Nearly one quarter (22 percent) of retail investors are making investment decisions based on digital promotions or celebrity endorsements seen on social media, according to the Cyprus Securities and Exchange Commission (CySEC).
The financial regulator finds that only 42 percent of respondents investigate and conduct research before deciding where to invest. A further 37 percent mostly rely on recommendations from friends and family, while only one in three investors seek advice from an authorized financial adviser.
The survey published this week by the commission aims at strengthening investor protection and financial literacy across Europe and providing clearer insight into how retail investors make their investment decisions. It also highlights the challenges facing regulators as they work to protect investors in this evolving space.
Findings are taken from a survey of 200 investors aged between 18 and 55+. It compares the investment habits of investors across the UK, France, Germany and Cyprus.
‘Taking advice and recommendations from unreliable sources’
The survey finds a much higher proportion (24 percent) of investors in the UK base some decision-making on online promotional content. This compares with 14 percent in both France and Germany.
Platforms such as TikTok, YouTube, Instagram and Twitter are fan favorites for accessing financial content aimed at young people, with more than one in three (31 percent) of respondents saying they had made a financial investment based on the advice of a financial influencer on these channels.
Notably, investors in France are most likely to be swayed by a finfluencer (40 percent), compared with 24 percent in Germany and 34 percent in the UK. In Cyprus, 26 percent of respondents recall making decisions based on recommendations from influencers on social media.
When checking out the authenticity and license of a firm selling the product, 15 percent of all respondents say they fail to do any checks at all. Investors in the UK are most likely to use the country’s regulator website (42 percent), compared with 18 percent of investors in Cyprus, 26 percent of investors in France and 32 percent in Germany.
A spokesperson for the CySEC says: ‘Social media now has a direct influence on investment decisions, but not all the information can be trusted.
‘Too many investors, including young people, are taking real risks with their money because they are taking advice and recommendations from unreliable sources, ranging from family members and friends to celebrity endorsements on social media platforms, without properly checking out the entity they’re buying from.
‘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.’