Conducted in partnership with Trustees Executors, the Financial Services Council’s (FSC) new study into digital investment "Money & You - The Rise of the Digital Investor" shows a striking shift in how we manage investments, what we invest in, and who participates in the financial markets. While new ways to invest have been in development for years, the rise of the digital investor has occurred primarily in the past 18 months, since the start of the pandemic.

Today, 38 per cent of Kiwis use, or are planning to use micro-investing platforms like Sharesies, Hatch, Stake and others. This has made investment more accessible to Kiwis and helped to drive up participation in the financial markets globally, but it has also exposed new investors to greater financial risk. Digital investment platforms aren’t regulated the same way as traditional financial institutions, and cybercrime has made it more difficult than ever to keep our financial data secure. At the same time, many new retail investors may lack the financial literacy to accurately assess risk, leading them to make bad investments.

On the whole, though, these are just the growing pains of a rapidly evolving financial system. While older investors are mostly sticking to the technologies they know, younger investors are rapidly pushing innovative new tools into mainstream usage. To thrive in this changing environment, new investors need to develop their financial literacy, and get access to good financial advice.

Economic pressure and technological advancement are driving more Kiwis to invest

Even before the pandemic, New Zealand (and much of the western world) was experiencing rapidly rising home prices and cost of living increases that outpaced wage growth. Now, in a post-pandemic environment, all asset classes are booming. This has put home ownership further out of reach for many around the world, most notably young people who own few or no assets. In response, they are increasingly turning to other forms of investment as a solution, both as an investment-alternative to home ownership, and as a way to build the wealth needed to purchase a home in an economy that is leaving many behind.

The direction that this shift has taken in the past year has been driven by new technologies. With many young people spending far more time at home globally, digital investment platforms and micro investing presented the accessible option that many first-time investors were looking for. Boyed by the sudden interest of millions of new investors worldwide, the financial markets have attracted many young Kiwis looking for a way out of financial stagnation.

The appeal of digital investment platforms

Micro-investing platforms are particularly popular among the younger generation, with 55 per cent of people under 40 using, or planning to use them to invest. Older Kiwis however, are also showing an interest in micro-investing with around 50 per cent of those over 60 either using or planning to use a micro-investing platform.

When asked why they opt for micro-investing platforms, 43.4 per cent indicated a desire to grow their wealth, 40.4 cited ease of use, 35.2 wanted to learn more about investing, and 31.5 prioritised low fees. Other major motivators were convenient access, greater control over investments, and simply fun.

These new digital tools allow investors to choose from a wide range of investment options, to access free or low-cost financial advice, and to maintain direct personal control of their investments.

New investors need to be aware of potential risks

In a speech at the launch of the FSC report, Trustees Executors CEO Ryan Bessemer stressed the need for caution, stating that there are no current regulations or licensing regimes that specifically cover micro-investment platforms and custodial wraps. Moreover, some of the new platform providers don’t have a prior financial background, and may not fully grasp the consequences that poorly-built back-end investor protections could have for consumers.

This is particularly relevant considering that the vast majority of Kiwi investors are looking to pursue low-risk investment. That’s only possible, however, if the tools investors are using are safe, and if investors are financially literate. So far, financial literacy is still lagging behind investment enthusiasm.

Boosting financial literacy is critical for new investors

The influx of new “retail” investors into the markets has made a big splash in the cryptocurrency market, as well as a number of highly volatile stocks. This enthusiasm for high-risk speculation can often be interpreted as a lack of financial literacy on the part of the investor – particularly those who invest funds that they can’t afford to lose.

As investment becomes more accessible to larger segments of the population, access to financial advice needs to expand as well. This has caused some difficulties in the past, as the financial advice sector is suffering a major skill-shortage. To compensate for this, investors are again turning to technological solutions in the form of robo-advice.

While automated advice isn’t an ideal solution, it’s a good starting point for new investors. Although more and more are recognising the value of digital advice, only about 1 in 4 investors under 50 have used, or plan to use, a robo-adviser.

Digitalisation puts a spotlight on cybercrime

While Kiwis over 50 are less likely to embrace brand new technologies like digital wallets, nearly all of us use older digital technologies like online banking, and financial smartphone apps. This has made it easier for us to manage our finances, but it has also increased our exposure to potential cybercrime.

Since 2017, the number of cybersecurity incidents has increased by a whopping 65 per cent. As a result, concern about fraud and cybersecurity is universal in New Zealand, regardless of age. Only one in five indicated that they were “not concerned” or “not particularly concerned” about the issue. Those over 60 are particularly insecure about using and adopting new technologies safely, with 18 per cent actively avoiding new technologies

Invest with confidence – seek advice

The rise of the digital investor is an important step in democratising the financial services industry, and making investment available to everyone as a vehicle for wealth creation. As this happens however, it's important to ensure that investors have the proper tools, information, and regulatory protection to make confident and informed financial decisions that will serve them and their families. It’s not good enough to make investment accessible if investors don’t have access to the knowledge they need to become financially literate.

While the issue of regulation is ultimately up to the government, it’s up to both traditional financial institutions and new investment platform providers to communicate the value of good advice to new investors and boost financial literacy wherever possible. This need for advice has only been accelerated by the COVID-19 Pandemic and the rapid adoption of these new technologies.

At Trustees Executors, we work hard to provide our clients with the expertise they need to make good financial judgments. If you’d like to speak with one of our financial advisers about how you can meet your investment goals, reach out to us today.

Call: 0800 878 783
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