The Financial Conduct Authority (FCA) has launched a long-term, £11 million campaign aimed at "helping consumers to make better informed investment decisions." The trouble is, I am not sure the outcome will be anything other than increased liability on the industry.
I have been on here previously discussing issues such as the proposed consumer duty, payment for order flow (PFOF), in retail - and the expectations of retail traders of their service providers.
While it is laudable that the FCA is hoping to raise consumers' awareness of the risks of certain products and activities, it appears that the FCA has missed a real and obvious take-away from its research: the issue here might actually not be the industry itself.
Absolutely, consumers should take note of
'Five important questions to ask yourself before you invest’:
- Am I comfortable with the level of risk?
- Do I understand the investment being offered to me?
- Are my investments regulated?
- Am I protected if the investment provider or my adviser goes out of business?
- Should I get financial advice?";
But, if "76% of those aged under 40 who have invested in high-risk products such as cryptocurrency and forex say they are driven by competition with friends, family and acquaintances", the real problem is unlikely to be that consumers are being 'played' by their service or product provider(s) or even want 'financial advice' if it is available.
I do have issues with the questions: in many cases, these 'investments' are not being 'offered' to the consumer:
- they are "available" to the consumer;
- whether a consumer "understands" an investment is subjective;
- what difference does it make if the investments are "regulated" (they are high risk whatever);
- question 4 addresses directly whether the provider is a member of the FSCS, but what the FCA really means is "can I sue my provider or adviser" and that is not the same thing; and
- last but by no means least, question 1 ignores the data the FCA itself has collected that "risk" is not something consumers take into account as a primary go/no-go decision as what they should do (68% of respondents to the FCA's survey likened what they do to "gambling" - not even "betting": gambling).
Those issues aside however, prior to question one, surely there should be a new question.
'Why am I keen to look at this product or service?'
'Do I know who's posting the YouTube video or Snapchat I have seen?'
'Who is the mod on my Discord channel?'
'Do I trust these people?'
No one can answer those questions other than the consumer his/herself, and no one should be responsible if the consumer knows the risks and shrugs.
If the consumer is comfortable with the answer(s) to these questions, and to the five posed by the FCA already (or ignores them), then (provided the broker, adviser, arranger, platform or counterparty fulfils its side of the bargain in accordance with its terms of business), it must be the case that the FCA should say 'well, we cannot stop you taking risks, trading "is about big risk, and big reward ... with highs and lows and hours of training to get the basics right ... Anything high risk might not always go to plan, it’s about being prepared and minimising your risks through research and information."'
I mean, those are the FCA's own words. Why should the industry bear the risk but not the reward? You took a big risk on the expectation you would win, and you did not. Better luck next time.
Let me consider this from a different angle. If the FCA can expect a regulated firm to follow the FCA's guidance, then industry participants should be able to expect consumers to have followed the FCA's guidance and to have asked themselves these questions prior to taking an investment decision. It will not do so, however, and in fact is consulting on consumers having a private right of action against service providers as I type.
If the FCA genuinely is serious about protecting consumers from themselves, then it should ban retail access to more products and services (which I do not endorse) or it should pursue those Discord channels, Twitter accounts and others - which feed these competitive frenzies. I shall wager a shiny 50p coin that they are not run or modded by legitimate (regulated) members of the industry.
Three quarters (76%) said they felt a sense of competitiveness when placing their money in an investment, with over two thirds (68%) likening it to gambling. Few of those surveyed were investing for the long haul