FCA warns of risks facing new generation of DIY investors
What is happening?
The FCA has warned, in March 2021, that younger and more inexperienced investors are taking on greater financial risk than may be suitable for them.
What do you need to do?
The FCA commissioned market research consultancy BritainThinks to conduct in-depth research into self-directed investors’ behaviours, attitudes and financial resilience. Together with feedback from the FCA’s Call for Input on the consumer investment market, this research will underpin the FCA’s work in the consumer investment market.
The findings reveal there is a new, younger and more diverse group of consumers involved in higher-risk investments, potentially prompted in part by the accessibility offered by new investment apps. However, there is also 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.
The research also found that for many investors, emotions and feelings such as enjoying the thrill of investing, and the status that comes from a sense of ownership in the companies they invest in, were key reasons behind their decisions to invest. This is particularly true for those investing in high-risk products, for whom challenge, competition and novelty are more important than conventional, more functional reasons for investing.
The research also shows a lack of awareness and/or belief in the risks of investing, with over four in ten not viewing ‘losing some money’ as one of the risks of investing, even though their capital may be at risk.
These younger investors may have the lowest levels of financial resilience, making them more vulnerable to investment loss. Research showed that a significant loss could have a fundamental lifestyle impact on 59% of self-directed investors with less than three years’ experience, who are more likely to own high-risk investment products, compared with 38% of investors with greater than three years’ experience. Despite having lower financial resilience, the report found that inexperienced investors take up higher-risk investments much faster than those who have invested for longer.
Firms offering higher-risk and complex products on platforms may find these figures alarming in view of their appropriateness obligations set down in COBS 10A.
How can we help you?
If you’d like to know more about how we can help you with any aspect of your investor KYC or appropriateness assessments, or any other regulatory compliance issues, our expert team is here to help. Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.