How will the investment industry respond the FCA’s young investors warning?
The FCA have issued a warning for young investors, publishing new findings that show many are taking on considerable investment risks.
Younger people are particularly likely to be drawn to mobile-first investment platforms and use social media for tips and ideas on how to invest, the regulator found.
This echoes our own findings at Boring Money. Our 2021 Online Investing Report found that nearly a million new investors opened their first account in 2020 and their average age was just 34, far younger than the existing investor base in the UK.
These younger investors are much more likely to favour mobile platforms, offering instant access to their portfolio and the opportunity to trade on the go, and our findings indicate that as many as half of investors actively trading in 2020 did so through a mobile device.
Naturally, many new investors hold relatively small balances. Our findings show that around a fifth of accounts now hold a balance of £1,000 or less. So we have huge growth in novice investors, many with relatively small portfolios and somewhat risky investment holdings.
So what does all this mean and how should firm’s react to the FCA’s warning, if at all?
There is a huge opportunity for the sector to engage a new generation of investors. Spending has fallen during lockdown, leaving many people with disposable income to invest. And social media platforms are encouraging young investors to share their story, making investing feel more accessible to their peers.
But there is also a substantial threat. New investors stand to get burnt if, as the FCA has indicated, they’re caught with all their eggs in one basket. Where social media gave those gave people the confidence to invest for the first time, it could also become a sounding board for their frustrations if things don’t work out as they expected. How will that impact the reputation of the industry?
And can businesses learn to communicate effectively with a generation of investors that expects information delivered to their phone in bitesize format? Will digital platforms with large numbers of small account holders be able to successfully scale-up?
To find out more about this new generation of young investors and how they could shape the way your firm does business, read more about Boring Money’s Online Investing Report here.