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GameStop & Your RIA Practice

Feb 8, 2021 12:25:47 PM | Roger Wohlner

Topics: Trust Platform, Investment Advisors

GameStop has been in the news more over the past two weeks than in total over the course of the company’s existence. GameStop is perhaps the most visible stock that was dramatically pushed up in price by a group of retail investors who were members of group on the social media platform Reddit.  

This group had pushed the price 6-7 times above its normal trading level, only to see it drop back down near its prior levels within about a week. The buying activity by these investors forced a number of hedge funds who had shorted the stock to cover their short positions in what is known as a "short squeeze".  

This group triggered similar activity on several stocks including AMC and American Airlines, as well as triggering price gains in Silver as well.  

You might have watched all of this with some degree of interestAs a financial advisor to investors who invest for the long-term based on the financial planning work you do for them, you might be wondering what this has to do with my RIA practice and with my clients.  

 

My clients don’t care about any of this 

This is probably the reaction of many RIAs and you may be right. Especially if your clients are older or wealthier, it’s unlikely they are particularly interested in short-term movements in individual stocks like we’ve seen with GameStop. They are more interested in how their portfolio and the overall markets are doing. So far in 2021, the stock market has done reasonably well.  

While your clients are probably not asking you about GameStop specifically, they do read the news and may also use various social media platforms. At the very least they may be curious as to what’s going on here and how this might impact their portfolio now or in the future.  

 

Client communications 

If you communicate with your clients, prospects and perhaps professional centers of influence via a newsletter or your own blog, this is a great topic to cover. This accomplishes several things. 

  • It provides your clients and other readers with your perspective on something that is all over the news. Clients want to know their advisor is staying on top of what is going on in the markets, even if an event like this doesn’t impact them directly. Is this type of trading the norm going forward? How will this trend impact market volatility in the future? 
  • GameStop and other stocks that have and will be influenced by these groups of retail investors could have an impact on the overall market. Your views on this situation and its impact on the markets now or in the future is of interest to your clients.  
  • You may have some clients or prospects who are younger, the next generation investors. They may be interested in what’s going on from the perspective of wondering if investing in these types of companies makes sense for them.  

 

Thought leadership 

Your clients are seeing this issue on the news every day, hearing your perspective helps them to understand what’s going on. Beyond GameStop or any issue related to this type of trading, there is constantly news that impacts the markets and your client’s portfolios.  

Communicating on a regular basis with clients about financial issues of importance to them, or about issues they are seeing frequently in the media can help build trust. It also helps to encourage them to come to you with their questions. This not only helps in building your relationship with them but also helps ensure they check with you before taking action on their own. This can help prevent them from doing things that might be contrary to their own best financial interest 

Beyond your clients, writing on your firm’s own blog, on platforms like LinkedIn or perhaps in widely read financial publications can help establish you as a thought leader in the industry. Whether on hot issues like GameStop and related trades or other topics, positioning yourself as a knowledgeable thought leader can only help cement relationships with existing clients and can lead prospects to you as well.  

 

Younger clients  

The news on GameStop and related stocks might be of interest to your younger clients, and to the next generation of the families of your older established clients with whom you are looking to cultivate a future relationship.  

Your job as an advisor is not necessarily to scare them or tell them not to participate in this type of activity, but rather to educate as to what happened. Help them understand what a short squeeze is and why these stocks gained so much, only to quickly surrender many of those gains.   

Beyond GameStop and related issues, there will be other issues over time that dominate the financial news, even if only for a few days or weeks. Establishing yourself as a go-to source of information, and advice as needed, can help you cement relationships with these younger clients. Many of them stand to inherit wealth in the great intergenerational transfer of wealth that is projected to occur over the next 25 years.  

 

Summary 

While the recent activity in GameStop and related stocks pushed higher by the investors in the Reddit group might not seem relevant to your clients or your practice, you might be surprised at the level of interest your clients have in this and other financial news headlines.  

Providing your clients and others with your thoughts in these topics can help reinforce your place as their trusted advisor and help establish yourself as a thought leader in the industry. 

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