Regulator has fears for ‘the next Warren Buffett’

Concern that people are moving money out of term deposits and into shares in search of higher returns prompted the financial regulator to contact investment platforms this week.

Rob Everett, chief executive of the Financial Markets Authority, said: “We have spoken to Sharesies, the NZX and fund managers and asked them to be mindful of direct investment, to keep an eye out for people who may expose themselves [to possible losses] without fully understanding the risks.”

Everett said the FMA was hearing anecdotal evidence of people taking money out of term deposits and putting it all into sharemarket investments in one lump sum. “You do worry, a large lump sum going in right now will expose people to the significant risk of a major downturn.”

Online platform Sharesies and rival InvestNow saw significant increases in new clients signing up during the lockdown period.

Sharesies now has more than $500 million in funds under management, as does InvestNow.

Retail investors piling in are thought to be part of the reason why the sharemarket has bounced back so quickly, with some people taking a punt on stocks like Air New Zealand despite its uncertain prospects.

Everett said talking to Sharesies, there seemed to be a lot of people entering the market for the first time. “Some of it is the ease of the technology. Some of it is that there is nowhere else to put their money. Some of it is just small sums of money.”

While it was a good thing that more people were investing directly, Everett said what the FMA was worried about was people investing money they could not afford to lose.

“I do worry about someone who sees themselves as the next Warren Buffett.” Tamsyn Parker