Retail investors are individuals who purchase investment products to achieve their personal financial objectives. Retail investors can be contrasted with institutional investors (e.g., pension funds) that make investment decisions on behalf of others based on a fiduciary relationship. Retail investors make investment decisions that primarily concern themselves and participate directly in the investment process creating a direct connection between their personal savings and the positive effects that these could have on their communities.
Retail investors can also be contrasted with individual accredited investors based on net worth and restrictions on the types of securities that they can invest in directly or through a broker. Accredited investors are assumed to have more sophisticated financial knowledge and ability to assess and take risk, presumably commensurate with the amount of assets that they own. While these restrictions are intended to protect retail investors, they also limit the types of opportunities that are available to them. In most cases, these restrictions mean that many impact investment products are unavailable to retail investors.
Retail impact investment has gained traction since the global financial crisis, which some attribute to the growing lack of lack of trust among retail investors in traditional financial products and institutions. But retail impact investment also has deeper roots. One of the earliest examples of retail impact investment is the Green Funds Scheme introduced in 1995 by the Dutch Government. The initiative provides a tax incentive to individuals that invest in funds that are managed by banks and that invest in environmentally sustainable projects. In 2001, the French Government introduced solidarity funds to corporate pension plan members, which allows individuals to invest up to 10% of their portfolio in impact opportunities.
Other established retail impact opportunities include Oikocredit and the Triodos Fair Share Fund. This guidebook profiles some retail products that have a long track record, such as the Calvert Foundation’s Community Investment Note, launched in 1995, and the Jubilee Fund’s Investment Certificate, launched in 2000. More recently, technological advancements have contributed to extending the range of social investment opportunities. For example, online peer lending platforms and microfinance initiatives – such as Kiva, which administers microfinance loans in developing countries through microfinance partner institutions – allow retail investors to access a range of local and international opportunities.
For the investment industry as a whole, the Triodos Report, “Impact Investing for Everyone”, suggests that retail impact investment has several benefits, including the following:
• Retail impact investing increases diversity within the market allowing for a wider range of customized and local investment approaches to emerge;
• Retail impact investing builds a more resilient investor culture, which means an investor is more practiced at understanding all aspects of an investment and better equipped to form judgments about individual financial and social interests; and
• Retail impact investing can stimulate long-term thinking, which is beneficial to the broader financial market.
“Retail investing is much more directly participatory and meaningful than other forms of investment and ultimately recognizes a greater degree of humanity within investment relationships. For that reason, impact investments should evolve inclusively – ensuring that almost everyone has the possibility of interacting with entrepreneurial ideas and activities that benefit society and becomes a co-creator and participant in the most practical, direct way.”
– Triodos Report: Impact Investing for Everyone
CCUA (2013) Social Finance and Credit Unions System Brief
FSG (2014) Banking on Shared Value
EVPA (2014) Social Impact Strategies for Banks