new information. But if you are in a real conversation, a real time conversation, that is then amplified because um, it's such a big event and there's tons of coverage of it. Your product, your platform gets amplified. You get to be in the AI conversation, but you get to be in the investor's journey in a way that matters, which is in person.

Speaker B: Yeah, totally. Also, I think there's an interesting, um, thing that is maybe overhyped slightly about AI when it comes to this space, right. In the sense that information has always been accessible, uh, out there. Right. So, like, that's never really been the massive challenge. Like people, yes, it's easier to access it now with AI, but they could have still got it. You know, they could have gone on Google, they could have gone and found it themselves, et cetera, et cetera. The problem has made it, you know, it's made it more accessible, it's quicker, it's easier to access. But, like, the actual trust component is still not necessarily there when you're going to, you know, prompt AI. Like, you might use it while you're investing to sort of sense check things. But we all know there's also that sort of, like, echo chamber. You know, it's your best friend and it tells you you're a genius. Like, there's all of that side to it that we need to kind of bake in as well. And sometimes you need, like a human to basically tell you, you know, you're barking up the wrong tree or you should think about this in a different way or give you a more balanced view.

Speaker A: 100%. And he talks about groupthink there. Uh, you know, investors love finding opportunities. That's a perfect segue into just the overall optimism of modern investors. Right now, 70% think markets will be higher in 12 months, which, given the drops we've seen of late, you know, stands to reason most investors over the last six years who've bought the DIP have done well for it. One of the questions I was asked about this report on CNBC is what are investors going to do if, when US Iran escalates again? And we can just look back to previous reports, and we can look back to previous geopolitical, uh, flashpoints, uh, across the world. And what they do is take off idiosyncratic single security risk, whether that's stocks or particular commodities. And they look for baskets, whether that's across the ETFs or themes that they think might work. For example, defense, obviously, AI, um, but they stay invested. And this whole point, it's, it's true and it's also a truism, and it's also quite, you know, Cliche to say time in the market beats timing the market. No one's trying to time the market. Retail investors are, um, not cutting and running. And I think there's a big opportunity here because if you go a level deeper and you say, hey, where do you want to invest? But you're not feeling as confident where you. Where do you want to learn more? Right now it's stocks. We know investors are buying stocks. We know investors right now in heightened geopolitical times buying ETFs. There's a huge opportunity for issuers, for asset managers to get in front of people, tell the story about ETFs that retail investors are A, interested in, B, maybe unaware of, and get those into consideration. Because we know people are looking. We know that there are just to pick a number from memory, 11% of people with more than $200,000 to invest right now, liquid cash, not portfolio, liquid cash. Um, and they're looking for ideas. And stocks is an obvious place and they're not feeling confident. And so you can help be on that journey and, you know, think about the lifetime value that comes from being there at the point of need.

Speaker B: Totally. Yeah, I couldn't agree more. I think it's like, you know, not to use the Sheryl, uh, sandbergism, but like, leaning in now when things are a bit choppier and a bit more volatile and like, trying to support them when things are a bit crazier, like you are then best positioned to win when they, to deploy that cash that you just talked about. Right. Like, no one's going to, uh, you know, basically everyone's going to make those decisions while things are tough, and they're going to be making them based on the, the industry players, the experts, like, whatever you want to call them, those people who are showing up and visible when times are not just, you know, sunshine and rainbows like those are, those are the places that you're going to win. Um, retail kind of loyalty long term.

Speaker A: Exactly. And I think another spot in that, maybe moving up the complexity chain slightly is derivatives. Right. So right behind stocks in areas that people want to learn more about are, uh, derivatives. And maybe for people in this market, it's maybe obvious why, given high market valuations, maybe people are looking for ways to hedge, people looking for ways to maximize exposure with limited capital in some cases. Loads of different reasons. But again, big area. It's one where we've seen a lot of interest lately.

Speaker B: I think, um, that's one of the more interesting parts of the pulse in general. I always think Is like we ask, yes, where are you going to invest? And then the follow up is always where do you want to invest? But there's a knowledge gap or you're looking for more insight or support. And we always have been tracking things like derivatives in that space, right. Where um, it's a slightly different challenge to maybe like why people are looking for more in stocks or ETFs. Because I think if you look at derivatives as a whole, they are pretty complex products. They are something that maybe there's a bit more of a fear factor around. There's a bit more of a risk of kind of blow up, but there's a lot more nuance maybe to that than just continuing to deploy into assets they've already invested into. And I think with that complexity comes quite a big opportunity for um, for the industry to say, okay, like, how do we debunk some of the scariness of this in a responsible way? Right? Where you know, there's, yes, there's better access, the products are more available, but like ultimately like you need to um, give people real life examples of ways that people have had success with these products in a responsible way and maybe

Speaker A: onto the elephant in the room, um, crypto, or in particular bitcoin, which hasn't had the uh, smoothest of rides of late. And alongside its price sliding, we've seen the proportion of people who believe its price will be higher in 12 months drop and the proportion of people who plan to invest in crypto over the next 6 to 12 months drop slightly. And two things jumped out. One is that those who are holding bitcoin continue to hunker down. And that's all well and good. Two is if I overlay the data from the Finimize Awards last quarter, education is a factor that has driven, you know, the leading um, crypto provider according to finomize members. And so I think there's a job to be done, like you said, around ETFs and stocks, when things aren't all going up and to the right. This is the time where education comes in, content that is relevant, that acknowledges the reality, comes in and actually sets you up to be the provider of choice.

Speaker B: Yeah, absolutely, yeah. It's an interesting one. I mean like, what's your kind of take on it? Because obviously we've seen a couple of quarters now where um, it appears that the sort of, I don't want to call it hype, but the sort of interest in crypto is maybe is going backwards a little bit. Is that transferring from there to AI, what do you think are some of the drivers?

Speaker A: So I think, like I said, I think the core crypto investor is still there. Um, I think the marginal buyer I guess is what, where the question really lies because that's what maybe moves the price up or down. Marginal buyer or marginal seller. So on the marginal buyer in the conversations I've heard from our community, but also in the wider space later this year is when people are getting, starting to get more excited about the next four year crypto cycle. At a more macro level the marginal buyer is perhaps allocating a bit more capital to things like prediction markets. Um, and by marginal buyer here I don't mean a crypto focused investor. I think they're staying the course. But if you think about the perhaps more flighty investor or somebody who like a lot of investors using a small proportion of their portfolio to do some really high risk, really high octane things just to see how it works. Right. To learn by doing. Prediction markets are uh, hot, are uh, interesting. There's a ton going on from prediction markets in financial markets to politics, to sport, to global weather events. We've written on that, you name it. And so I think there's a, for people looking for high risk, high octane, that marginal buyer is maybe spending a bit more time in prediction markets. I don't think it's either or. I think it seems to be maybe either or right now. But I think in the formless of time, you know, people don't sell all their stocks in order to have a position in commodities. People aren't going to sell uh, all of their crypto positions in order to have a view or engage in prediction markets.

Speaker B: I saw one interesting, like one final point on crypto um, that I saw just to sort of support all this. That was interesting. So Vanguard put out some research a couple weeks ago um, into kind of precious mindset around investing and what they found particularly with crypto is it's still the number one product that Gen Z start with. So even ahead of stocks it's still the kind of gateway drug into investing. So regardless of whether inevitably it goes up and down and optimism changes, it's clearly still a very, very important asset class, particularly for a certain demographic of new investor as well.

Speaker A: Yeah, look, I make Vanguard right on that and to me it's really clear why take it outside of investing, right? People go where they are wanted, people go where they are welcomed. They tend to not go where they are shunned and tradify just to be Gen Z for a second. For most of Gen Z's lives have shunned them, have said, you don't have enough money for us or you want to buy this stock or this fund. Well, read this 20 page risk document first or you don't know what you're doing. If you want to invest in this thing, sit down with an advisor who's going to talk down to you. Or you know, the list goes on and on and on. Whereas crypto by and large says, do you want to transact in this space? Come on in, learn m by doing. We're here with content, we're here with information. We're here to help you if you need it. But you're an adult, go, go for it, figure it out. Um, and it really just appeals to people's sense of autonomy and agency. Uh, prediction markets, same. And so yes, you know, Tradfire is starting to be a bit more like that and just allowing people to be a grown up. And the FCA to its credit is changing some rules around, um, risk warnings and things like that to take away the excuses all of the TRADFI folks have used. But unless there's a massive change really quickly, you know, marginal changes will be too little, too late. You know, if, again, if I've been ignored for five years by uh, TradFi and then they say, hey, come and talk to us now why would I do that? You know, I found my people, so to speak.

Speaker B: Yeah, interesting. Um, to switch gears like one I'm keen to ask you a bit about as well, ETFs. I feel like that's the one that we're constantly talking about. But um, the thing that slightly surprised me, maybe not surprised me, but that I saw again in the, in the data of, you know, that knowledge gap, ETFs was pretty high in that. Right. And you think about like the, the promise of ETFs in some ways is that it's basically the simplest option you can, you can get. Right. It's like, don't bother with stock picking, buy the basket. That's what ETFs are here for. And yeah, it still scores relatively highly in people who are saying like, I'm kind of struggling to sort of navigate or I need more knowledge in that. Uh, um, what's your take on that? Like I, I'm kind of interested to hear what, whether you think.

Speaker A: Yeah, that's interesting that you flagged that. My read on it is people understand the product. I don't think there's any question about that.

Speaker B: Mhm.

Speaker A: But they struggle to understand differentiation. So what's the difference between this ETF and that etf. If they're both giving me exposure to China, for instance, there are more ETFs than there are individual stocks, I think, um, by some counts or by just a natural count. And so up against that, you're getting more and more complex ETFs. So basic ETF people get, I think active ETFs need to do a bit of a job, uh, to explain themselves. And I think that gets caught up in there. You know, trusts funds, whether open ended, closed end, get dragged up in there and are less well understood. And then you bring in leverage. And again, this came up with CNBC. Right. You've got triple leveraged ETFs. Double leveraged ETFs on a theme. Sure. On individual underlying securities packaged almost as an etf, the proliferation creates complexity, even though the underlying product might be simple. So I think there's a lot to do to, um, you know, tell the story of an etf, explain what it's for and moreover, explain why this over that. And that doesn't necessarily mean it's cheaper. Uh, I think these are table stakes. It means it does what it says on the tin. So obviously everyone wants good performance, but you can't solve for that. But what you can solve for is performance in line with expectations. So how do you do that? You tell a clear story, your communications are good, your content is good. You know, when something surprising happens, whether good or bad, you are on the front foot in front of people. I used to be an equity research analyst and it's all well and good when you, when the stock you've got on a buy goes up 10%, do a little bit of a victory lap. The more important work comes when it's down 10% because then you want to get in front of the people that you've told, buy this stock, explain what's gone on, explain if your view has changed, why or how to think through things. That's where you frankly, anyone can pick a stock that goes up.

Speaker B: I, uh, totally agree with you. It feels like that knowledge gap with, with ETFs is really kind of an overwhelm gap maybe, rather than a knowledge gap. Right. Because it's like they understand, like you said, what the product is. But that doesn't make it easier if there's 25 of the same product. Right.

Speaker A: It's hard to reflect the loyalty that you've built to your brand through a platform. And what I mean by that is if I open my investment platform and I sure. If I type in Vanguard or Vaneck. That comes up, but also partly for regulatory reasons, but also partly because they're not incentivized to platform. Doesn't necessarily say, hey, I know that you prefer an iShares product when available. Therefore, when you search for something, I'll show you the iShares product first. And if I'm an iShares stan, but then the Vanguard product comes up first, and for the reasons we've discussed, it basically does the same thing. I'm not incentivized to do the extra work to look for the brand I want.

Speaker B: I think, like, once someone is shopping and looking on the shelf, so to speak, in one of the platforms, it's like you don't really have a chance to sort of influence them at that point. Right. Because like you said, like, maybe best case scenario, they might stumble across the fund that's yours. They're not going to be able to compare directly on the platform. So ultimately it feels like the battleground has to be pre platform before they've decided to type it in. Right. That's where you're going to potentially influence and stay top of mind and showcase who you are and tell your story and do all the things we're talking about. Because otherwise it's just a lottery, frankly, when they go to search.

Speaker A: Exactly. Fraser, I know you spent a bunch of time talking to some of the big hitters in the UK government and industry campaign to get Britain investing. Um, we obviously, as part of our pulse, did a lot of work to understand how British investors were feeling about investing in British assets and investing overall. Before we get into, you know, the detail of what the report showed, it'd be great to hear your perspectives from the conversations you've been having.

Speaker B: Yeah, totally. I think it's, again, sort of there's two streams to maybe unpack in one here. So one is the UK has a huge opportunity, if you look at it in a positive light, to say, let's get more savers into investors. Right. So how do we get more people to sort of debunk, demystify what investing is and get them started on that journey? So I think that's one big bucket that's really interesting. And there's tons of stuff going into that and we can unpack some of that around, you know, catalyst the best and all those stuff. And then the other is, as a, as a market, you know, what do British investors think of British equities effectively? Right. And, you know, that's whole investing in Britain. What are some of the barriers why are they doing it? Uh, or why are they not doing it? And I think, um, we have some pretty interesting findings across both, um, which maybe, maybe we can unpack a bit more.

Speaker A: Absolutely. So I think on British investors, on Britain, only 21% or perhaps only 21% on uh, British investors investing in Britain, 1/5 say they plan to increase their allocations to the UK. To be fair, it's roughly equal to those who say they're going to decrease their allocation to the uk. But of those who say they're going to increase their exposure, the biggest reason is valuations being attractive. I think that's fair. Britain has been cheap for a long time. International buyers have noticed, uh, if you look at the M and A activity, if I then look at the group who are shunning British assets, 75%, give or take, cite the economy or a lack of confidence in the economy, I'd almost want to bat this back to government. That's the thing to solve if you want to solve British investors picking the uk.

Speaker B: Yeah, totally agree. I think, um, yeah, uh, a lot of it comes back to sort of the storytelling, right. It's like, you know, how do you um, better give people reasons to believe in, um, why investing and saving are not actually a million miles apart. Right. Like there should be two sides of the same coin to a certain degree. Like to tie this again into the Vanguard research that they put out recently. I think they found something like 82% of people thought that saving, investing were fundamentally completely different activities. Right. And you think about that. That is the battle ground that we're having here. So how do we as an industry help people have more conversations, tell more success stories and inverted? Well, no, actually, yeah, tell more success stories. And it means that say this person has been able to put down a deposit on a house or these people have been able to fund their kids through university or retire or whatever it might be. Investing is not as scary, uh, a premise and concept as it appears from the outside. Let me ask you actually one other part about the Savart investor thing that I think is kind of interesting. It's great that there's these tailwinds in the UK now, uh, people are pushing to do more of it. There's a government uh, led initiative to encourage platforms, providers to put education at ah, the forefront. Do you see what's your thoughts on some of this or unspoken risks, I suppose with that, like, okay, put up an educational hub and you know, the way that they might approach some of the content space knowing what you know, you know you're relatively long in the tooth when it comes to building content in this space.

Speaker A: Yeah, I think the single biggest challenge, and there are lots, but the single biggest challenge is an outdated assumption on content. Right. Once upon a time, and it is now so long ago that that's an appropriate way to start. The simple fact that a newspaper published a newspaper on a Monday morning was the event was news. And I think the risk here is that firms are going to say the simple fact that we have published a piece of content published a hub is the catalyst that will get people to consume it. Right. It's a build it and they will come approach. Unfortunately, newspapers and content production is not like a McDonald's that you build it and people show up. It's more like a tree falling in the woods and no one's in the woods. Content publishing hub creation on its own is not an event. It may as well never happened. And it's not because of AI putting slop all over the Internet. It's just that people are in channels where they want to consume and you have to be there. So it's a distribution problem. On the one hand, um, it's also an issue of creating an event around the event of having published. So telling people we have this content, telling people why they should care about this content, telling people how this content is going to help them. And even then you're asking someone to leave TikTok or leave Twitter to go and do your thing. Best case scenario, you go to them. Fraser, you're obviously talking to all of our key partners regularly, uh, especially when these reports come out. So as a bit of a teaser, what's the key action or most important chart that you're going to put in front of people and say this is what you need to do?

Speaker B: Good question. I think there's a couple of things that I'll be talking to partners and showcasing. Right. So the AI story has got to be one of them. So what does the world of AI look like for investors? And I think talking them through that whole Catalyst Invest, uh, its role is not getting people started as part of the journey on an ongoing basis. And I think the implications then for asset managers, banks and platforms is saying, like, you know, what are you doing to support them outside of them doing their stuff with AI? Right. So the stuff we spoke about earlier on the anti AI, uh, hedge of, you know, get people together, get them in person, go to events like, have those conversations and let them learn by talking and trusting each other. I think that's so that's probably one big takeaway. I think the other, um, is thinking about those, those knowledge gaps again. So, you know, unpacking a little bit about the top things that we see from a retail community that they really want to learn about, but they're not getting the support they need from. And that is a whole industry opportunity. Right. So if that's someone in derivatives, great. You know, there's a complexity challenge we can help overcome. And how do we do that in a meaningful way, in a responsible way? You know, when it comes to stocks and ETFs, it's clearly not a complexity problem. It's maybe more of the overwhelm storytelling showcasing why this versus that type of, type of story. So I think those are probably two of the big ones that I'll be, um, talking, talking to everyone about.

Speaker A: Thank you very much. A fantastic way to end this bonus episode of Retail Investors decoded.