Retail Investors

• A study conducted by Nasdaq Corporate Solutions covering both institutional and retail investors revealed that in the 2019-2020 financial year, there was an increase in the value of retail investment in sectors that were the most affected in the March equity sell-off. Nasdaq indicated that between December 2019 and June 2020, the average retail investor ownership for cyclical sectors rose from about 11.8% to about 16.4% of shares in issue.
• According to Equedia, the global retail investment industry rose from about 25% of trades in 2009 to about 44% in 2020. Equedia indicates that the global lock down caused by the COVID_19 pandemic led to the increase in retail investment and described this as ‘the biggest casino on earth’.
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• According to CNBC, about 99% of Americans, including retail investors do not consult financial advisers because the think they can do it themselves or that the cost of consulting is high. Winnie Sun, a certified financial planner says that it is more costly to make an investment error than to pay for financial consultancy services.
• The head of execution services at Citadel Securities, Joe Mecane, highlighted that retail investments accounted for only about 10% of the stock market in 2019 and that this figure rose to about 25% in 2020. According to Joe Mecane, this increase may have been caused by several factors, including the COVID-19 panic, increased knowledge on retail investment, and increased access to investment products.
•  EFAMA reported that the amount of retail investments in Europe grew from about $2 trillion in 2011 to about $3.5 trillion in 2017 and per capita, retail investment rose from about $3,900 in 2011 to $7,000 in 2017. Germany, Italy, and the UK were the top countries with respect to retail investment in 2017.
• According to Reuters, there was a massive increase in the number of retail investors in Asia and this increase was caused by the crashing of the Asian stock market caused by the COVID-19 pandemic. This trend was reported in various Asian countries including India, Philippines,  Japan, Korea, and Malaysia. A brokerage in India, Zerodha, reported that it opened about 140,000 new accounts in March 2020 and this was twice its monthly average.

Retirement Accounts

• A study by Pew Research indicated that only about 14% of American families have individual investments but about 52% of American families have some form of investment, especially in retirement accounts like 401(k)s. The level of investment was determined by several factors, including age, ethnicity, and family income.
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• A study by Finra revealed that about 33% of American families own taxable investment accounts and that about 89% of these families also have retirement accounts like a 401(k) or IRA. The study further showed that about 29% of American families only have retirement accounts, like 401(k) and IRAs.  
• CNBC reported that close to 4.7 million taxpayers in America invested the maximum permitted amount of $18,000 in their 401(k) accounts in 2016 and the majority of these were people aged over 50 years.
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• According to a report by the Thinking Ahead Institute, retirement investment in the 22 largest pensions markets rose by about 15% in 2020. Thinking Ahead Institute indicates that the US, Mexico, and Canada are the top countries in retirement investments recording growth of about 18%, 22% and 19% respectively.
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Compoundly Overview & Target Market

• Compoundly provides a suite of “sophisticated, objective, and customized financial tools” to help investors take control of their financial future. It claims to help customers reduce investment fees to save more money.
• The company relies on advanced algorithms that scour financial documents to reveal the hidden fees in long documents with complex legal jargon, then tallies and presents the findings as a report.
• The company’s offering targets all investors, including those with investment in retirement plans, i.e., 401k/403b account holders.

Compoundly Customer Attributes

• The core attributes of Compoundly customers ought to be investors willing to use financial advisory services.
• Likewise, Compoundly customers would include investors unaware of the investment fees they pay annually.
• Further, this portion of customers can include those investors who think that they do not pay any investment fees.
• With that in mind, Compoundly can then target this serviceable segment to make the investors aware of the investment fees they pay and provide them with solutions to lower the fees and save some money.

Compoundly Serviceable Available Market (SAM)

• Compoundly’s SAM is the segment of the TAM targeted by its financial tools and services, and is within the U.S. geographical reach.
• Having profiled the ideal picture of a Compoundly customer and established its target audience, to determine the company’s serviceable available market (SAM) would involve finding the demand for financial advisory services among American investors and determining the percentage of those investors unaware of the fees they pay/those who think that they do not pay any annual investment fees.
• The next steps involve calculating the percentage of this target audience within the larger North American retirement and non-retirement investment markets. In this context, retirement plans include investments in 401(k) plans, 403(b) plans, 457(b) plans, among others.
• Equally, non-retirement investment plans include investments in “individual stocks, mutual funds, whole life insurance (not term life insurance), annuities (fixed, indexed, or variable), individual bonds, exchange-traded funds (ETFs), real estate investment trusts (REITs), microcap stocks or penny stocks, commodities or futures option, private placements, and structured notes.”

Compoundly SAM within the Retirements Savings Market

• According to Pension Rights, as of 2019, about 43% of all American employees (139 million) working in the private-sector, state, and local government had investments in retirement plans. That is to say, 43% of 139 million workers = 59.8 million Americans participating in retirement savings plans.
• Data from TD Ameritrade revealed that an estimated 73% of Americans investing in retirement savings plans do not know the fee they are charged or pay for their 401(k) accounts. This aggregates to nearly 43.7 million Americans, i.e., [(59.8 X (73/100)] — unaware of the investment fees they pay for their retirement accounts. However, not all Americans use financial advisory services, meaning Compoundly has to target the portion that works with financial advisors.
• On that note, a 2020 Statista report found out that “only 29% of Americans worked with a financial advisor, with 65% claiming they lacked financial representation.” In this regard, an estimated 29% of the nearly 43.7 million Americans unaware of the investment fees they pay for their retirement accounts, form a potential segment of the serviceable available market for Compoundly because this portion works with financial advisors.
• Thus, (29 ÷ 100) X 43.7 million = 12.673 million Americans
• Based on the calculations, the SAM for Compoundly within the retirement savings plans market is an estimated 12.673 million Americans.

Compoundly SAM within the Non-retirements Savings Market

• On the other hand, a 2019 FINRA report indicates that 32% of Americans (18 and above) had investments in non-retirement accounts. As of July 1, 2020, about 77.7% of the American population was 18 and above, which is approximately 255.2 million Americans. Therefore, in 2019, an estimated 32% of 255.2 million people = 81.7 million Americans had investments in non-retirement investments plans.
• The report continued to state that 14% of all non-retirement account holders do not think that they pay any annual investment fees, while 17% are unaware of the amount they pay to their financial advisors, translating to about (14 ÷ 100) X 81.7 = 11.4 million Americans who do not think they pay investment fess and (17 ÷ 100) X 81.7 = 13.9 million Americans who are unaware of the fees they pay.
• Considering not all investors rely on the services of a financial advisor, Compoundly’s core target market must incorporate those who work with financial advisors, estimated to be about 29%, according to Statista.
• Thus, (29 ÷ 100) X 11.4 million = 3.3 million Americans who do not think they pay any fees
• (29 ÷ 100) X 13.9 million = 4.03 million Americans who are unaware of the fees they pay
• Based on the calculations, the SAM for Compoundly within the retirement savings plans market is an estimated 7.33 million Americans, i.e., 3.3 million Americans who think that they do not pay any annual investment fees and 4.03 million Americans who are unaware of the annual investment fees they pay.

Compoundly: Serviceable Obtainable Market (SOM)

• Compoundly is an online platform that helps investors to compute and reduce their hidden investment fees. It "facilitates investors to connect their accounts with bank-level security and assist them in assessing investment fees, monitoring investments, analyzing investment performance, and enabling investors to negotiate their investment fees without changing their investments."
• Hence, to compute the serviceable obtainable market (SOM) for Compoundly, we have considered investors with retirement and non-retirement accounts in the United States, and then carved out the share of these investors who are either unaware of their investment fees or think that they do not pay any fees to their financial advisors and money managers. These customers are the ideal serviceable segment of the company as it can help them take cognizance of their account fees and save some money in total fees paid. Compoundly was formed only in 2019 and caters to the US market, and hence we have limited the serviceable segment only to the US.
• As per the data from the 2019 Bureau of Labor Statistics’ National Compensation Survey, there are 139 million full and part-time workers, comprising private-sector, state, and local government workers. Out of these, nearly 43% of workers participate in retirement savings plans, which include 401(k), 403(b), 457, and SIMPLE savings plans. This translates into 59.8 million (139*43/100) Americans participating in retirement savings plans.
• Additionally, as per data from TD Ameritrade, nearly 73% of Americans investing in retirement savings plans are unaware of the fees that they pay or are being charged on their 401(k) accounts. This aggregates to nearly 43.7 million (59.8*73/100) Americans having no idea about the fees they are paying for their retirement accounts. Such consumers form one segment of the serviceable obtainable market of Compoundly.
• Non-retirement investment account holders, such as mutual funds, individual stocks, bonds, annuities, ETFs, REITs, and options investors who are unaware of their investment fees or think that they do not pay any fees, form the other core serviceable segment of Compoundly.
• According to a 2019 FINRA Investor survey, about 32% of Americans have investments in non-retirement accounts. The current population of the United States stands at 331.9 million. This implies that approximately 106.2 million (331.9*32/100) Americans have non-retirement investment accounts.
• Further, the report highlights that 14% of all non-retirement account holders do not think that they pay any fees, and 17% are unaware of the amount that they pay in fees to their financial advisors and money managers. This aggregates to 14.9 million (106.2*14/100) and 18.1 million (106.2*17/100) non-retirement account holders in the above-mentioned two categories, respectively. Thus, the total number of non-retirement account holders in the US who are either unaware of their investment account fees or wrongly think that they do not pay any fees computes to 33 million (14.9+18.1).
• From the above, the total number of retirement and non-retirement account holders who are either unaware of their investment account fees or think they do not pay any fees to their financial advisors and asset managers aggregates to 76.7 million (33+43.7). This represents the total SOM for Compoundly as its primary purpose is to make investors aware of the hidden charges and translate hidden fees into investment savings for them.

Research Strategy