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ArticleSeptember 2019

Investment for all: how innovation is democratising capital markets for everyday investors.

The financial industry is going through an exciting transformation. Nowhere is this transformation more apparent than in the consumer finance and wealth management space, where technological innovations are shaking-up many incumbent business models. The unifying theme behind these technologies seems to be democratisation and empowerment.
FinTech companies are enabling individuals to regain control over their everyday financial lives and play a bigger role in driving important saving and investment decisions.

Change is good…

One of the tangible benefits to the everyday investor is that individuals have gained access to new products and services. Roboadvisors have democratised access to customised asset allocation at a fraction of the old price. Crowdfunding platforms have helped funnel retail capital into exciting start-ups. We have also seen early success in yield-oriented platforms and platforms for alternatives, such as real estate. These solutions are effectively access points to asset classes previously inaccessible to ordinary individual investors.

Public equity markets have been positively transformed by technology as well. The explosion of ETFs (Exchange-Traded Fund) in just the past 10 years has given everyday investors unprecedented access to indices and stock baskets. You can basically buy the S&P 500 for free! And for more independent investors seeking direct exposure to individual stocks, the barriers to entry keep on getting lower, fostering strong growth in brokerage assets. Armed with an almost unlimited access to information and dramatically lower trading costs, everybody is just a click away from owning a slice of Apple.

Except for the primary markets.

But there are parts of the public market ecosystem that have been slower to evolve. Buying stocks on the secondary market may have been democratised, but access to primary capital markets remain a closed-door affair. The fact is that IPOs and Follow-On Offerings remain the privilege of institutions and select high net worth clients lucky enough to have access to deals through their private bankers. This needs to change if we are to create a level playing field for all investors.

Broader access to public equity deals is not just a question of fairness — it is about enhancing the capital formation process to drive outcomes for companies in need of capital. And corporate executives are increasingly realising that retail inclusion can drive better financial outcomes.

If everyday investors represent up to 40% of a company’s shareholder register (especially for smaller caps) why would listed companies in need of capital deliberately exclude them from their capital raising efforts? Surely more eyeballs are better than less eyeballs to drive competitive tension in a book building process? Surely, a broader ownership base generally enhances liquidity?

At PrimaryBid, we are delighted to be part of the technology-driven shifts that are evolving our capital markets. Through our partnership with global stock exchanges, we have created the centralised infrastructure necessary to connect listed companies with everyday investors at the point of issuance. We think this drives capital formation efficiency and benefits all ecosystem stakeholders.

The bottom line is that retail investors, everyday individuals saving and investing for their futures, are finally getting the recognition they deserve.

This is a good thing!

By engaging, empowering and enfranchising this large but previously underserved community, FinTech innovation is creating a more robust, transparent and inclusive financial system that works for everyone.