Social Media’s Influence Over Investors
The Rise of Fin-Influencers
The Cyprus Securities and Exchange Commission (CySEC) recently published the findings of a study they conducted concerning the rise of complex financial technologies and the widespread use of social media to promote investments, the study focused on the behaviours and habits of investors in Europe.
The findings of the survey provide insights how individuals made their investment decisions, what prompted them to make the investment in a particular product and the extent of research they conducted in both the product and firm before investing. The study compared investors from the UK, France, Germany, and Cyprus; all respondents in the survey had invested, with the majority (25%) saying they bought and sold financial products monthly. Another 19% invested every 4-6 months, 17% on a weekly basis, and 4% on a daily basis.
“This is an area where regulators can and should play a much greater role to enhance their ability to protect investors. The patterns identified by our survey were identified across a range of countries and investor groups, demonstrating an opportunity for national authorities to work together to raise awareness of the tools available to investors and to signpost information that will help them make informed decisions.”
Interestingly, 22% of investors make their investment decision based on digital promotions or celebrity endorsement on social media. Furthermore, 42% investigated and conducted research before deciding to invest in the product, 37% relied on advice from family and friends, 31% sought advice from an authorised financial advisor before investing, and 6% said they bought a product due to peer pressure.
Financial Influencers (Fin-influencers) who are reaching investors via social media play a major role in persuading investors. TikTok, YouTube, Instagram and Twitter now provide financial content encouraging young people, 31% of which stated they had made investments based on advice from Fin-Influencers – France had the highest rate for social media influence at 40%, followed by the UK (34%), Germany (24%) and Cyprus (26%).
Additionally, few investors spend significant time researching the products they plan to invest in or the firm selling them. While 25% of all respondents said they spent 6-7 days researching a particular product, 7% said they did less than 30 minutes research or none at all before investing.
When it came to verifying the firm selling the product to see whether it was licensed to operate, 15% of all respondents said they didn’t do any checks at all. Most people (51%) said they looked at company reviews or the firm’s own website (44%), but only one in three investors (30%) looked up the firm on the website of the country regulator to check it was licensed.
The study also found that 26% of investors are taking more risk than they can afford and consequentially regret their past financial investments. Notably, Cypriot investors appear to take less risks, with just 18% agreeing to invest more than they can afford to lose. Overall, more than one in three (34%) of all respondents confessed they had regretted a financial investment they had made. This was especially true for UK investors, with 38% regretting a decision.
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Written by Andie Henderson - Legal and Compliance Associate | The Legal Opinions