“Gambler” or “Having a Go”: FCA-commissioned study reveals investor archetypes
The UK Financial Conduct Authority (FCA) today published findings of a study that aims to better understand investors who engage in high-risk investments like cryptocurrencies and FX.
The findings reveal there is a new, younger, more diverse group of consumers getting involved in higher risk investments, potentially prompted in part by the accessibility offered by new investment apps.
The FCA commissioned BritainThinks, a leading market research agency, to conduct an in-depth exploration of self-directed investors’ behaviours, attitudes and financial resilience. The research took a rigorous, four-stage approach, including a review of existing literature (rapid evidence assessment), interviews, observing consumer behaviour online and an online survey, and engaged with over 550 people currently doing or considering self-directed investing.
The sample was skewed towards those investing in or considering high-risk, high- return types of investments (CFDs and FX are among such instruments).
Three overarching self-investor archetypes have been identified, based on motivation, attitude and approaches to investing:
- Having a Go: newer or less experienced self-directed investors who lack extensive knowledge about investing and are keen to do it on their own. They often look to learn through doing and adopt shortcuts to decision making which can include going with ‘hyped’ options they have heard a lot about, or viewing mainstream, big name brands as a short-cut to what they believe are ‘safe’ investing (e.g. investing in tech companies).
- Thinking it Through: more experienced self-directed investors, or those with a professional or academic background in maths, finance, economics or business. These self-directed investors feel they have high levels of knowledge and are very confident in their abilities (although this can be misplaced in reality). They often use shortcuts built up from experience and background knowledge – for example, seeing certain data patterns as indicating a ‘safe choice’.
- The Gambler: behaviourally very separate, this group tends to see investing on a similar level to ‘betting’. These self-directed investors are particularly attracted to short-term high-risk, high-return options like FX and CFDs.
Emotional and social motivations are often key in driving self-directed investing, either alone or in addition to more functional motivations. Motivators have differing relative importance across different archetypes.
- ‘Having a Go’ tend to be motivated by a combination of functional (making money, working harder) and emotional factors (challenge, novelty).
- Thinking it Through are often more motivated by social factors, such as feeling like ‘an investor’, being able to prove their know-how and talking to others.
- The Gambler are usually more emotionally motivated by the thrill and excitement and are looking to ‘beat the game’ and ‘win’.
The research shows that investors often have high confidence and claimed knowledge. However, it also shows a lack of awareness and/or belief in the risks of investing, with over 4 in 10 not viewing ‘losing some money’ as one of the risks of investing, even though as with most investments their whole capital is at risk. In some cases, investors can lose more than they initially invested for example with contract for difference investments.
These investors also have a strong reliance on gut instinct and rules of thumb, with almost four in five (78%) agreeing “I trust my instincts to tell me when it’s time to buy and to sell” and 78% also agreeing “There are certain investment types, sectors or companies I consider a ‘safe bet’”.
Research findings indicate that this newer audience has a more diverse set of characteristics than traditional investors. They tend to skew more towards being female, under 40 and from a BAME background. This newer group of self-investors are more reliant on contemporary media (e.g. YouTube, social media) for tips and news. This trend appears to be prompted by the accessibility offered by new investment apps.
Together with feedback from its Call for Input on the consumer investment market, this research will underpin the FCA’s work in the consumer investment market. In particular, the research will help design a new campaign to address the harm caused from consumers investing in high risk, high return, illiquid investments that may not be suitable for their needs.