The common denominator in retail crypto exposure – no advice

The question has been posed of whether Australian retail investors have been unduly exposed to cryptocurrency investments because access to financial advice has become too expensive.

In the wake of the Australian Securities and Investments Commission (ASIC) chair, Joe Longo expressing concern at the level of retail investor exposure to crypto assets, the founder and managing director of SQM Research, Louis Christopher told Financial Newswire he believed there was a correlation between crypto exposure and the absence of financial advice.

Christopher said that he had been surprised by the level of crypto investment by retail investment and believed that in the absence of financial advice, many investors were simply inadequately informed about the risk levels involved.

The ASIC research announced by Longo revealed that of 1,053 retail investors surveyed, 44% reported holding cryptocurrency “making it the second most common product type held after Australian shares”.

The ASIC research also showed that, after the bank trading platforms (used by 31% of surveyed investors), the three most commonly used platforms all specialised in cryptocurrency.

Longo expressed concern at the number of people investing in unregulated, volatile crypto-asset products, noting that only 20% of cryptocurrency owners considered their investment approach to be ‘risk taking’.

Christopher said it was this data from the ASIC research together with the fact that 34% of surveyed investors reported sourcing information from Google search or social media which highlighted the absence of professional advice.

The ASIC research asked investors to estimate (using a percentage figure) how much their current investment portfolio made up of their current total wealth (including primary residence and any investment properties, and all forms of savings, investments and superannuation).

Investment portfolios were estimated to make up around 48% of investors’ total wealth on average, although individual estimates varied widely. Australian shares, cryptocurrencies and residential investment properties were the most dominant within individual investment portfolios.4 Of those who reported owning Australian shares, 51% estimated that Australian shares made up at least half of their portfolio value. Similar results were recorded for cryptocurrency and residential investment property, with 40% and 43% of owners (respectively) indicating that these products made up at least half of their portfolio value.

Reinforcing the broad absence of professional financial advice the ASIC research analysis stated:

Investors had accessed information about investing from multiple sources since March 2020. On average, three ‘main’ sources were used by investors. Some of the commonly cited ‘main’ types of information sources included: ‘Google searches’ (34%); investors’ personal networks, such as ‘family or friends’ (24%), ‘spouse / partner’ (10%) and ‘work colleagues’ (10%) (36% collectively); and social media and networking platforms10 (i.e. Facebook; Reddit; TikTok; Instagram; financial influencers such as those on social media; YouTube; podcasts and/or blogs) (41% collectively). The most commonly accessed social media sources were ‘YouTube’ (20%), ‘Facebook’ (11%), ‘podcasts’ (10%) and ‘financial influencers (e.g. on social media)’ (10%). The most experienced investors were more likely to report accessing investment information from financial-focused sources, such as ‘financial institutions’ (29% vs. 14% of recent investors), ‘ASX’ (28% vs. 16% of recent investors), ‘company websites’ (25% vs. 14% of recent investors), ‘financial planner/advisor/broker’ (18% vs. 9% of recent investors) and ‘company financial statements’ (17% vs. 8% of recent investors).