The Rise of the Lockdown Investor

Joe Parkin
Head of UK Banks and Digital Wealth, BlackRock

In March 2020, the world changed forever as the Covid 19 pandemic struck. Markets reacted violently, a huge number of businesses were forced to close, and we all stayed at home. In all of this, we saw an explosion in digital investing, with over a million people in the UK opening investment accounts for the first time (BlackRock, as at 31 August). We also saw people taking more responsibility for their financial well-being - whether it was because they were spending less, dealing with furlough, or simply had more time to focus on it. 

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

One of the unintended and most welcome consequences of the pandemic crisis was the acceleration of two long-term industry megatrends: 

  • Firstly, the shift in responsibility for retirement, moving from the state and corporate onto the individual. 
  • And secondly, digitalisation, a trend that has already affected so many industries. The ways we travel, watch TV, and listen to music are all different to what they were 10 years ago. Everything is now personalised, social, and at our fingertips. Technology has democratised these industries and, while technology is affecting the investment industry, it has done so at a glacial pace. 

At our BlackRock Investment Forum, with the help of some of the people and firms at the epicenter of this phenomenon, we unpacked the last 18 months to better understand ‘The Rise of the Lockdown Investor’. 

By the time Prime Minister Johnson announced the national lockdown on 23 March 2021, markets were already falling as the pandemic spread. Retail financial services had little time to react. Service had to be maintained at all costs.

What first seemed insurmountable morphed into an opportunity to capitalise on nimble technologies, changing customer behaviour and a new audience with time and money on its hands. Here are the trends witnessed: 

Lockdown accelerated the customer shift to digital and mobile

Two of these themes had been building for years, notably the shift to digital and mobile devices by retail customers and the growing use of flexible, low-cost cloud services by financial firms. A largely complacent financial industry had to react.

Chris Worle at Hargreaves Lansdown had an early inkling of what lay ahead. Online traffic had already risen since February when markets realised the magnitude of the pandemic’s impact. During the lockdown, platform visits doubled from March 2020, trading tripled and helpdesk calls rocketed.

Lockdown reinforced the need for flexibility

Tactical decisions had to be made and implemented quickly. For some, those choices have become permanent. Pensions consolidator PensionsBee has been cloud-based from the outset, making working from home (WFH) easy to implement. WFH also led to an unexpected productivity boom, so CEO Romi Savova has made it a permanent option. Thanks to online recruitment, that flexibility is now attracting staff from across the UK.

Traditional businesses had a harder time, yet banks found they could make tough choices when pushed, says Nick Johnson. Although the Coutts digital team was spread from London to Zurich, NatWest’s branch staff were not used to interacting with colleagues and customers online. Even so, the surprising willingness of customers to use Zoom was quickly folded into the bank’s strategy. Mobile is now the biggest channel for mass retail and high net worth customers.

A surprising but welcome new generation of younger investors

While digital uptake could have been foreseen, as customers could not leave home, the demographic shift was dramatic and unexpected

younger generations started exploring longer-term investment. Lockdowns meant money typically spent on social activities such as sport, or leisure activities were left in accounts, so for some disposable income increased, and with this new account openings soared.

Content and guidance are critical to ensure money is invested wisely

All three contributors were keen to ensure investment accounts were opened for the right reason. However, Many new customers wanted to invest in single stocks or had no idea what funds suited them. Content and guidance were critical in educating this new client base, focusing on lifestyle needs, diversifying portfolios and extending investment horizons.

Risk. Diversification and asset allocation may not fully protect you from market risk.

Environmental, social and governance (ESG) is non-negotiable for Millennials 

For this younger demographic the availability of sustainable or ESG investment options is top of mind. Simple screening for controversial weapons manufacturers is insufficient. As Romi Savova points out, new investors want to use their funds to build a better society.

Yet in many corners, ESG is still seen as a compromise between doing good and lower returns. The industry has a task on its hands, to educate new and not-so-new digital investors that it can be a true long-term opportunity. Those messages must be seamless and integrated with investment solutions, all pushed through a small, handheld screen.

Whilst the last 18 months have been challenging for so many, the increased awareness of the importance of financial wellbeing has been a silver lining. Huge numbers of individuals have started the journey towards long-term financial health which will help them to achieve many of their life goals and aspirations. We must ensure we do not waste this momentum and support the rise of the lockdown investor way in the future.

Risk. This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This is for illustrative and informational purposes and is subject to change. It has not been approved by any regulatory authority or securities regulator. The environmental, social and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of 8 September and may change as subsequent conditions vary.