Over time, investing is becoming more and more accessible in lots of new and exciting ways. There’s now a myriad of ways people can invest at their fingertips, from the comfort of their own home. While accessible investing sounds like a positive move, it raises the important question of just because you can invest, does that mean you should?
Recently, there has been a boom in trading apps, marketplaces and crowdfunding platforms all giving quick and easy access to different types of investments - not to mention the rise of commodities like Bitcoin and Gold, and the foreign exchange market coming into the mainstream.
The Financial Conduct Authority (FCA) recently found that more younger people are getting involved in higher risk investments, partly due to the increase in accessibility of these platforms. While it’s good to see more people, especially younger people, getting involved in investing, there’s been a worrying surge of interest around share trading and unregulated investments like Bitcoin.
Although these high-risk strategies might seem like a sure-fire way to make money, especially when they are promoted by influencers and social media, you could end up losing most, if not all, of your investment.
With new routes into investing gaining traction, you could have no experience and little in the way of emergency savings, but still have a direct route to high-risk investing with no advice to help you understand the risk you’re taking and whether investing is right for you and your financial situation. The FCA evidenced that 59% of those surveyed admitted significant investment loss would have a fundamental impact on their lifestyle. 
It’s easy for these providers to argue that investing small amounts is harmless, even if unsuitable. At an event I even heard a senior staff member for one trading app say ‘everyone can afford to lose a tenner on an investment’! The danger is that smaller investments can be a gateway and, even if everyone could afford to lose a tenner, what do they stand to gain from investing it in the first place? Is there much point in investing a tenner, if you have a credit card to pay off?
These types of services aren’t offering financial advice so there’s no comeback for customers if the decision isn’t right for them and they lose out due to unsuitable investment decisions.
Accessibility is becoming a problem of the past, but with this, attention must turn to suitability.
Suitability of investments is nothing new. It’s why advisers, face-to-face or online, go through what’s called a ‘fact find’. This is essentially the process of learning about your customers financial situation, goals and risk appetite before advising on what’s best for their finances.
It’s all about making sure that the recommendation you give your customers is suited to their circumstances. As we always say, investing with us is suitable and not just simple!
With the rise in accessible investing, suitability and access to affordable financial advice is more important now than it has ever been.
There is absolutely a place for do-it-yourself investing platforms, but they should primarily be available to those who have experience with investing and understand how the decisions their making might impact them.
This is one of the fundamental reasons I launched OpenMoney back in 2016. I could see the direction of travel for the advice and investing industry and knew that getting ahead of the curve to offer an affordable financial advice solution would be integral to tackling this issue. From our annual ‘Advice Gap Report’ in 2020, we found that almost 21 million people in the UK would benefit from advice but are unaware of or unable to access affordable services.
Beyond the difference we’re making at OpenMoney, financial services providers across the board owe customers transparency. You should know exactly what you’re getting when investing and be made aware of the potential impact of that decision - and we don’t just mean a bit of small print as a tick-box exercise! The FCA’s research showed a lack of awareness and understanding of investment risk - over 4 in 10 investors didn’t view ‘losing some money’ as one of the risks to investing. It’s up to these platforms to be providing the right information to potential customers before they risk their cash.
While there is a burden on these platforms to educate their customers, the problem often starts before investors reach their websites. This newer group of investors are reliant on social media platforms for their news and tips. Some of the OpenMoney team have been targeted by ads and posts on TikTok, like the one below from ‘influencers’ who encourage use of trading apps with little to no acknowledgement on the risks involved. In the same way FCA regulated businesses need to provide risk warnings, and influencers now need to declare paid-for adverts, there should be regulation around the risk warnings influencers need to provide when encouraging high-risk investments like these.
Lastly, we can’t ignore the role of education in this discussion. It’s important for you to arm yourself with the right level of research and knowledge before investing, especially if you’re using a ‘do-it-yourself’ platform or acting on the encouragement of someone you find on YouTube or TikTok.
The FCA concluded their research by advising potential investors 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?
If the answer to any of those first 4 questions is ‘I don’t know’, the answer to that 5th question should almost certainly be a yes!