Advisers worry as social media investment scams surge

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UK regulators are cracking down on financial promotions advertised by influencers, as concerns grow over fraudulent social media investment schemes.

The Financial Conduct Authority on Thursday charged former reality TV stars, including former contestants on Love Island and The Only Way is Essex, over their involvement in promoting via Instagram a foreign exchange scheme linked to high-risk derivatives.

The move follows a warning issued by the watchdog this year as it published guidelines for influencers looking to promote financial products. The FCA said it took down 10,000 misleading financial promotion advertisements in 2023, compared with 8,500 the year before.

Although this week’s charges relate to unauthorised promotions of high-risk products rather than a fraudulent scheme, the crackdown highlights worries over the rise of investment scams, which can be easily amplified by influencers to reach a wide audience.

“It’s safe to say that a lot of [influencer-promoted schemes] are scams,” said Toby Davis, legal director at law firm Addleshaw Goddard.

Barclays said investment scams rose by nearly a third last year and accounted for the highest proportion of money lost to scammers by its current account customers. The average investment scam claim was over £14,000 last year and was higher among men, at £16,000, the bank said.

It added that a “common trick” was for fraudsters to persuade victims to invest a small amount at the start and pay out high rewards using other victims’ money. This would help convince victims that the investment was legitimate, leading to larger amounts being lost to the scammers, often over a longer timeframe.

Another type of online fraud consists of scammers using images of trusted public figures or celebrities to convince people to move their money into fake funds or non-existent investments, according to anti-fraud coalition Stop Scams UK.

Barclays said one of the factors behind the spike in investment scams was the ability for criminals to promote unverified financial adverts on social media sites, where more than six out of 10 investment scams take place.

The backdrop is a new online investment culture fuelled by the rise of day trading, cryptocurrencies, “meme stocks” and foreign exchange investment schemes that took off among younger investors during the Covid-19 pandemic.

One consequence of the trust placed in online personalities is that investment advice from professionals with qualifications including an independent financial adviser can get overlooked, the adviser trade body Pimfa has warned.

More than a third of people aged between 18 and 34 said that they would trust financial information from online personalities including influencers on TikTok, YouTube, Instagram, X and Reddit, according to its research.

Alexandra Roberts, head of regulatory policy and compliance at Pimfa, said the global trend was a “genuine concern” for professional wealth managers and finance advisers and a “systemic” issue.

Part of the appeal also reflects an “advice gap”, where a growing number of consumers — particularly younger ones — are underserved when it comes to getting financial advice. Only 8 per cent of the UK population pays for financial advice, FCA figures show, with most of them over 45.

Stop Scams UK said consumers should seek advice from trusted sources and “be suspicious by default” about all online investments, regardless of who appears to be promoting them.

“All too often we’ve heard stories of people who have lost large amounts of money to investment scams,” said Jimmy Brock, policy lead at Stop Scams UK.