Older clients confused by meme stocks: Survey

Millennials and Gen Zers are, finally, having conversations with their parents about investing, but the type of investing that has sparked young investors' interest is causing some confusion among advisers’ clientele.

Older investors would not typically be having conversations with their kids about the stock market. Today that sentiment has changed largely due to the pandemic-fueled interest in investing thanks to social media and easy-to-access investing apps. 

In fact, the majority of advisers (67%) say their clients are confused by their adult children who are encouraging them to invest in cryptocurrencies or meme stocks, according to the latest survey of 346 financial advisers by the securities and investment banking firm Incapital. 

While 58% of advisers said their clients are curious about cryptocurrency, or meme stocks, 89% of advisers noted that clients do not understand the volatility of these types of investments. 

To that end, 54% of advisers said that they “refuse” to let their clients invest in these types of investments, according to the survey. Just 43% of advisers said their firms provide them with sufficient information to educate investors about these types of investments. As a result, 47% of advisers also reported that their clients have opened electronic trading accounts at other firms. 

“The popularity of investments like cryptocurrencies has taken everyone by storm and reveals a generational divide,” said Chris Mee, managing director at Incapital. “Younger investors have time on their side and can afford to take the potential risks that accompany these types of investments.”

Older investors approaching or in retirement might be tempted to take the risk, but they may lack the time needed to recover from the impact of substantial losses, and not just from an investment like cryptocurrency, but even from over-exposure to equity market risk, Mee said. 

“Retirement-minded investors may benefit from risk-managed strategies that help them stay invested for growth, but with protection from too much downside risk exposure,” he said.

The financial advisers surveyed see the greatest risks over the next six months in cryptocurrencies (34%), followed by bonds (29%), and meme stocks (19%). 

A meme stock is one that sees a value increase primarily fueled by social media attention, and not company performance. One example is the cryptocurrency Dogecoin, which was initially created as a joke. 

The most notable and recent example of a meme stock is when GameStop’s stock soared to $483 per share in late January — up from less than $3 last April — then came crashing down to earth and then rose again to $183 in late March. The catalyst of the gyrations, in large part, was the Reddit stock-trading discussion group r/WallStreetBets.  

Fintech and social media apps like Robinhood and Twitter added fuel to the fire, enticing more retail investors to band together on social platforms and push stocks.  

“Now, the most important thing is going to be figuring out how we make sure that the financial advice is getting to [the next gen],” Mee said. “Are we going to have a generation of people who are taking advice from social media and from websites? Or are we going to make sure that the financial adviser who brings so much experience? How do we marry those two together? That's going to be a great opportunity."