Protecting the vulnerable investor

Protecting investors

As the marketplace continues to evolve at a rapid speed, investing is becoming easier than ever, particularly for younger people. However, this increasing simplicity when it comes to making gains and losses has led to experts asking whether more needs to be done to protect this ‘vulnerable’ demographic.

Recognising a vulnerable investor

The Financial Conduct Authority (FCA) defines a vulnerable investor as ‘someone who, due to their personal circumstances, is particularly susceptible to harm, particularly when a firm is not acting with appropriate levels of care’.

While this has previously been regarded as older people, the rise in young investors is prompting the question of whether this definition needs to be expanded further.

The role of the FCA

Cryptocurrency and trading success stories are often covered widely by the press, so it is no surprise that young people are lured into the world of investing. However, with less financial resilience, making a loss could have significant consequences for them.

While the FCA is taking measures to provide greater protection, due to only regulating specific sections of the wider investment market, it is somewhat limited in terms of what it can control. Many of the cryptocurrency trading platforms that are popular with younger people, fall outside of the FCA’s control.

Protecting young investors

Protecting a younger demographic of investors is an industry wide issue. FCA-regulated or not, it should fall to the society to protect the most vulnerable by raising awareness of the risks involved with investing. Rather than introducing new regulation, which could stifle innovation within the industry, the FCA should be more focused on promoting awareness.

Regulated providers should continue to assess who they regard as vulnerable and focus on producing products that take that risk into account, as well as offering advice on how best to protect new investors.

To help reach the wider market, it would be wise to get larger, well-known advisers on board to help protect and inform younger, more vulnerable investors. As influential voices in the market, sharing their approaches and advice is highly likely to get noticed by smaller businesses.

Unregulated investment product providers could consider crafting a set of principle-based rules. These could offer advice around what should and shouldn’t be said when promoting the product. Although these rules would only be advisory, the more involved they are in promoting them, the greater the impact they would have.

Working together

While there will always be some reckless businesses that expose their customers to greater risk, the vast majority of those operating outside of regulation intend no harm.

With a high appetite for risk and a lack of resilience, the industry must work together to raise awareness and offer advice in a bid to protect young investors.

Get in touch with our  investment funds  team to find out how they can help.