Anyone involved in what might be loosely described as the mainstream investment industry will have some understanding of the resistance to be expected should they question the case for allocating money towards cryptocurrencies. A whole ecosystem of support and analysis has sprung up around the sector and, suffice to say, its exponents pull few punches in their social media encounters.
A more recent phenomenon has been the boosting of this kind of investing/speculation/punt – delete according to your views – on social media websites that boast a more youthful profile, particularly TikTok.
This range of extraordinary poor investment ‘advice’ has even led to a satirical response on Twitter, TikTok Investors, highlighting all sorts of bizarre strategies – often about crypto but sometimes on markets more generally. There is even one youthful ‘presenter’ who will discuss surefire methods for market gains using astrology.
You do gain a sense that, when it comes to TikTok Investors, market professionals are laughing so they do not cry. Nevertheless, should it concern planners with their diversified asset allocations and long-term investment horizons? And is there a risk this generation could end up lost to more conventional investing?
TikTok scams could sow distrust of financial services
Martin Bamford, chartered financial planner and founder of a marketing agency for planners Bamford Media, certainly believes so.
“The prevalence of free ‘advice’ on TikTok and other social media platforms will wrongly educate new investors about the value of such advice,” he warns.
“It will be incredibly hard to convince a younger investor to pay for professional advice in the future, if their learnt experience to date has been picking up free tips from their favourite online influencers.”
People could also develop a greater mistrust of financial services in general, Bamford says, adding: “New investors who attempt to become day traders, or get suckered into trading signals scams, will likely develop a deep mistrust of all financial services. Already, we occasionally find it hard to convince a client who has had a poor experience historically with an unregulated adviser that we are different.
“It is becoming critical that financial advisers engage with investors on these emerging platforms, including TikTok, to share genuinely and well-informed financial education. We must make new investors aware of the variety of pitfalls they face, including scam warnings.”
Like the rise of Nigel Farage
Holly Mackay, founder of Boring Money, sees an echo of the political rise of Nigel Farage as she argues the financial services sector needs to think harder about how it engages.
“If the industry shouts and screams, it risks simply pouring fuel on the flames of these ‘investment gurus’, who will say ‘The Establishment’ is simply afraid of losing revenues,” she says.
“I would draw an analogy with Nigel Farage here. The politicians of the time responded by trying to belittle him. If they had actually looked at what was driving his popularity and suppressed their egos to actually learn some tips from him, they could have got rid of him sooner.
“It is for us all to look at what is driving these people’s success, to learn from it and to then create similarly engaging content – with more sensible messages.”
That may include explaining risk and returns better. “Those gleefully peddling higher returns will do better because the consumer perception of risk is so inflated,” says Mackay.
“If we consider the perceived sky-high risk of our world, it is no wonder people expect sky-high returns too. I would start with a razor-sharp focus on what risk actually is – and what it means in practice if you hold a collection of pretty mainstream stuff.”
No-one is engaging with younger investors
Helena Wardle, chartered financial planner with Smith & Wardle, believes advisers have a responsibility to raise the issue of unregulated information which, she says, young people may well regard as advice. “There are a lot of people who say youngsters don’t think about money, but they do,” she observes. “But often there isn’t somewhere for them to find out and instead they end up getting unregulated nonsense.”
Wardle adds that she recruited a trainee financial planner who found the role partly because he was trying to find out how to invest for himself. “I have spoken to him about his friends and what they ask about money,” she adds. “They don’t know where to go as there is no-one speaking to them or engaging with them. As such, anyone who sounds like they know what they are doing is seen as credible.
“Google merely offers information overload for them and there is just not enough clarity on what they should do. Many young people want to give it a go and they see people who are like them, speaking to them about these things – but they don’t know or understand enough to question it. It is unregulated and speculative and that’s just not clear.
“They call it advice and may see it as advice, without realising what they are buying or investing in. They may learn the hard way. They may not engage with advisers because advisers were not there for them when they were needed.”
FCA should shut down social media ‘guidance’
To Wardle’s eyes, a necessary part of the solution will involve addressing the advice gap. “I have strong views about the advice gap because I see my friends struggling with it,” she says. “We know the traditional model is not working and I don’t think robo is the answer either. But advisers do need to consider what we should do, because these unregulated sources of advice are like a ticking timebomb. We have a greater responsibility to the public and to young investors.”
Others would like to see more action from the regulator. “This market isn’t really being serviced by the profession as they don’t have enough to invest or pay fees,” says managing director of Xentum and co-founder of NextGen Planners Adam Carolan says. “I don’t really see that changing. The robo market is getting better but needs to fill this gap more profitably. Is this possible?
“I personally think all this guidance on social media needs to be regulated – or shut down by the regulator. It falls within their remit. Most of the damage is from unregulated adverts, scams or very poor generic guidance. Yet crypto is here to stay and advisers need to start understanding it better.”
For certified financial planner James Tarry, the Retail Distribution Review must bear some of the blame for the current situation. “The advice profession is currently predicated on people who have money and need advice on what to do with it,” he says. “It has never engaged especially well with younger people since the RDR.
“Advisers are certainly going to have to evolve their offerings at some pace. My view is that, while it is uneconomic to service people with scant assets, there has to be a means to onboard folk who will be good clients in the future.”
A rather more relaxed – or perhaps sardonic – view is offered by Verve Financial Planning principal Steve Buttercase. “It’s a bit like experimenting with drugs,” he says. “They’ll learn one way or the other.”
