Innovation, tech and regulatory change are shaping investing

It’s hard to overstate the impact of the tectonic changes in the financial services industry over the past five years. From ‘the great wealth transfer’ to the COVID-19 pandemic, regulatory overhauls to the rise of generative artificial intelligence (GenAI), digital assets and digital ledgers, the foundations of investing and capital markets as we know them are undergoing a radical transformation.

The result is a fundamental re-think of the way investors interact with financial markets, the manner in which those markets function and how rules designed to protect investors are written and enforced. Delivering on this new spectrum of investor needs, while responding to whipsaw changes in technology and navigating a near-constant pace of regulatory change requires a new and different financial services mindset rooted in collaboration.

At the root of the many changes taking place is a major shift in behavioural and demographic dynamics on the part of individual investors. Some call this the ‘democratization of investing,’ but the phenomenon is bigger than user-friendly trading apps and increased access to trading tools. Thanks to technology, investors have more access to information, new asset classes and execution venues at lower costs than ever. Institutional advantages are reduced and the removal of barriers allowing everyone to invest on an equal footing has inspired millions of new investors to enter the markets.

We’ve been tracking this multifaceted evolution of the individual investor at Broadridge for several years in our annual US investor study. One of the findings in this year’s study that may surprise people is that the number of investors without college or advanced degrees has been growing for the past five years, accounting for more than 50% of investors. Perhaps even more surprising: those non-college-educated investors perform better. Non-college-educated investors had a median personal rate of return of 29.3% between January of 2023 and June of 2024. That compares to a rate of 28.1% among college-educated investors and 27.9% among those who completed graduate school.

As more individuals from increasingly diverse backgrounds, each with their own unique goals, continue to gain easier access to the financial markets, this dynamic of individuality and the need for personalization will grow more pronounced.

The primary catalyst behind the evolution in investor demographics is technology. The movement that started with electronic trading and quickly evolved into advanced digital workflows across the financial services industry has transformed every aspect of financial markets. Innovation around GenAI is accelerating that transformation, with financial services firms now able to develop and launch low-code and no-code solutions for everything, from investment research to middle- and back-office operations in days and weeks instead of years.

According to the Broadridge Digital Transformation Study, the majority of financial services firms expect to maintain or increase their investment in technologies like AI, quantum computing, crypto/digital assets and blockchain over the next two years, with AI and blockchain showing the strongest growth. We also see some gaps starting to emerge, however. Looking at AI adoption, for example, we found that 51% of firms characterized as digital leaders are already investing in AI, while just 22% of non-leaders are investing in AI.

This uneven pace of digital maturation creates huge advantages for firms that are already improving their operational efficiencies and delivering more personalized, targeted investor experiences, but it could create significant new challenges for firms that are slow to evolve.

Against this backdrop of changing investor dynamics, rapid-fire technological innovation and the proliferation of new risks and threats in everything from market volatility to data privacy, regulators have been scrambling to write rules to protect investors. Meanwhile, several highly consequential elections in the US, UK, and EU have introduced a new level of uncertainty about what future regulation and enforcement of existing regulations will look like.

To help put the scale of regulatory uncertainty into perspective, consider that in the US alone, the Securities Industry and Financial Markets Association (SIFMA) is tracking 607 different policy issues affecting everything from equity market structure to retirement savings to trade settlement cycles.

Some of the biggest regulatory issues, like the transition to T+1 trade settlement cycles or the Digital Operational Resilience Act (DORA), require dramatic overhauls of existing operational practices. Throughout, we all need to keep sight of the fact that these rules were implemented for the benefit of investors and we need to make sure our navigation of those regulations delivers on that promise.

This complicated, highly interdependent mix of variables is not something any one firm can tackle alone. It requires collaboration, checking egos at the door and coming together to unlock new opportunities through smart use of technology, a pragmatic approach to regulation and responsible innovation.

Luckily, we also happen to find ourselves in a moment in the evolution of technology where it’s never been easier to bring together the greatest human intelligence with the power of AI to truly reshape the way the industry engages, enables and protects investors and keeps capital markets running efficiently. For those of us in the financial services industry whose job it is to keep safely expanding that access and supporting investors’ ability to benefit from appropriate and sophisticated investment opportunities around the world, this transformation represents a much-needed change in mindset.

Winning in today’s financial services marketplace is no longer about being the smartest person in the room. It’s about total collaboration and working together to address the full spectrum of dynamics transforming the industry. We need to collaborate to ensure it is safely, ethically and professionally serviced by our industry.