Investment planning; younger investors and big financial risks.

FCA warns that younger investors are taking on big financial risks

(AF4, FA7, LP2, RO2)

The Financial Conduct Authority (FCA) has issued a press release having commissioned research which was aimed to gain a better understanding of investors who engage in high-risk investments without the help of a financial adviser.

Investments defined as high-risk include cryptocurrencies such as bitcoin, contracts for difference (also known as CFDs), foreign exchange (forex) trading and investment-based crowdfunding.

The findings reveal that there is a new, younger, more diverse group of consumers getting involved in higher risk investments, potentially prompted in part by the accessibility offered by new investment apps.

Sheldon Mills, Executive Director, Consumer and Competition at the FCA said:

“Much of the consumer investments market meets consumers’ needs. 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.”

The research found that for many investors, emotions and feelings such as enjoying the thrill of investing, and social factors like the status that comes from a sense of ownership in the companies they invest in, were key reasons behind their decisions to invest.

Alongside the publication of this research, the FCA has launched its digital disruption campaign to prevent investment harm. The campaign 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.

The FCA advises consumers to consider five important questions before they invest:

1. Am I comfortable with the level of risk?
2. Do I fully understand the investment being offered to me?
3. Am I protected if things go wrong?
4. Are my investments regulated?
5. Should I get financial advice? 

While it is important for younger investors to learn about investing for their own financial future, the danger here is that they could lose everything if they have not properly understood what level of risk they are taking. According to the press release there is evidence that these higher-risk products may not always be suitable for these consumers’ needs as nearly two-thirds (59%) claim that a significant investment loss would have a fundamental impact on their current or future lifestyle – so these decisions ought to be carefully considered before any action is taken.