The ‘double-edged sword’ of first-time investors
At the same time as advice has been getting harder and more expensive to receive, it has become easier to trade on the stockmarket, leading to a double-edged sword for advisers.
There had been a big increase in first-time investors to the stockmarket, many of whom were likely to be unable to afford financial advice.
Greg Davies, head of behavioural finance at Oxford Risk, said: “It is a double-edged sword, this is the very demographic that advisers are struggling to engage with.
“It has got harder and more expensive to give advice but it has got easier to trade on the stockmarket.
“They are trying to catch falling knives, that’s not healthy and advisers could use that surge of interest and excess cash to have conversations with them about their long-term financial interests.”
From a behavioural finance perspective, he said people were developing a “tribal following” of finfluencers and seeking validation by being part of a club.
“People have time on their hands during the lockdown, it is being driven by social media and for some people it’s became a tribal following of fininfluencers. People are seeking validation and being part of a club and, if they’re making money at the same time, then that’s very addictive,” he said.
“They are likely to get burnt if they are putting too much faith in these fininfluencers and putting in too much money.”
He recommended people set a maximum limit that they would invest and had a target in mind of how much they wanted to gain before they sold their holdings.
He said it would be in the interest of trading platforms to provide financial education and create a cohort of good investors.
AUTHOR
Laura Dew
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