James Black (00:01):
Welcome back to the Exchange for Entrepreneurs Podcast. I'm your host, James Black, and this week we are joined by Hamish Khamisa, President at Sparx Publishing Group, where we share his findings from his career in analyzing investment trends, particularly those in the self-directed investment space. And in our chat, we go deeper on the trends that are arising as a result of changing investor demographics as well as the real impacts of environmental, social, and governance practices of companies, and how these efforts might impact investment in the coming years. Finally, we touch on the topic of what it really means for a company to make the world a better place. That was in air quotes, better place and why the measure of true profit really is up for discussion. So without further ado my conversation with Hamish Khamisa. And welcome back to this week's episode of the Exchange for Entrepreneurs Podcast.
(00:50):
I'm your host, James Black, and this week I am joined by Hamish Khamisa, the President of Sparx Publishing Group. And Hamish is a expert on many things. This week, the tip of the spear of our, I guess maybe the tip of the iceberg of our conversation, it'll start on the realm of retail investing online. So self-directed investing more specifically. Hamish, you are an expert on this topic. This is why I've invited you on the show. But we're going to talk a bit about retail investing and trends and then all the things around investment that we're kind of following in the news. So without further ado though, I want people to better understand who Hamish is, maybe a bit about your experience and then what really led you down this cookie crumb trail of retail investing and serving that particular aspect of the investment community.
Hamish Khamisa (01:39):
Thanks, James. Thanks for having me. It's a long story, so I'll try and keep it brief, but a lot of where my interest and experience in the self-directed investing market formed from was work in population health. And one of the places in which I was studying and working in prior to my shift in career into personal finance was the older adult wellbeing question. So quality of life as you get older. And it turned out that one of the most important drivers outside of medical interventions that could determine how well you live in older adulthood was finance. And I'm a numbers person, so for me, the quantitative side of it was really interesting to see the amount of resource that would be required as you get older. And it's very non-linear.
(02:33):
So as you get older, you consume more and more healthcare resources and it was just staggering to see the disconnect between what people would need in older adulthood and the kinds of experiences that I was seeing as a self-directed investor at the time that was out there. So as a self-directed investor, you're largely on your own, or at least 10 or so years ago, that was very much the case. And so that was really the genesis or the spark, if you will, of recognizing that individuals will both need to be able to access the information. And right now, at least at the time, there was really not a lot out there that was objective and geared towards trying to provide a thoughtful treatment of what this world is like. So that's how I got started in it.
James Black (03:22):
Right. So you mentioned demographics and obviously shifting demographics are always shifting, but in Canada in particular, I know we've talked about this in the past, you are seeing some pretty obvious trends here that maybe anyone from the banking community, the exchange community, anyone who serves these investors should really be aware of. What are some of these trends that you are seeing on the demographic side that are critical for those to understand?
Hamish Khamisa (03:49):
Yeah, there's a lot to unpack there. I think there's sort of three streams from a demographic perspective that people want to think about. I think first is the aging population. So as it relates to self-directed investing, the kinds of tools, technologies, user experiences that a large cohort of individuals who are in the investment space already will need to access a lot of the shift to mobile, for example, that's been a big driver of the self-directed invested experience has to accommodate people who are getting older in that comfort with technology. So I think that's an important consideration. The second one is a really strong focus on getting new people into Canada. So demographically, our birth rates are not enough to sustain the population growth here. So we supplement it with immigration and as a result, there's been a large push to try and get new people to come to Canada.
(04:45):
And the banking and the financial services industry has framed it as newcomers. They've seen this coming down the pipe for a number of years, but now you really see it in a lot of the marketing and the messaging and a lot of product is now coming to market as well, specifically geared towards trying to get newcomers to Canada situated in the financial services space. And that includes direct investing. So another angle for accessibility into the markets and especially self-directed investing, is catering to this increasingly large number of individuals who are not from here, familiar with the systems and the norms and so forth to be integrated into that.
(05:21):
And the third is just an aging question. So the younger investor and the kinds of needs and the things that they're thinking about at this point. And we've been at this question before. We talked about millennial investors for a while a few years ago, and now millennials have kind of aged up, but the next groups and what they're thinking about in terms of things that they want to invest in and the kinds of things that are appealing and even the opportunities that they have to invest.
(05:46):
And I think that's a really interesting and compelling space, especially in some of the work that we're doing both on the magazine, the purpose-driven side of things that we work here at Sparx that we see as being a really important trend former because the technologies, the opportunities and so forth, the banking industry, we're really focused on whose coming next to do a lot of their design planning and platform user experience. So they're really looking at that younger cohort, but with those other two demographic components in mind, I think it's a really tough spot or perhaps the most challenging chapter in their future that they have to try and work towards because they have to now plan and design around three very different use cases and still provide a consistent, coherent digital first experience.
James Black (06:36):
Well, let's break down some of those use cases real quick. So for the aging demographic, obviously minimizing risk of their investments, making ease of access to services and investing, I assume, and maybe not even overloading people who as they get older with too many options, that to me is sort of what I would see as being some of the deliverables needed for, feel free to interrupt on these ones. But for immigrants, obviously some form of bridging the gap on language, maybe cultural considerations. I don't know if you've observed any success stories or anything where you've seen a brand or a corporation that offers self-directed platforms, obvious wins on that. If you do, please let me know.
(07:29):
And then the third one, obviously being the younger demographic, when I say younger, I mean younger than myself. So I would say anyone whose... I have this belief that as I get older, I am inherently just not going to understand someone who's younger than me, what they think and want and need as well as I'd like to. So I have blinders on a bit and I'm just not living their life. And so I know that you're working really hard and I know you've staffed your agency with lots of people who are of that age. What are some of the calling cards or some of the calls to arms you would put out there for people who are trying to appeal to those millennial and earlier demographics when it comes to self-directed investing and building investing tools for them?
Hamish Khamisa (08:17):
Yeah, that's a great question. I think one of the key themes that cuts across all the questions that you're asking in particular resonates with younger investors is authenticity and representation. So having done this now for over a decade, I've literally witnessed the shift in marketing of mansplaining pictures. Here's an old guy explaining to his wife about their investments on the laptop with a cup of coffee there to now younger, more representative images of mothers and their children or just different kinds of ethnicities in the imagery. So that shift has started to take place. There's great inclusion in terms of accessibility that I've seen in the marketing materials.
(09:06):
So hats off to the industry for making that transition because I've worked on those kinds of challenges and projects with some of those financial service firms where the ask was, and this was remarkable, I can't tell you who this was, but this was remarkable in they wanted to do a new website and I was helping them with their imagery and I was like, make yourself representative of Toronto because that's sort of where a big client base is. And they elected to go in a traditional direction with the look of the people in the pictures. And I'm like, this is not going to resonate with who the brand is.
James Black (09:41):
By traditional I'm assuming waspy, like white, English accent.
Hamish Khamisa (09:47):
Not very culturally diverse. It's not-
James Black (09:50):
And I know it has been on the subway in Toronto knows that's not what Toronto is, right?
Hamish Khamisa (09:54):
That's exactly right. And I think to me that was sort of the 2015, the last vestigial of that kind of thinking before it really started to transition over the following three years and has started to see more conscientious inclusion. And I would say one of the ones that I saw it first in was National Bank Direct Brokerage, and that was a pivotal one. I've written about it. So there's sort of a timestamp on when this happened, but it was really fascinating to see that shift take hold. And now most of the large financial services brands have embraced that. And I think as they normalize authenticity, they normalize representation, it starts to appeal to the newcomer ideally in every marketing challenge, do people see themselves in the product? Is this right for them? And so taking that question for the younger investors, what's really challenging is the question is investing right for me?
(10:53):
And a lot of this pushback or the friction for that group is I don't have a lot of money, so I don't have a lot of money to invest or I'm not thinking about my life in the future, why do I need to plan for retirement now at age 20 or 18? So there's an interesting gap that's being closed around financial literacy in younger individuals. And I think it stems from people in our cohort who realize that the financial literacy component of the standard curriculum in schools just wasn't there. We weren't taught about investing, we weren't taught about things like compound interests. We maybe taught about compound interest in math, but we weren't really taught about the pragmatic benefits of doing something like that or budgeting to set aside. So there are a lot of I think champions at our age cohort who are now parents who are trying to teach those lessons actively to their children who are looking to change the curriculum in schools to try better equip younger individuals and even children to understand that these financial concepts have a direct bearing on their wellbeing as they grow older.
(12:02):
So what's fascinating is that the younger group is actually in tune and understands investing. And in the states for example, where you've got platforms like Robinhood who intentionally skew younger, they've done a great job to try and make their brand content accessible. They had that podcast for a while, Market Snacks, which is now TOBOY, and they've continued their newsletter and they've formed their content stream around making investing accessible, understandable, and not seem overwhelming. And they've reduced the price point. And similarly with some brands here like Wealthsimple and now National Bank Direct Brokerage, again, kind of lowering their commission rates to zero, they've removed that barrier. I think for someone like Questtrade, which is also actively a leader in trying to figure out how to connect with younger voices, they've done that almost since inception. They've understood that they really do need to look to that younger audience and continuously work on that segment for the viability of their business because that's really where a large part of those people age into the products that they're offering.
(13:13):
So that long-term relationship can be crafted there. So in some, I think the things that the online brokerages, financial services, the investing space in general needs to think about where the younger investors is, what are their expectations, what are their experiences when it comes to money? And if they don't have those experiences, certainly helping them get a grounding is critical. But then also we can look at where the world is going and the kinds of things that they'll be investing in. And there won't be the kinds of things that I grew up thinking about. I was like, great, there was Google that came to market, now there's like AI companies, or there's eSports companies, there's things like plant proteins, and a lot of those stories are stories that come through the CSE. So it's a really interesting lens on what is coming to market because I think that will ostensibly be where a lot of the younger investors will be turning to because those are the products that they will engage with, interact with, and understand better than some of the older investors.
James Black (14:20):
A lot to consider, Hamish, I think let's drill down on one, which is ESG. So those three letters mean a lot of different things to different people. And if you were to summarize ESG and ESG mandates, whether it's from the company level or from some broader organizations, are you starting to see correlation between say younger investors being more attracted to companies with these ESG mandates or even in some cases ESG scores? Are they seeking this out as sort of a prerequisite for them to be interested? And if so, why?
Hamish Khamisa (15:03):
That's a great question. I kind of digging back into my personal archive here, I think Scotia iTRADE was one of the first online brokerages to offer kind of like ESG reporting integrated into their online platform. And this is around 2014, so yeah, almost like nine years now this has been kind of a feature that investors have had access to. And I think it's only in the last, let's say three to five years where we've seen the interest level really start to quicken and take significant shape. So I think for scoring and using that as a criteria to invest, if you're sort of picking single name entities and looking at their scores as a prerequisite, I would say for younger investors, that's partly a consideration. I think it's maybe also what the companies themselves are doing, which is going to be a driver.
(16:01):
So ESG scores and reporting impact are important, but I think we're really just at the beginning stages of that becoming a crucial determinant on will an investor pick company A or company B, and a large part of it will come down to positioning and reporting. So how on the company's investor relation side, for example, they're communicating that component of their business to stakeholders. Are they looking for third party certifications like B Corp? Are they a social purpose business? So going just beyond the ESG reporting framework and really translating it into a story or a narrative that makes it clear kind of what their impact is, what their commitment to keeping things like ESG components in good standing. And then I think one of the challenges in the space is really reconciling which number do you trust, how do you unpack that number?
(16:59):
And I think that's going to be a much tougher nut to crack. There's the ISO standards, there's like all kinds of different certification bodies, which can ostensibly give you a good number. And for some use cases in investor behavior, human behavior, we like simple. So if we can get it to a point where the reporting is simple and here's the number company A versus company B, bank A versus bank B, all things being equal, which one would I choose as an investor? I think that's the kind of decision forming that we'll need to take place on the technology front. And I don't think we're quite there, but we're getting very close to that point.
James Black (17:45):
Oh, for sure. I mean, we've seen ETFs and certain funds that were trying to align themselves with these ESG mandates and scores. So only matter of time before the retail investor has maybe enough tools in front of them to make a informed decision as to what they think is a good versus bad ESG investment, not just a fiduciary, I buy something, make more money, hopefully it works out. And to be clear, I think that's a prerequisite for any company that is in the business of having an ESG score is that they have to be a good business to attract investment. There's no hacking that with good social performance I don't think. It's got to be a good business or else investors will fundamentally just be looking for the next thing. Right?
Hamish Khamisa (18:34):
Yeah, absolutely. I think there's profitability and sustainability and I think the balance there can't be lost on the investors who are their primary objective and like, I'll come back to that demographic driver. Intuitively or almost as a rule if you have to focus on growing your wealth, then you have to be responsible about who you invest with. And those companies need to be well run. I think what well run means is now broadening in terms of its scope to include the things like ESG as an indicator of whether or not those are socially responsible businesses. And I think that's the demand is coming from investors or the broader public. And so that wave of expectations, it's working its way into the financial services chain. For example, banks and the primary point where a lot of individuals interface with the financial services system that you see the language change, you see the social responsibility initiatives that many of the big banks you're taking, there's credit unions for example.
(19:43):
And we, in our last issue of Make the World Better Magazine, we did Capitalism Force for Good and looking at stories like Vancity, a very old credit union, I know you know this name from your time out west here, but a phenomenal story, just understanding that people need to be a part of the equation, and responsibility needs to be a part of the equation. It doesn't supplant profitability, but it does require different work streams to be conscientious about how you do your business. And I think from there, they earn that press, they earn that accolade and the word of mouth and the kind of customer that they're appealing to is growing. And I think you'll see the same kind of language and the same kind of structure ripple into things like the self-directed investing platforms.
James Black (20:34):
So you mentioned as part of your publishing group, you do produce a magazine called Make the World Better Magazine. And maybe just sizzle us a little bit on what's in there and how ultimately do you define what it is a company, I mean, you gave one really concrete example, but some of the hallmarks of a company that does make the world a better place? I mean the cynical thinking could be that while all companies that are trying to make a profit are ultimately trying to do well by the world, they're trying to hire people, most people contribute back to the economy. The economy has this kind of relationship with its own communities where if people are doing well, they can invest back in their community, pay their taxes, it all works for good. But I'm hearing you say that sometimes just making a profit mandate is not enough. And so tell me that in this magazine, or tell me who in this magazine you select and why you decide on what criteria to provide a profile for them?
Hamish Khamisa (21:33):
The Make the World Better Magazine was formed around a theory of change. The idea that people are intrinsically good, given the opportunity to do things that were better for everybody, they would given the right options if we can simply provide examples to people that you don't have to choose. My basic fundamental view is people shouldn't have to choose between doing good and putting food on the table because I don't want to point fingers at industries, but there's some things that are inherently contributing to the destruction of humankind or they aren't typically very good for us overall. So I wouldn't say that's a cynical view of me. People who are employed to do a thing doesn't make the thing good. People who follow orders can do bad things. People who can be employed in mass to do something can be doing it to a nefarious end.
(22:34):
But intrinsically I feel that people are good. And if we can show that it's possible that you don't have to choose between making a profit and doing good in the world, that usually will ignite somebody who's a bit more entrepreneurial to say, "Yeah, I could do that too." And so that's our hope with the magazine, that we can amplify stories and show people that this is happening and that these kinds of things are out there. And you can choose to work for those companies. You can choose to start those companies, you can choose to be consumers of those products that those companies are making. And you can be an active participant in changing the world for the better. Ideally, our goal is to try and shift the balance away from things that are worse for the world and the planet and towards better. And we're going to use marketing to do it, and a magazine is a great vehicle for that.
(23:17):
And the companies that we choose, there's no hard fast criteria that says company A versus company B. The good news is, in doing this project, there are a lot of great stories out there to tell and I know you know this too, that there's a challenge even for the CSE magazine, lots of great stories and kind of curating it down, what makes a compelling collection or a compelling curation of stories? And so there are facets. So for example, we try and be regionally sensitive to BC Canada and then internationally in that order. And I think what's really fascinating about the kinds of companies that we're coming across, even going down this route when we come up with themes like regenerative agriculture or the circular economy or capital as a force for good, our next one is diversity, equity, and inclusion, there's a lot of names that we can choose from.
(24:09):
And so really selecting down is partly who's available to do and who wants to get on board with this storytelling. And then also who really seems to illustrate a good example of a spark, who is somebody who took an idea or nothing and turned it into something. And it can literally be an individual as there's a great story coming up in our diversity equity inclusion issue about that, just a single individual who had enough and was like being a person of color looking for a job in sustainability shouldn't have been as hard or as ostracizing as it was in Vancouver. And they did something about it. They started something called the BIPOC Sustainability Collective. And I think it's a wonderful story, but a really great example of an individual, a young person who said like, "I'm just not going to sit around and wait for change to happen. I'm going to be an active agent of change." And I think for entrepreneurs, they can really resonate with that moment.
(25:10):
And I think that's ideally what we're hoping to spark is some kind of resonance with our audience that they can take action as ambitious as starting a new organization or company or as simple as voting with their dollar.
James Black (25:25):
That's a good way of closing the circle to this conversation. I think it's the companies and the investors all have responsibility to each other to provide what they ultimately both want, what returns, but also I think as you stated with the younger demographics, but not exclusive to them obviously is just putting money into things that aren't going to ruin the world, but also do well financially and create some new good. And I think that's a pretty simple equation. I don't think it's that complicated, but other things do tend to get in the way. I'm going to just name drop an event that we are collaborating on. It's called the Summit on Responsible Investing. It's going to be in Kelowna in June, more details to come. I'll link it down below. But yeah, Hamish, any plans in the coming months? You just mentioned your magazine, but anything else you want to promote either through Sparx Publishing or Sparx Trading?
Hamish Khamisa (26:18):
Yeah, so we're really excited about the summit. I think it's going to tie together a lot of the themes that we were talking about here, and especially for a lot of the companies that are thinking about how to navigate this change that's taking place from their end. I will be attending a couple of circular economy events just prior to that. So there's a really important arc for our team here to be looking at trying to bring things like the circular economy and socially responsible investing as solutions that we want to see win out over things that are, let's say, less better for the world. And that's certainly our tilt, but our big milestone that we've got coming up is the launch of our diversity, equity, inclusion issue for Make the World Better Magazine. So as a purpose-driven or aligning ourselves as a purpose-driven agency, we want to make sure that we're telling stories that are amplifying people who haven't necessarily have the spotlight and we think could probably deserve the spotlight and do some great things with it.
(27:21):
And that's coming also in June, so early June. So it'll be a busy stretch. I know we're looking forward to a lot of the projects that we're working on. But yeah, I think the biggest thing to kind of tie it back to the original entry point on the self-directed investing front, these are just new opportunities that are forming. And I was often challenged to bring these two different worlds together, but the convergent point is going to be something like this event that we're running in Kelowna, the conversation about how can we allocate our capital towards things that are going to necessarily improve the lot of life, maybe for me, but also have some collective responsibility in their outcome. And I think if that conversation is now happening more frequently and with different stakeholders, that's going to find its way into where people can invest in next.
(28:13):
So I'm really excited in the turn to see things like AI and all of the things that we could definitely go into there but won't right now come to fruition as investible opportunities and places for people to grow their wealth. That next generational leap that people can invest in, that's going to be a place where people are going to need to figure out the territory. So yeah, I'm looking forward to with the magazine launch and what's up next for Sparx Trading. I know that there's still... What's interesting about the Canadian self-directed investing space is that it moves at a pace that's probably a lot slower than in the US. So we're really looking across what's going on in the States as driving trends here in Canada coming at some point. So we'd love to see what's going to happen next.
James Black (29:08):
Absolutely. And yeah, of course, we're not going to get into the depths of AI today at all because that's just a conversation for a different time because I think it will have a massive impact on self-directed investing. But until that time, Hamish Khamisa, Sparx Publishing, Sparx Trading links below. Please subscribe, like, recommend this show. And once again, Hamish, thanks for joining us.
Hamish Khamisa (29:33):
Thanks James. It's a pleasure.
James Black (29:37):
Thank you again for listening to the Exchange for Entrepreneurs Podcast, a proud presentation from CNSX Market Inc, operator of the Canadian Securities Exchange. As a reminder, the viewpoints on this show do not reflect those of the exchange and are solely those of the guests and do not constitute investment advice. For more information about the exchange at services enlisted companies, please visit www.thecsc.com. Until the next show, thank you for listening and don't forget to hit the like or subscribe button on your favorite listening platform. Thank you so much.