There’s a famous quote attributed to J.P. Morgan, the early American financier and banker whose name now adorns the largest investment bank in the world:
“Nothing so undermines your financial judgement as the sight of your neighbour getting rich.”
In today’s digital age, this sentiment resonates more than ever as social media platforms are rife with individuals flaunting their gains from speculative investments. New research indicates that younger generations, particularly those native to the internet, are more susceptible to dubious investment advice and scams online.
This trend has prompted Australian regulators to push for enhanced financial literacy and consider stringent measures against the advertisement of financial products. The Australian Securities and Investments Commission (ASIC) is at the forefront of this initiative, with its chairman, Joe Longo, highlighting the dangers posed by aggressive financial product promotions, especially on social media.
Regulatory Concerns and Potential Measures
The ASIC’s concerns echo past regulatory efforts, such as the ban on cigarette advertising, with Longo suggesting a similar approach might be necessary for financial products.
“Particularly through social media, there’s a whole range of ways in which Australians are exposed to pretty aggressive financial product promotion,” he noted. “So I think we need to be looking for ways of helping Australians navigate that.”
The potential measures could include restrictions or outright prohibitions on certain types of advertising to protect consumers.
As Longo’s term as ASIC chair concludes on May 31, he has emphasized the government’s commitment to increasing funding for financial and technological literacy. This initiative is crucial as the rise of AI agents capable of performing tasks with minimal human input is expected to transform the financial landscape.
“The whole question of literacy around technology is related to financial literacy, because we’re seeing a convergence,” Longo explained.
The Role of AI and Unregulated Advertising
AI has been a catalyst for the surge in advertisements promoting questionable financial products. ASIC is actively discussing law reforms to limit practices like cold calling and lead generation, which have previously led to investments in collapsed funds such as Shield and First Guardian.
“But generally, we’re talking about advertising that isn’t regulated,” Longo stated. “So what we’re calling for is greater consideration of whether that kind of advertising should be restricted in some way.”
Longo’s remarks underscore the need for consumers to seek proper financial advice from licensed advisors, especially as many have lost their life savings chasing high returns.
“We’ve just seen too many examples at the moment of people losing their money in circumstances where they’re investing their life savings, for example, chasing a higher return,” he added.
Gen Z and Millennials: A Vulnerable Target
January marks a peak period for scammers targeting consumers eager to rebuild their finances post-holidays. According to a new survey by BrokerChooser, younger demographics such as Gen Z and millennials are particularly vulnerable to investment scams. The survey revealed that these groups are over six times more likely than Boomers to test suspicious trading platforms.
Specifically, 20.21% of Gen Z and 26.53% of millennials expressed willingness to engage with questionable platforms, compared to just 3% of Boomers. Moreover, nearly one in five Gen Z respondents admitted they could be swayed by screenshots of profitable trades, while over a third of 25 to 34-year-olds and nearly a quarter of 35 to 44-year-olds trusted testimonials from “successful traders,” a tactic often employed in scams.
Krisztián Gátonyi of BrokerChooser highlighted the risks associated with impulsive investment decisions among young investors.
“A quarter of young investors admit to making impulsive decisions in order to keep up with current investment trends, often leaving little time to properly evaluate the risks,” Gátonyi said. “Amid a sharp rise in investment scams, this behaviour is particularly dangerous.”
The Path Forward
As investment scams become increasingly sophisticated, leveraging AI to create realistic fake websites and deep fake videos, even seasoned investors find it challenging to discern genuine opportunities. The survey, conducted with a representative panel of 2,000 UK adults, underscores the need for regulatory intervention and enhanced consumer education.
Australia’s potential crackdown on financial product advertising represents a proactive step towards safeguarding consumers, particularly younger generations, from the pitfalls of speculative investments. As the financial landscape evolves with technological advancements, the importance of financial literacy and robust regulatory frameworks cannot be overstated.
With the government poised to bolster efforts in financial education and regulation, the coming months will be critical in shaping a safer investment environment for all Australians.
