The City regulator will design a campaign to target high-risk investments after finding there is a new, younger, more diverse group of consumers investing in these products.
These self-investors, who tend to skew more towards being female, under 40 and from a BAME background, relish the challenge, competition and novelty of investing and rely more on YouTube and social media for tips and news.
They have a strong reliance on gut instinct, with almost four in five (78 per cent) saying “I trust my instincts to tell me when it’s time to buy and to sell”.
However, they have a lack of awareness and/or belief in the risks of investing, may have lower financial resilience and high-risk products may not be suitable for them.
More than four in 10 do not view ‘losing some money’ as one of the risks of investing and 59 per cent claimed that a significant investment loss would have a fundamental impact on their current or future lifestyle.
Tackling harm in the consumer investment market is a priority for the Financial Conduct Authority (FCA).
The FCA said it will use the research alongside feedback from its call for input on the consumer investment market to help to design a new campaign to address the harm caused by consumers investing in high risk, high return, illiquid investments that may not be suitable for their needs.
Alongside the publication of this research, the FCA has today launched its digital disruption campaign to prevent investment harm.
This uses online advertising to disrupt investors’ journeys and drive them to the high return investments webpage, which covers key questions consumers should ask before investing.
“Much of the consumer investments market meets consumers’ needs,” said Sheldon Mills, executive director, consumer and competition at the FCA.
“But 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.
“This research has helped us better understand what drives and motivates consumers so we can tell them about the risks involved in these investments through our investment harm campaign.
“We want to make sure that we encourage the ability to save and invest for lifetime events, particularly for younger generations, but it is imperative that consumers do so with savings and investment products that have a suitable level of risk for their needs.
“Investors need to be mindful of their overall risk appetite, diversifying their investments and only investing money they can afford to lose in high-risk products.”
“It is perhaps unsurprising, given that we have been in an ultra-low interest rate environment for over a decade, that younger investors are attracted to products that offer the potential for higher returns,” said Mark Turner, managing director of Duff & Phelps’ compliance and regulatory consulting practice.
“With higher returns comes higher risk including the risk of not being able to liquidate your investment quickly and the risk of losing some or all of your capital.
“If the FCA can help younger investors make informed decisions supported by simple to understand language, and instil a healthy scepticism of “too good to be true” promises, this would be a good outcome.”