The widespread use of social media to promote investments is creating worrying behaviours and habits among investors in Europe.
Research by the Cyprus Securities and Exchange Commission (Cysec) of retail investors in the UK, France, Germany and Cyprus found that less than half (42%) investigate and look into the investments they are being recommended.
Some 37% rely on recommendations made by family and friends, 31% seek financial advice and 22% make investment decisions based on digital promotions or celebrity endorsements on social media.
Geographically, French investors were the most likely to seek financial advice (48%), followed by 34% in the UK and Germany. British investors, however, were more likely to make investment decisions based on online promotional content (24%), compared to those in France or Germany (14%).
Cysec is worried by the role social media is playing within the retail investment space.
Its research revealed that nearly a third (31%) made financial investments based on the ‘advice’ of a financial influencer.
While the French were the most likely to seek financial advice, they are also more likely to follow an influencer’s recommendations (40%), compared with 34% in the UK, 26% in Cyprus and 24% in Germany.
And at the same time, the information provided online is taken at face value by too many investors, with just a quarter having reported spending nearly a week researching a particular product, while 7% took less than 30 minutes before committing money to an investment.
When it came to checking whether a firm had all the right licenses and authorisations, only 30% checked the website of their local regulator. More than half (51%) only looked at company reviews or on the firm’s own website (44%), while 15% did no checks whatsoever.
From a geographical standpoint, UK investors were the more likely to check the regulator’s website (42%), followed by Germany (32%), France (26%) and Cyprus (18%).
Additionally, French investors were also the least likely to check the status of an investment firm (22%).
Another worrying trend that came out of Cysec’s research was that a growing number of retail investors are committing more money than they can afford to lose to investments. This was true for 26% of respondents.
The proportion was higher in France (32%) and lower in Germany (24%) and Cyrpus (18%). Over a third of those polled (34%), however, regretted the investment they had made; this was especially true for 38% of UK investors.
A spokesperson for Cysec said: “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.
“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.”