FCA’s InvestSmart aims to stop new investors being scammed by social media

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The FCA’s InvestSmart will aim to provide information for this new breed of young investors who are being encouraged to take on high-risk investments.

A new survey from the FCA finds that hype and a desire to outshine their peers are driving young investors to look for more high-risk options. The finding comes as the watchdog launches a new campaign designed to inform new investors about the risks they might be taking.

In our own survey on scam financial promotions, we highlighted that many people are completely unaware of investment scams. Yet, more and more people – especially the young – are getting involved in the investment game. They are attracted by the rise in online investment accounts offering cheaper and easier ways to get involved. However, as this survey shows, this new breed of investor is keen to take risks.

Just one in five are considering holding their most recent investments for more than year and just 8% for more than five. This figure is in contracst with the 60% of them who say they prefer more stable investments than those which rise and fall quickly. Such investments, of course, tend to require longer holding terms.

Although most of these new investors believe themselves to be more knowledgeable than the general public, a healthy majority of those investing in high-risk products such as forex trading and cryptocurrencies incorrectly believed they were regulated by the FCA. As a result, many people are venturing into this field under the illusion that they will have more protections than they do. Whilst hte FCA does regulate UK based forex brokers, there is currently no FCA protection for those investing in cryptocurrency.

The problem appears to be down to a heady mixture of marketing, hype, social media and competition with their peers. Just over three quarters (76%) of investors under the age of 40 who have invested in high-risk products such as cryptocurrency and forex say they are driven by competition with friends, family and acquaintances, as well as their own past investments. This in itself can be dangerous as earlier successes in a volatile market, can end badly, as many of the investors hit by Bitcoin’s crash this year found out.

Social media shoulders much of the blame. 58% of respondents say hype on social media platforms and the media lie behind their investment decisions. Sites such as Twitter are full of people making excited predictions about the next big thing in crypto currency. Influencers such as Elon Musk have discovered they can even move whole markets with just a single Tweet.

We’ve highlighted before the risks of Instagram, Twitter sentiment trading and social media scams.

It’s a volatile environment in which people are under protected and under prepared. To counter this, the FCA is launching an InvestSmart campaign to help new investors understand the risks they will be taking.

To help them, they’ve recruited Charlotte Worthington who won Gold at the Tokyo Olympics.

“BMX is about big risk, and big reward – but it has taken a lot of preparation to get to this point, with highs and lows and hours of training to get the basics right one trick at a time. Anything high risk might not always go to plan, it’s about being prepared and minimising your risks through research and information,” she explained. “For example, my first run at the Tokyo Olympic Games didn’t quite go to plan, but because I had prepared properly, I was able to get it right in the next run. It’s all about the smaller calculated risks in practice that don’t always go to plan, to gain the right experience to pull off something bigger at the right time.”

The £11 million campaign will target people who are inexperienced in investing where most of the hype is happening – on social media. It counters the hyperbole often found on social media and content which may give misleading impressions about how much protections certain investments have, with information and facts.

It directs investors to their website and suggests people ask certain questions such as, are they comfortable with the risk, do they understand the investment, is the investment regulated and are they protected.

“We are seeing more people chasing high returns. But high returns can mean higher risks. We want to give consumers greater confidence to invest and help them to do so safely, understanding the level of risk involved,” adds the FCA’s Executive director of Markets Sarah Pritchard. “With our InvestSmart campaign we’re taking an innovative approach to reaching those tempted by high-risk products so that they can better understand the risks and where to get advice. We will be targeting people online and through social media, helping ensure inexperienced investors don’t get played. Together with a more assertive approach to finding and taking action against scammers, we hope InvestSmart will help people invest confidently.”

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