One of the biggest news stories of the past week has been the heightened trading activity and price volatility of GameStop and a number of other companies targeted by participants using the social media platform Reddit.
These investors selected companies that a number of hedge funds had shorted. They started buying shares, bidding up the price and created a short-squeeze for these hedge funds causing them to buy shares to cover their short positions. This added to the upward momentum of GameStop, AMC, American Airlines and other stocks. Silver was even a target of this group.
Robinhood ended up putting a damper on this activity, limiting trading in GameStop and other stocks. This has sparked outrage among many in the investment community and threats of legislative action by some in Congress.
While this is a fascinating financial news story, you might be wondering why you should care as a financial advisor. Here are some thoughts.
If your practice works with younger clients, these next generation clients are generally quite tech savvy and likely find a story like this interesting. Many in this next-gen group are on a number of social media platforms and are getting various spins on the story from those platforms.
Your take on the situation may be interesting to many next-gen investors. Communicating with them about situations like this and other news events that might be of interest is a way to establish rapport with them, and to cement your status as a ‘go-to expert.’
This isn’t about bashing Robinhood, but a situation like this can help you illustrate to clients why a do-it-yourself trading platform like Robinhood may not be the best option for an investor. While a trading glitch can happen on any platform, an advisor will monitor client transactions to ensure they are properly executed. This is easily accomplished when advisors use a software like Pulse. Additionally, an advisor will also be able to communicate with the custodian to resolve any issues in a timely fashion.
Thought leadership with your clients
Situations like the one with GameStop and Robinhood provide an excellent reason to share your thoughts on this financial issue that is all over the news.
How does this impact investors? Will this situation have an impact on the markets and the economy though increased volatility? Does this impact our investment strategy or any of the investments we have chosen for portfolios? These are just some of the questions that your clients might have and provide you an opportunity for building trust and discussing the software you use to manage their wealth.
While the recent market volatility and the headlines involving GameStop, Robinhood and other players might seem irrelevant to your practice and your clients, it isn’t. Your clients listen to the news and they are on social media. Advisors are wise to offer their take on this situation to their clients to show their thought leadership and to allay any concern that this may be causing for your clients.