The UK’s regulator, the Financial Conduct Authority (FCA), has issued a warning to young investors on the danger of buying into high risk investment products amid fears that the use of new investment apps and social media is fuelling a move into high risk products.
The warning comes on the back of research conducted by the FCA that found four out of ten consumers do not view “losing some money” as one of the risks of investing.
The FCA also suggested that the accessibility offered by new investment apps has attracted a more diverse audience – younger, more female and more BAME – who are said to be more reliant on contemporary and social media for tips and news.
“We are worried that some investors are being tempted – often through online adverts or high-pressure sales tactics – into buying higher-risk products that are very unlikely to be suitable for them,” said Sheldon Mills, executive director, consumer and competition at the FCA.
The research also found that many investors cited emotional and social factors such as “the thrill of investing” as key reasons for their investment decisions.
This was particularly true for those investing in high risk products who ranked the challenge, competition and novelty as more important than functional reasons such as saving for retirement.
The FCA has also launched a “digital disruption” campaign alongside the research which will aim to use online advertising to appeal to younger investors relying on social media and direct them to the regulator’s own webpages.
Concern around investment apps and social media has risen following the GameStop phenomenon where the users of trading apps such as Robinhood fuelled an unlikely rise in the stock of the gaming company.
“In many ways trading apps have democratised the whole investment process but they need to be used thoughtfully,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown. She highlighted the use of chat communities on some investment platforms “which can fuel short-term trading behaviour”.
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