September 25, 2024 • 19 mins
More than $84 TRILLION in stocks, real estate, and other assets will gradually transfer from the portfolios of Baby Boomers to the Gen X, Millennial, and Gen Z generations. But with so much wealth being passed on – and so many NEW investment options available at the tap of a smartphone screen – how should younger investors adapt? What are today’s investing and trading platforms and providers doing to educate and empower them? And what do they need to know about new funds, alternatives, tools, research, and content available to them? I sat down with Stephen Sikes, Chief Operating Officer at Public, for a deep-dive discussion of those issues in this week’s MoneyShow MoneyMasters Podcast segment.
Stephen begins by outlining how Public works, what the platform allows investors to do, and why he believes the firm “sits at the intersection” of multiple industry trends. He then outlines the big “narrative violation” that applies to the Millennial generation and Millennial investor. Contrary to what some think, they have actually grown their wealth dramatically in the last 15 years due to two primary driving forces and two secondary ones. We next discuss how today’s retail investors – particularly younger ones – approach the markets differently. He sees them learning in two ways, while also noting: “There has never been more information, more content, more research, more analysis, and better tools for retail investors to evaluate the markets.”
Stephen further discusses the myriad new investment options people can choose from NOW versus in the PAST. That includes everything from fractional shares to retail-accessible alternative investments to tools that help make buying bonds more like buying stocks (or parking money in bank CDs). We also chat about the impact of Federal Reserve rate cuts on yield-seeking investors, and whether the recent market rotation out of Mag Seven names and into other stocks will last. Finally, he previewswhat he’ll cover at the 2024 MoneyShow Orlando., scheduled for Oct. 17-19 at the Omni Orlando Resort at ChampionsGate. Click here to register: https://orlandomoneyshow.com/?scode=061246
Stephen begins by outlining how Public works, what the platform allows investors to do, and why he believes the firm “sits at the intersection” of multiple industry trends. He then outlines the big “narrative violation” that applies to the Millennial generation and Millennial investor. Contrary to what some think, they have actually grown their wealth dramatically in the last 15 years due to two primary driving forces and two secondary ones. We next discuss how today’s retail investors – particularly younger ones – approach the markets differently. He sees them learning in two ways, while also noting: “There has never been more information, more content, more research, more analysis, and better tools for retail investors to evaluate the markets.”
Stephen further discusses the myriad new investment options people can choose from NOW versus in the PAST. That includes everything from fractional shares to retail-accessible alternative investments to tools that help make buying bonds more like buying stocks (or parking money in bank CDs). We also chat about the impact of Federal Reserve rate cuts on yield-seeking investors, and whether the recent market rotation out of Mag Seven names and into other stocks will last. Finally, he previewswhat he’ll cover at the 2024 MoneyShow Orlando., scheduled for Oct. 17-19 at the Omni Orlando Resort at ChampionsGate. Click here to register: https://orlandomoneyshow.com/?scode=061246
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
It's called the generational wealth transfer, as much as eighty
four trillion dollars in stock, real estate, and other assets
moving from the hands of baby boomers for the next
generation of younger investors over the coming two decades. With
so much wealth being passed on and so many new
investment options available at the top of the smartphone screen,
how should younger investors adapt, What challenges and opportunities do
(00:25):
they face. What education is required to ensure they can
grow and protect the wealth they're inheriting at adding.
Speaker 2 (00:31):
To in the years ahead.
Speaker 1 (00:32):
I'm Mike Larson, host of The Money Show, Money Master's
podcast you get the answers to those questions. I've invited
a new guest on today. He's Steven Syke's chief operating
officer at Public Stephen, Welcome to the show.
Speaker 2 (00:44):
Yeah, thanks for having me, Mike, great, glad you could
be here.
Speaker 1 (00:47):
I mean, I do want to talk about this big
picture trend that we're starting with. Eighty four trillion dollars
is an enormous amount of wealth as it moves from
the baby boomer generation to the hands of millennials, Gen
Z and so on. What impacts is that going to
have and what questions does it raise.
Speaker 3 (01:00):
Yeah, it's a it's a great question, I think. First
stepping back for the audience, so I just want to
introduce Public real quick. So Public we're an investing platform
that serves sort of the broad spectrum of of retail investors.
You know, we started as an app based platform, and
now we sort of serve through the full like online
brokerage capability. We've made our mark by building a brand
that that our members can trust and making a bunch
(01:21):
of business decisions that sort of demonstrate our alignment with
our customers interests, and building out a really great multi
asset platform.
Speaker 2 (01:30):
So we're sort of the only platform.
Speaker 3 (01:32):
Where you can trade stocks, ETFs, crypto options, and bonds,
both corporate and treasuries in on your phone, on the
you know, on your in your browser, on your on
your desktop, et cetera. And so I think, you know,
we've sort of built an interesting niche that serves you know,
obviously like a younger investor, right, we serve people that
want to do their business online. So I think it's like,
(01:53):
you know, we tend to see the delineation of like
quote unquote people that grew up with the Internet versus
people that don't I say that in it? Then at
the same time I tell you our you know, our
average customer age grows by more than a year every year,
So we're certainly appealing to a broader spectrum of customers
over time. And I think we're seeing a broader group
of investors wanting to do their business the way we do.
Speaker 2 (02:14):
And so I think that's that's the.
Speaker 3 (02:16):
Population we serve, and we've really defined that sort of
niche there, and I think that puts us in a
position to sit at sort of the intersection of this
one trend of financial services moving completely online and this
sort of intergenerational wealth transfer that we're starting to see,
right And I think we obviously absolutely have some customers
(02:37):
who are sitting on the older end of the spectrum
that are trying to plan for how to have their
assets move on to the next generation. And then we
also represent a very large portion of you know, sort
of the retail investor base that are sort of thinking
about how to manage their.
Speaker 2 (02:51):
Wealth as it grows.
Speaker 3 (02:54):
I think as we thinking about the intergenerational wealth transfer,
I think about it slightly differently, right, Like that's intergenerational
wealth treare for a sort of the industry term that's
come to popularity in the last like ten or fifteen years.
And I literally think we've been talking about this for
ten or fifteen years, which is interesting in its own right,
But I think about it a little differently. It's not
(03:14):
just the intergenerational wealth transfer. I think what we're seeing,
and you know this is borne out by a variety
of studies and data, is that the sort of millennial generation. Right,
if we look at that sort of fifteen year birth
period that defines the millennial generation, that generation is both larger, right,
it is not as large in terms of number of
people as the Baby Boomer generation, but it's quite a
(03:36):
bit larger than you know, both Gen X on one
side and Gen Z on the other. So in terms
of the number of people, it's quite large. But also
it is at this age point in the generation, it
is the wealthiest of any generation, right to include Baby Boomers,
which I think is a bit of a narrative violation
from what we've heard industry wide, is that millennials, you know,
we grew up during the Great Financial Crisis.
Speaker 2 (03:57):
It was tougher for us to get jobs.
Speaker 3 (03:59):
We grew up with more students debt. But what we've
seen is actually since that point, over the last fifteen years,
we've seen the millennial generation actually grow their wealth dramatically,
and that owes to a few things, and actually the
truth is it's only just starting to be because of
the intergenerational wealth transfer. The biggest thing is, honestly, we've
been in a ripping job market in equities market, and
part of that is we've seen massive increase in that
(04:22):
generation investing right in the sort of public markets and
in the markets overall, and that sort of discipline of
investing in the adoption of investment products has grown for
that generation more than any others.
Speaker 2 (04:33):
And that owes to two things.
Speaker 3 (04:35):
One, companies like US right platforms making investing more engaging
and accessible. The second is the four to one K right,
and I think we've seen a massive increase in sort
of adoption of floral one k's and employers and other
sort of employer sponsored tax taxable accounts or sorry, tax
tax advantaged accounts, and the auto enrollment of employers automatically
(04:59):
enrolling them customers and those sort of savings programs. So
those things have combined to just have the you know,
the millennial generation is by far the furthest along in
terms of its investment habits overall. So I think that's
important context for now starting to think about we are
now in the process of starting to see some of
this intergenerational wealth transfer, and we're just in the foothills
(05:19):
of that trend, which we expect to grow pretty dramatically
over the next two, three, five, ten, fifteen years. It's
just going to be a step up because again, intergenerational
wealth transfer is driven by the passing of the later generation,
and actuarial tables will tell you we are still in
the early stages of that sort of baby boomer generation
passing wealth, but it's ticking up. But so I think
(05:40):
the considerations for the industry are one service model, right,
which is, hey, how do you interact with customers the
way they want you to do business?
Speaker 2 (05:52):
Right?
Speaker 3 (05:52):
And so that's having great user interfaces on the phone,
on the website, et cetera. But it's also hey, have
an interaction with their surface provider, right. So there are
plenty of situations where customers don't just want to be
able to do it themselves right. They need some help,
they need some education, they need some other information. Some
people really want that content and be able to read
it themselves. Others want to be able to reach out
(06:14):
and like again, you know, it's a you know, I'm
generalizing here, but I think as we look at younger generations,
they are less prone to pick up the phone, right they.
I think, you know, the generations that have grown up
on the Internet tend to you know, sort of want
to text.
Speaker 2 (06:28):
They want to operate that way.
Speaker 3 (06:29):
They want to do things more asynchronously, and they want
problems solved that way. They want you know, rather than
sort of picking up a phone, or they want to
do it in real life, right, which I think are
the interesting sort of you know, separation there. They want
to be able to see people and interact with them
and have a real experience, or they want to do
it in a completely hands off techt base way. That
middle ground of like phone service, you know, probably is
one that we won't we'll see relatively less adopted than
(06:53):
we have seen with prior generations. So that's an interesting
interaction model question. The second thing is being able to
meet the full product needs right. Mostly the millennial generation
and the generations that we expect to be inheriting wealth
have mostly been in sort of their the earlier stage
of their investment life, they're certainly more focused on equities.
Right Again, I think if you look at any asset
allocation over somebody's life, it starts very heavily equities, and
(07:15):
then it ends very heavily fixed income. So we're in
that sort of swinging point where these generations, both Gen
X and millennials, are starting to increase their fixed income allocations,
which we as a platform think is really interesting and
we've you know, we're trying, you know, we are ahead
of that curve and increasingly building fixed in a fixed
income platform that works the way that retail investors expect
(07:38):
it too. Again, it looks and feels a little bit
like investing in stocks, despite being a very different, very
different asset class. And so we're building in that direction
as we see sort of the asset allocation needs change.
Speaker 1 (07:48):
Of these generations, got it, And I don't definitely want
to touch base on that. That's an interesting product thing
that is out there.
Speaker 2 (07:54):
Now.
Speaker 1 (07:54):
Before I get to that, how let's talk a little
bit about the learning process for this generation of investors
and how it's different from you know, I mean, I'm
a Gen X, so you know me or the older
generation above me, how are investors today learning differently? And
you know, how are you guys servicing them on your
platform and you know at live events for that matter.
Speaker 3 (08:12):
Yeah, I think we've first of all, like I think,
we've never seen a more educated, empowered class of investors
of equity, especially equities investors. Right, There's never been more information,
more content, more research, more analysis, and better tools for
retail investors to evaluate the markets. And I think that's
(08:32):
leading to this generation investors feeling more confident making their
own decisions, which is an interesting and interesting takeaway as
we think about this playing out in the context of
the intergenerational wealth transfer, right, I think on a general basis,
you know, we expect to see a change in distribution
of assets between self directed and sort of managed products
(08:53):
over the next you know, through as this generation inherits
that wealth. So we do see flows from sort of
the investment advisor are a high managed base into more
self directed because of the explosion of this you know,
content research tools, et cetera.
Speaker 2 (09:07):
And I think you know, you ask the question, how
do they how do they learn? Right?
Speaker 3 (09:10):
And I think it's uh, my experience of having been
doing this for ten years, interacting with the retail investors
is uh, two things they learned they learned they learn
two ways and I'm generalizing here, but the two biggest right,
which might be a little different than people expect. One,
people learn by doing right. And so the generation of
retail investors, the millennial generation gen X that have grown
(09:31):
up with great investing services online have learned a ton
through trial and error, just learning and interacting with the platforms,
you know, the one point oh discount brokerages and you know,
through to sort of our generation of of investing platforms,
you know, they've been exposed to more asset classes and
better data and they've learned by ingesting that Again, people
(09:51):
are smart, they figure it out and they and they
like to learn by doing, and when they start to
put money on the line, they have a real incentive
to really understand what's going on. And we've seen again
a lot of investors really get up that learning curve
quickly on a variety of asset classes. The second right,
if they learn from the people around them right, And
I think it's like they talk to friends, they talk
to family as the markets and sort of become interesting
(10:13):
and they meet they come into the public consciousness around
big market events like we've got to you know, FED
meetings and FED cuts and rate cuts, like people are
starting to talk about fixed income and things like that
around the dinner table. And if you combine like sort
of the market events with the growth and adoption of
these products, but you know, of investing products within these generations,
(10:34):
it becomes much more common for those conversations to happen
over dinner, over brunch, right at the at the barbecue,
at their kids' soccer games than it ever has before.
Because you know, it used to me that one in
three people were investing in the stock market right with
prior generations. Now it's like two out of three or
all three. And it depends on how the population you're
working in. But I think for for sure that adoption
(10:55):
curve has led to these conversations and people sort of
learning through interaction.
Speaker 2 (10:58):
Right. Absolutely, we will go and.
Speaker 3 (11:00):
You know the third thing, people will go and find
ways to you know, consume online content. They'll read faqu's,
they'll read Investipedia, et cetera.
Speaker 2 (11:08):
But I think we.
Speaker 3 (11:09):
See far more impact when we find places to interact
with people in real life and we build great.
Speaker 2 (11:14):
Interfaces for them to learn by doing got it?
Speaker 1 (11:17):
I'll tell you all the stock of barbecues making me hungry. Unfortunately,
I'll see if I can hold it together for a
little bit longer. We've seen changes in the type and
quantity of investments that are available in recent years. I
mean fractional shares, shares, zero DT options, alternative investments. I
mean people can get music royalty, you know, income streams. Now,
what kind of questions does that rais and what kind
of opportunities as that give for a retail investor.
Speaker 3 (11:39):
Yeah, I think we've never you know, we've like I
said earlier, we've never had you know, we've never given.
Speaker 2 (11:44):
More access to a broader set.
Speaker 3 (11:46):
Of investing tools to resell vestors than we have than
we do right now. And I think what we're most
excited about in that, right is I think giving them
the ability to build their full portfolio right asset allocation
themselves in a way that makes a lot of sense,
and being able to do that, you know, by directly
accessing the vehicles. Right, So, I think I think about
(12:07):
that mostly where we've made had the most impact is
on the fixed income side, right. I think before we
started to invest in this space, your options for investing
in fixed income were mostly buying an ETF right, which
can be great, great fixed income products, but they have
trade offs versus sort of directly.
Speaker 2 (12:25):
Investing in the underlying bonds. Right.
Speaker 3 (12:27):
So you know, all of the direct indexing conversations that
we've had about fractional shares and how beneficial it can
be to directly index versus sort of buying the buying
the full ETF right now, that now applies to the
fixed income world as well.
Speaker 2 (12:42):
And on top of that, like the bond funds and the.
Speaker 3 (12:45):
ETFs that exist are all what we call sort of
you know, they're like set duration.
Speaker 2 (12:51):
Tools.
Speaker 3 (12:52):
So you buy into a bond fund and it has
a four year duration. The manager of that bond fund
is going to try and maintain four year duration over time,
so you're not actually following you're not following the raid curve.
You're staying at.
Speaker 2 (13:04):
That four year duration.
Speaker 3 (13:05):
And what we find is a lot of people, for
their asset allocation, for their personal lives and their financial lives,
they want to have a set duration. They want to say, Okay,
I need this money in four years, so I would
like to give the money here, I would like to
get a defined return over those four years and get
my money back in four years and that you know,
that's it's kind of like that's you know, people retail
investors tend to think about that as being like a CD,
(13:26):
which people really like CDs, Right, Bonds work the same way.
It's just we've never actually given retail investors access to
bonds in a way that makes sense that they can understand, Oh,
there's this other thing that works just like a CD.
Are very similar to a CD. Obviously, it comes with
different credit risk and duration risk associated with it, but
it's going to give you a you know, it can
earn you a h a higher yield than sort of
(13:47):
your your bank, your bank backed your bank back CD.
But the mechanics are the same and they can play
a meaningful role in people's asset allocation. So I think
that to me, I think where we've arrived at in
the industry is a place where where you know, retail
investors can build that full asset allocation and you know,
buy options and sell options against that portfolio, and can
(14:08):
do it sort of fractionally across the full spectrum of
equities and fixed income.
Speaker 1 (14:13):
Okay, I'd be remiss if I didn't ask a little
bit about the market environment, and you know what we're
seeing here. Obviously, by the time this is published, we'll
know how much the fed cup by we're going to
be in the midst of this cutting cycle, probably into
well into twenty twenty five. You know, what opportunities and
risks does that set up? And what else are you
seeing in terms of people talking about the rotation we've
had in the market, maybe kind of out of the
big tech trade and into some of these other sectors
(14:33):
to play catch up.
Speaker 3 (14:35):
Yeah, I think the first thing the rate cut cycle
is going to impact directly how much people earn risk
free on their cash.
Speaker 2 (14:44):
Right.
Speaker 3 (14:45):
We've already seen that get priced into the treasuries market.
So people that manage their cast by buying treasuries have
seen those rates fall from five point six on the
six month to four point six on the six month
you know, literally in the last you know year, and
that's been pretty dramatic. We have not seen that same
rate impact happen on the sort of bank savings side,
(15:06):
and I think we know a lot of people save
money in their bank, you know, high yield savings accounts,
and so if we see you know, we're here on
September seventeenth. On September eighteenth, that the FED cuts fifty
basis points. We're going to see that flow through everyone's
highyield savings accounts locksteps. So if your bank's paying you
four to six, right, great job, that's a good rate.
We pay at five to one. But if you're getting
four to six, you know, I can't I can't argue
(15:27):
with you. That's about to be four point one percent.
And so I think when people start to see, you know, okay,
treasuries right now, six month treasuries at four to six,
bank rates are you know, we're at five to one,
pretty quickly.
Speaker 2 (15:38):
Those two things are going to come in parody.
Speaker 3 (15:40):
And so we're going to see a rotation from sort
of that bank based savings into treasuries and bonds, because
the bond market and the treasury market is already pricing
in these raid cuts that the bank market hasn't. So
this that dynamic on the backside of the rate curve
is going to be very, very very interesting to see
and see how that plays on, and that's going to
unlock a lot of capital that's been pushed into these
highields things accounts at amazing rates that's now going to
(16:02):
come back out and again be invested in fixed income
and the equities markets and really the full spectrum of assets.
So that has very much like sucked a lot of
those field dam's got to have sucked money out of
the sort of capital markets, and we're going to see
that flow back, which is which is really interesting. So
that was your first question. The second on the rotation,
that's a tougher one to answer, right. We certainly have
(16:25):
seen small caps rally a bit versus large caps. We've
seen some of the tech trade taper off and some
equalization across the sort of S and P five hundred
in terms of you know, how much of the gains
are being driven by the mag seven versus the rest
the other four hundred and ninety three names. I don't know, right.
I think we are privileged in this country and in
(16:48):
this market to have seven five six seven of the
most amazing companies ever created that deliver phenomenal products to
consumers that everyone loves and are breaking new ground on
amazing technology like AI and like I think we all
as Americans should root for that to continue, right, And
I think we as consumers, we should all root for
(17:09):
that to continue. And I think a lot of returns
are going to be aggregated in those firms because they
are modern, modern marvels, and so I don't you know,
I try not to make short term bets on the
way these sort of things are going to play out.
But I would say those companies have earned their returns
by delivering great products to customers, great results for their shohoulders,
(17:30):
and I'd be hard pressed to bet against them.
Speaker 1 (17:33):
Got it, Got it, Steven. Just as we get ready
to wrap up here, you're going to be speaking at
the Money Show in Orlando this October. You're going to
have also your director of product, Emily Kurtz, talking there
about options you have, like a sneak peak about what
you think you guys might be covering and what investors
who attend your sessions are going to get out of them.
Speaker 2 (17:48):
Yeah. I think the two things where we've pushed the
ball furthest forward.
Speaker 3 (17:50):
Again, we've talked about it already on this on this podcast,
a little like the fixed income market and helping retail
investors understand understand how to invest in bonds.
Speaker 2 (17:59):
I think that's, you know, and the.
Speaker 3 (18:00):
Tools that are available that we've built to make investing
in bonds more similar directly in bonds make it more
similar to investing in stocks. I think the second thing
is just to how to play and think about the
intergenerational wealth transfer right now, to think about the asset
allocation decisions that you know on both sides of the
wealth transfer. And then the third is we've got sort
of the market leading options platform now and we've earned
(18:21):
that position by offering a novel rebate to retail investors
that do invest in trade and trade options. Right so
on every contract there's no no per contract fees, no commissions,
and on every contract you get a little bit of
money back on the trade. And we've built the system
that way to you know, to make sure that we're
always giving our investors the best deal across the you know,
(18:41):
across the products we offer.
Speaker 1 (18:43):
Well, Steven, thank you so much for insights. Viewers, If
you're teching this out, you want to learn more from
Steven and his team. He is going to be speaking
at the Money Show Orlando. It runs October seventeenth to
nineteenth at the Omni Orlando Resort at Champions Gate. You
find more information on the event in the link below. Again,
if you like this video, don't forget to subscribe to
all the updates that we do. Steven, thank you so
much for taking some time out today.
Speaker 2 (19:03):
Thanks for having me Mike got it.
Speaker 1 (19:05):
We'll have more interviews for you every week, so I
encourage you to subscribe to The Money Master's podcast so
you can stay up to date with the insights from
top money experts. You can follow me on Twitter at
real Mike Larsen and follow Money Show for more investing
and trading content on Twitter, Instagram, and YouTube at Money Show.
Thanks for listening, See you next time.
It's called the generational wealth transfer, as much as eighty
four trillion dollars in stock, real estate, and other assets
moving from the hands of baby boomers for the next
generation of younger investors over the coming two decades. With
so much wealth being passed on and so many new
investment options available at the top of the smartphone screen,
how should younger investors adapt, What challenges and opportunities do
(00:25):
they face. What education is required to ensure they can
grow and protect the wealth they're inheriting at adding.
Speaker 2 (00:31):
To in the years ahead.
Speaker 1 (00:32):
I'm Mike Larson, host of The Money Show, Money Master's
podcast you get the answers to those questions. I've invited
a new guest on today. He's Steven Syke's chief operating
officer at Public Stephen, Welcome to the show.
Speaker 2 (00:44):
Yeah, thanks for having me, Mike, great, glad you could
be here.
Speaker 1 (00:47):
I mean, I do want to talk about this big
picture trend that we're starting with. Eighty four trillion dollars
is an enormous amount of wealth as it moves from
the baby boomer generation to the hands of millennials, Gen
Z and so on. What impacts is that going to
have and what questions does it raise.
Speaker 3 (01:00):
Yeah, it's a it's a great question, I think. First
stepping back for the audience, so I just want to
introduce Public real quick. So Public we're an investing platform
that serves sort of the broad spectrum of of retail investors.
You know, we started as an app based platform, and
now we sort of serve through the full like online
brokerage capability. We've made our mark by building a brand
that that our members can trust and making a bunch
(01:21):
of business decisions that sort of demonstrate our alignment with
our customers interests, and building out a really great multi
asset platform.
Speaker 2 (01:30):
So we're sort of the only platform.
Speaker 3 (01:32):
Where you can trade stocks, ETFs, crypto options, and bonds,
both corporate and treasuries in on your phone, on the
you know, on your in your browser, on your on
your desktop, et cetera. And so I think, you know,
we've sort of built an interesting niche that serves you know,
obviously like a younger investor, right, we serve people that
want to do their business online. So I think it's like,
(01:53):
you know, we tend to see the delineation of like
quote unquote people that grew up with the Internet versus
people that don't I say that in it? Then at
the same time I tell you our you know, our
average customer age grows by more than a year every year,
So we're certainly appealing to a broader spectrum of customers
over time. And I think we're seeing a broader group
of investors wanting to do their business the way we do.
Speaker 2 (02:14):
And so I think that's that's the.
Speaker 3 (02:16):
Population we serve, and we've really defined that sort of
niche there, and I think that puts us in a
position to sit at sort of the intersection of this
one trend of financial services moving completely online and this
sort of intergenerational wealth transfer that we're starting to see,
right And I think we obviously absolutely have some customers
(02:37):
who are sitting on the older end of the spectrum
that are trying to plan for how to have their
assets move on to the next generation. And then we
also represent a very large portion of you know, sort
of the retail investor base that are sort of thinking
about how to manage their.
Speaker 2 (02:51):
Wealth as it grows.
Speaker 3 (02:54):
I think as we thinking about the intergenerational wealth transfer,
I think about it slightly differently, right, Like that's intergenerational
wealth treare for a sort of the industry term that's
come to popularity in the last like ten or fifteen years.
And I literally think we've been talking about this for
ten or fifteen years, which is interesting in its own right,
But I think about it a little differently. It's not
(03:14):
just the intergenerational wealth transfer. I think what we're seeing,
and you know this is borne out by a variety
of studies and data, is that the sort of millennial generation. Right,
if we look at that sort of fifteen year birth
period that defines the millennial generation, that generation is both larger, right,
it is not as large in terms of number of
people as the Baby Boomer generation, but it's quite a
(03:36):
bit larger than you know, both Gen X on one
side and Gen Z on the other. So in terms
of the number of people, it's quite large. But also
it is at this age point in the generation, it
is the wealthiest of any generation, right to include Baby Boomers,
which I think is a bit of a narrative violation
from what we've heard industry wide, is that millennials, you know,
we grew up during the Great Financial Crisis.
Speaker 2 (03:57):
It was tougher for us to get jobs.
Speaker 3 (03:59):
We grew up with more students debt. But what we've
seen is actually since that point, over the last fifteen years,
we've seen the millennial generation actually grow their wealth dramatically,
and that owes to a few things, and actually the
truth is it's only just starting to be because of
the intergenerational wealth transfer. The biggest thing is, honestly, we've
been in a ripping job market in equities market, and
part of that is we've seen massive increase in that
(04:22):
generation investing right in the sort of public markets and
in the markets overall, and that sort of discipline of
investing in the adoption of investment products has grown for
that generation more than any others.
Speaker 2 (04:33):
And that owes to two things.
Speaker 3 (04:35):
One, companies like US right platforms making investing more engaging
and accessible. The second is the four to one K right,
and I think we've seen a massive increase in sort
of adoption of floral one k's and employers and other
sort of employer sponsored tax taxable accounts or sorry, tax
tax advantaged accounts, and the auto enrollment of employers automatically
(04:59):
enrolling them customers and those sort of savings programs. So
those things have combined to just have the you know,
the millennial generation is by far the furthest along in
terms of its investment habits overall. So I think that's
important context for now starting to think about we are
now in the process of starting to see some of
this intergenerational wealth transfer, and we're just in the foothills
(05:19):
of that trend, which we expect to grow pretty dramatically
over the next two, three, five, ten, fifteen years. It's
just going to be a step up because again, intergenerational
wealth transfer is driven by the passing of the later generation,
and actuarial tables will tell you we are still in
the early stages of that sort of baby boomer generation
passing wealth, but it's ticking up. But so I think
(05:40):
the considerations for the industry are one service model, right,
which is, hey, how do you interact with customers the
way they want you to do business?
Speaker 2 (05:52):
Right?
Speaker 3 (05:52):
And so that's having great user interfaces on the phone,
on the website, et cetera. But it's also hey, have
an interaction with their surface provider, right. So there are
plenty of situations where customers don't just want to be
able to do it themselves right. They need some help,
they need some education, they need some other information. Some
people really want that content and be able to read
it themselves. Others want to be able to reach out
(06:14):
and like again, you know, it's a you know, I'm
generalizing here, but I think as we look at younger generations,
they are less prone to pick up the phone, right they.
I think, you know, the generations that have grown up
on the Internet tend to you know, sort of want
to text.
Speaker 2 (06:28):
They want to operate that way.
Speaker 3 (06:29):
They want to do things more asynchronously, and they want
problems solved that way. They want you know, rather than
sort of picking up a phone, or they want to
do it in real life, right, which I think are
the interesting sort of you know, separation there. They want
to be able to see people and interact with them
and have a real experience, or they want to do
it in a completely hands off techt base way. That
middle ground of like phone service, you know, probably is
one that we won't we'll see relatively less adopted than
(06:53):
we have seen with prior generations. So that's an interesting
interaction model question. The second thing is being able to
meet the full product needs right. Mostly the millennial generation
and the generations that we expect to be inheriting wealth
have mostly been in sort of their the earlier stage
of their investment life, they're certainly more focused on equities.
Right Again, I think if you look at any asset
allocation over somebody's life, it starts very heavily equities, and
(07:15):
then it ends very heavily fixed income. So we're in
that sort of swinging point where these generations, both Gen
X and millennials, are starting to increase their fixed income allocations,
which we as a platform think is really interesting and
we've you know, we're trying, you know, we are ahead
of that curve and increasingly building fixed in a fixed
income platform that works the way that retail investors expect
(07:38):
it too. Again, it looks and feels a little bit
like investing in stocks, despite being a very different, very
different asset class. And so we're building in that direction
as we see sort of the asset allocation needs change.
Speaker 1 (07:48):
Of these generations, got it, And I don't definitely want
to touch base on that. That's an interesting product thing
that is out there.
Speaker 2 (07:54):
Now.
Speaker 1 (07:54):
Before I get to that, how let's talk a little
bit about the learning process for this generation of investors
and how it's different from you know, I mean, I'm
a Gen X, so you know me or the older
generation above me, how are investors today learning differently? And
you know, how are you guys servicing them on your
platform and you know at live events for that matter.
Speaker 3 (08:12):
Yeah, I think we've first of all, like I think,
we've never seen a more educated, empowered class of investors
of equity, especially equities investors. Right, There's never been more information,
more content, more research, more analysis, and better tools for
retail investors to evaluate the markets. And I think that's
(08:32):
leading to this generation investors feeling more confident making their
own decisions, which is an interesting and interesting takeaway as
we think about this playing out in the context of
the intergenerational wealth transfer, right, I think on a general basis,
you know, we expect to see a change in distribution
of assets between self directed and sort of managed products
(08:53):
over the next you know, through as this generation inherits
that wealth. So we do see flows from sort of
the investment advisor are a high managed base into more
self directed because of the explosion of this you know,
content research tools, et cetera.
Speaker 2 (09:07):
And I think you know, you ask the question, how
do they how do they learn? Right?
Speaker 3 (09:10):
And I think it's uh, my experience of having been
doing this for ten years, interacting with the retail investors
is uh, two things they learned they learned they learn
two ways and I'm generalizing here, but the two biggest right,
which might be a little different than people expect. One,
people learn by doing right. And so the generation of
retail investors, the millennial generation gen X that have grown
(09:31):
up with great investing services online have learned a ton
through trial and error, just learning and interacting with the platforms,
you know, the one point oh discount brokerages and you know,
through to sort of our generation of of investing platforms,
you know, they've been exposed to more asset classes and
better data and they've learned by ingesting that Again, people
(09:51):
are smart, they figure it out and they and they
like to learn by doing, and when they start to
put money on the line, they have a real incentive
to really understand what's going on. And we've seen again
a lot of investors really get up that learning curve
quickly on a variety of asset classes. The second right,
if they learn from the people around them right, And
I think it's like they talk to friends, they talk
to family as the markets and sort of become interesting
(10:13):
and they meet they come into the public consciousness around
big market events like we've got to you know, FED
meetings and FED cuts and rate cuts, like people are
starting to talk about fixed income and things like that
around the dinner table. And if you combine like sort
of the market events with the growth and adoption of
these products, but you know, of investing products within these generations,
(10:34):
it becomes much more common for those conversations to happen
over dinner, over brunch, right at the at the barbecue,
at their kids' soccer games than it ever has before.
Because you know, it used to me that one in
three people were investing in the stock market right with
prior generations. Now it's like two out of three or
all three. And it depends on how the population you're
working in. But I think for for sure that adoption
(10:55):
curve has led to these conversations and people sort of
learning through interaction.
Speaker 2 (10:58):
Right. Absolutely, we will go and.
Speaker 3 (11:00):
You know the third thing, people will go and find
ways to you know, consume online content. They'll read faqu's,
they'll read Investipedia, et cetera.
Speaker 2 (11:08):
But I think we.
Speaker 3 (11:09):
See far more impact when we find places to interact
with people in real life and we build great.
Speaker 2 (11:14):
Interfaces for them to learn by doing got it?
Speaker 1 (11:17):
I'll tell you all the stock of barbecues making me hungry. Unfortunately,
I'll see if I can hold it together for a
little bit longer. We've seen changes in the type and
quantity of investments that are available in recent years. I
mean fractional shares, shares, zero DT options, alternative investments. I
mean people can get music royalty, you know, income streams. Now,
what kind of questions does that rais and what kind
of opportunities as that give for a retail investor.
Speaker 3 (11:39):
Yeah, I think we've never you know, we've like I
said earlier, we've never had you know, we've never given.
Speaker 2 (11:44):
More access to a broader set.
Speaker 3 (11:46):
Of investing tools to resell vestors than we have than
we do right now. And I think what we're most
excited about in that, right is I think giving them
the ability to build their full portfolio right asset allocation
themselves in a way that makes a lot of sense,
and being able to do that, you know, by directly
accessing the vehicles. Right, So, I think I think about
(12:07):
that mostly where we've made had the most impact is
on the fixed income side, right. I think before we
started to invest in this space, your options for investing
in fixed income were mostly buying an ETF right, which
can be great, great fixed income products, but they have
trade offs versus sort of directly.
Speaker 2 (12:25):
Investing in the underlying bonds. Right.
Speaker 3 (12:27):
So you know, all of the direct indexing conversations that
we've had about fractional shares and how beneficial it can
be to directly index versus sort of buying the buying
the full ETF right now, that now applies to the
fixed income world as well.
Speaker 2 (12:42):
And on top of that, like the bond funds and the.
Speaker 3 (12:45):
ETFs that exist are all what we call sort of
you know, they're like set duration.
Speaker 2 (12:51):
Tools.
Speaker 3 (12:52):
So you buy into a bond fund and it has
a four year duration. The manager of that bond fund
is going to try and maintain four year duration over time,
so you're not actually following you're not following the raid curve.
You're staying at.
Speaker 2 (13:04):
That four year duration.
Speaker 3 (13:05):
And what we find is a lot of people, for
their asset allocation, for their personal lives and their financial lives,
they want to have a set duration. They want to say, Okay,
I need this money in four years, so I would
like to give the money here, I would like to
get a defined return over those four years and get
my money back in four years and that you know,
that's it's kind of like that's you know, people retail
investors tend to think about that as being like a CD,
(13:26):
which people really like CDs, Right, Bonds work the same way.
It's just we've never actually given retail investors access to
bonds in a way that makes sense that they can understand, Oh,
there's this other thing that works just like a CD.
Are very similar to a CD. Obviously, it comes with
different credit risk and duration risk associated with it, but
it's going to give you a you know, it can
earn you a h a higher yield than sort of
(13:47):
your your bank, your bank backed your bank back CD.
But the mechanics are the same and they can play
a meaningful role in people's asset allocation. So I think
that to me, I think where we've arrived at in
the industry is a place where where you know, retail
investors can build that full asset allocation and you know,
buy options and sell options against that portfolio, and can
(14:08):
do it sort of fractionally across the full spectrum of
equities and fixed income.
Speaker 1 (14:13):
Okay, I'd be remiss if I didn't ask a little
bit about the market environment, and you know what we're
seeing here. Obviously, by the time this is published, we'll
know how much the fed cup by we're going to
be in the midst of this cutting cycle, probably into
well into twenty twenty five. You know, what opportunities and
risks does that set up? And what else are you
seeing in terms of people talking about the rotation we've
had in the market, maybe kind of out of the
big tech trade and into some of these other sectors
(14:33):
to play catch up.
Speaker 3 (14:35):
Yeah, I think the first thing the rate cut cycle
is going to impact directly how much people earn risk
free on their cash.
Speaker 2 (14:44):
Right.
Speaker 3 (14:45):
We've already seen that get priced into the treasuries market.
So people that manage their cast by buying treasuries have
seen those rates fall from five point six on the
six month to four point six on the six month
you know, literally in the last you know year, and
that's been pretty dramatic. We have not seen that same
rate impact happen on the sort of bank savings side,
(15:06):
and I think we know a lot of people save
money in their bank, you know, high yield savings accounts,
and so if we see you know, we're here on
September seventeenth. On September eighteenth, that the FED cuts fifty
basis points. We're going to see that flow through everyone's
highyield savings accounts locksteps. So if your bank's paying you
four to six, right, great job, that's a good rate.
We pay at five to one. But if you're getting
four to six, you know, I can't I can't argue
(15:27):
with you. That's about to be four point one percent.
And so I think when people start to see, you know, okay,
treasuries right now, six month treasuries at four to six,
bank rates are you know, we're at five to one,
pretty quickly.
Speaker 2 (15:38):
Those two things are going to come in parody.
Speaker 3 (15:40):
And so we're going to see a rotation from sort
of that bank based savings into treasuries and bonds, because
the bond market and the treasury market is already pricing
in these raid cuts that the bank market hasn't. So
this that dynamic on the backside of the rate curve
is going to be very, very very interesting to see
and see how that plays on, and that's going to
unlock a lot of capital that's been pushed into these
highields things accounts at amazing rates that's now going to
(16:02):
come back out and again be invested in fixed income
and the equities markets and really the full spectrum of assets.
So that has very much like sucked a lot of
those field dam's got to have sucked money out of
the sort of capital markets, and we're going to see
that flow back, which is which is really interesting. So
that was your first question. The second on the rotation,
that's a tougher one to answer, right. We certainly have
(16:25):
seen small caps rally a bit versus large caps. We've
seen some of the tech trade taper off and some
equalization across the sort of S and P five hundred
in terms of you know, how much of the gains
are being driven by the mag seven versus the rest
the other four hundred and ninety three names. I don't know, right.
I think we are privileged in this country and in
(16:48):
this market to have seven five six seven of the
most amazing companies ever created that deliver phenomenal products to
consumers that everyone loves and are breaking new ground on
amazing technology like AI and like I think we all
as Americans should root for that to continue, right, And
I think we as consumers, we should all root for
(17:09):
that to continue. And I think a lot of returns
are going to be aggregated in those firms because they
are modern, modern marvels, and so I don't you know,
I try not to make short term bets on the
way these sort of things are going to play out.
But I would say those companies have earned their returns
by delivering great products to customers, great results for their shohoulders,
(17:30):
and I'd be hard pressed to bet against them.
Speaker 1 (17:33):
Got it, Got it, Steven. Just as we get ready
to wrap up here, you're going to be speaking at
the Money Show in Orlando this October. You're going to
have also your director of product, Emily Kurtz, talking there
about options you have, like a sneak peak about what
you think you guys might be covering and what investors
who attend your sessions are going to get out of them.
Speaker 2 (17:48):
Yeah. I think the two things where we've pushed the
ball furthest forward.
Speaker 3 (17:50):
Again, we've talked about it already on this on this podcast,
a little like the fixed income market and helping retail
investors understand understand how to invest in bonds.
Speaker 2 (17:59):
I think that's, you know, and the.
Speaker 3 (18:00):
Tools that are available that we've built to make investing
in bonds more similar directly in bonds make it more
similar to investing in stocks. I think the second thing
is just to how to play and think about the
intergenerational wealth transfer right now, to think about the asset
allocation decisions that you know on both sides of the
wealth transfer. And then the third is we've got sort
of the market leading options platform now and we've earned
(18:21):
that position by offering a novel rebate to retail investors
that do invest in trade and trade options. Right so
on every contract there's no no per contract fees, no commissions,
and on every contract you get a little bit of
money back on the trade. And we've built the system
that way to you know, to make sure that we're
always giving our investors the best deal across the you know,
(18:41):
across the products we offer.
Speaker 1 (18:43):
Well, Steven, thank you so much for insights. Viewers, If
you're teching this out, you want to learn more from
Steven and his team. He is going to be speaking
at the Money Show Orlando. It runs October seventeenth to
nineteenth at the Omni Orlando Resort at Champions Gate. You
find more information on the event in the link below. Again,
if you like this video, don't forget to subscribe to
all the updates that we do. Steven, thank you so
much for taking some time out today.
Speaker 2 (19:03):
Thanks for having me Mike got it.
Speaker 1 (19:05):
We'll have more interviews for you every week, so I
encourage you to subscribe to The Money Master's podcast so
you can stay up to date with the insights from
top money experts. You can follow me on Twitter at
real Mike Larsen and follow Money Show for more investing
and trading content on Twitter, Instagram, and YouTube at Money Show.
Thanks for listening, See you next time.
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