Abuses in the advertising of online financial service providers

The year 2021 was a strong and resilient economic year of recovery from the pandemic. Records were broken on the stock exchange and many people started investing. The housing market continues to overheat, inflation is rising, and economic and geopolitical uncertainties are fueling a lot of volatility.

“Optimism in turbulent times requires extra alertness to risks, especially in financial services to private investors and homeowners,” said Laura van Geest, chair of the Authority for the Financial Markets (AFM) in response to the 2021 annual report.

“You have to pay attention,” says Van Geest. “What we are concerned about is that people work on autopilot and are used to low interest rates. They mistakenly think that stock prices can only go up and that they can finance the mortgage just fine with this low interest rate. But that is going to change and You have to be prepared for that.”

disguised advertising

The Netherlands currently has 1.9 million households that invest, half a million have been added in the past two corona years. Investing in shares, cryptos, spacs (special stock exchange companies) and crowdfunding platforms has boomed in the pandemic, partly due to the low interest rates and easy investment apps.

Two out of three novice investors invest on their own, the so-called execution only. They often use low-threshold investment apps and get their information from social media. Influencers on financial issues, so-called influencers, play a role that is not always clear. What looks like advice is sometimes disguised advertising.

Research shows that 1 in 3 independent investors run unnecessary risks. The tendency to buy and sell often and thereby incur unnecessary costs is not wise, and the risk and return spread in types of financial products is also not optimal. According to the AFM, approximately 12 percent of independent investors could run into financial problems as a result.

“It is a new market and digitization has created all kinds of new products that you can do with an app,” says Van Geest. “In the time of the camping boom (in 1997) people called the bank or stockbroker with their mobile phone, now you can place orders yourself with your mobile and that is new. It also provides new distribution channels, formerly with advertising in the newspaper and now an influencer with a nice video.”

‘Free’ investing

The advertisements of online brokers are also not always good, warns the AFM. Expressions such as ‘free investing’ and ‘commission-free investing’ and disguising language about costs and risks mislead novice investors.

Standards apply to the advertising of online brokers. Information about financial products and services must be correct, clear and not misleading. Costs such as fund costs, transaction and currency costs that are actually paid should not be hidden behind terms such as ‘free’ and ‘free of charge’. The regulator wants market parties to put investor interests first.

–