How Has the Market Changed to Favor the Retail Investor?

The landscape for investing is changing, mainly due to technology and access to information. Investing used to be done mainly through stockbrokers or advisors who were affiliated with major financial institutions for investment funds. Once the discount brokerage model came around through the likes of Charles Schwab and eTrade, things started to change and the retail investor emerged.

The discount brokerage model allows retail investors to open accounts at their leisure. They can self-manage their accounts and make trades for very little cost. Transaction fees have recently gone down to zero for stock trades, so it’s very much been a race to the bottom.

Technology keeps driving costs down and allows new platforms to enter the marketplace. These new apps are making access to the markets much easier than ever before. Depending on who you talk to, this can be viewed as good or bad.

What Is a Retail Investor?

A retail investor is an individual investor who is not licensed in the investment or securities industry. They are do-it-yourself investors. They invest in publically traded markets through retail platforms like Fidelity or Charles Schwab.

What Is an Institutional Investor?

An institutional investor is someone who is licensed in the securities industry. They usually manage money on behalf of clients. These can be large financial companies like banks, mutual funds, endowments, or investment management firms for example.

Retail vs. Institutional Investors

Retail investors are individuals investing for themselves. Institutional investors are professionals. Professionals have the expertise and resources to access different software, technology, and investments.

This is in comparison to people who do it themselves. They may have limited resources and time. That said, technology is making professional platforms and investments cheaper. They are becoming more accessible to retail investors.

Regarding retail versus institutional, one is not necessarily better than the other. They both have a place. Retail investors often invest through institutions or hire someone to manage their assets, for example. They both serve a purpose and play different roles in the industry.

The Barrier to Entry & New Technology

The barrier to entry to get into investing for the retail investor has been lowered significantly in recent years. I expect the bar to get even lower in the coming years.

The major opportunity is new technologies being introduced to the market. This benefits the retail investor by bringing down costs and requires less capital to get into investments like alternatives and private equity.

Alto IRA is a newer company that allows retail investors to open alternative IRAs on their platform. They provide access to various alternative asset classes. These include private equity, venture capital, crypto, and startups. It’s a very interesting concept.

My main point in bringing up Alto is that these asset classes used to be unavailable to the average retail investor until very recently. They have advisor platforms to allow money managers to use their platform on behalf of their clients as well.

A lot of times you will need to be an accredited investor to invest in these areas. Now due to technology changes, these areas are becoming available to retail investors. I think in the next three to five years they will be much more accessible. We will see.

Technology Advancements in Financial Services

First off, trading costs from buying and selling securities used to be more expensive. This was mainly done through brokers. Moreover, brokers earned commissions on transactions they completed for their clients.

Commissions can vary as a percentage of the initial investment to a flat fee for example. This model is still around but is coming under pressure.

Once discount brokerage firms came about, such as Schwab and eTrade, you could bypass a traditional stockbroker. A person could open up their own account to avoid some of these costs or commissions.

Commissions can be expensive and may cause a recommendation to be misaligned with someone’s investment goals. Both commissions and transaction costs have come down in recent years.

The discount brokerage firms have gone from $9.99 per stock trade to $0 right now. Schwab first introduced this concept about two years ago and others followed suit.

Platforms and Custodians

New platforms such as Acorn, TD-Ameritrade, Betterment, and the recently made infamous Robinhood, make it extremely easy for retail investors to get started trading.

You can set up an account on these platforms with little effort and start trading.

Robo advisors like Betterment and Wealthfront build your portfolio and help you manage it at very low costs. Some say this will make advisors obsolete. I am biased, so I disagree, but I can see the point for the DIY investor who is comfortable managing their money themselves.

Altruist is a custodian available to advisors for their clients. They are still in their early days but as an advisor myself, this is a game-changer regarding efficiency for clients.

The platform is very simple and they have removed trading costs for some major mutual fund companies which is a big deal. This is a great example of upcoming tech in the advisor space that will help individuals.

They have made the account opening and paperwork process much simpler and less cumbersome. This saves time and money.

Alternative Asset Classes and Availablity to Retail Investors


Time will tell what will happen with crypto. I think it’s too early to consider it a traditional asset class to include in your portfolio since it is still early days. That said, it is changing the investing environment with the individual investor.

You can invest in bitcoin and through Coinbase and Kraken as well as a few other platforms pretty easily.

I do think it could be a viable investment strategy in the future once more regulation and oversight are created. I believe it will be a game-changer at scale but still very speculative at this point.

It’s good to see companies like PayPal including cryptocurrency on their platforms. I think that is a positive signal and will help the general public become more aware and comfortable with the currency.

Private Equity, Venture Capital, and Hedge Funds

As I mentioned above regarding Alto, these investment vehicles are becoming available to retail investors. Now, does this mean they are viable strategies? That’s an entirely different conversation, and as always, it depends on your goals, but it is interesting that they are becoming more accessible.

There are more and more platforms and companies coming to market that make more options available to the individual investor. I think this is great for the market.

The trick is to stay on top of everything available. Also, it’s good to have an investment philosophy and then find the right tools in the market to help you accomplish your goals.

In conclusion, I think new technology creates opportunities for everyone involved. It should make life easier for both professional and retail investors.

If you’d like an objective second opinion about your finances, please contact Michael Shea, a CERTIFIED FINANCIAL PLANNER™, at Applied Capital. Email him at [email protected] or fill out a contact form.

This blog is provided for informational purposes only. Such views are subject to change at any point without notice. The information in the blog should not be considered investment or tax advice or a recommendation to buy or sell any type of securities. Some of our blogs or information therein have been obtained from third-party sources believed to be reliable but such information is not guaranteed. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. No reliance should be placed on, and no guarantee should be assumed from, any such statements or forecasts when making any investment decision.

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