Should you beware investing apps making it look easy?

Investment apps have slashed the cost of buying and selling shares, investment trusts and ETFs.

Whereas established names, such as Hargreaves Lansdown, AJ Bell and Interactive Investor can still charge as much as £11.95 to buy and sell shares, upstart rivals such as Freetrade and eToro let investors do some without share dealing fees.

The challenge encouraged AJ Bell to launch its own investing app Dodl, earlier this year, while Interactive Investor has lowered share dealing costs.

But some think that investing apps blur the lines with trading and can make it too easy for investors to take risky positions. Is this the case? Toby Walne takes a look at the debate. 

Investing apps have made it much cheaper and easier to buy and sell shares, ETFs and trusts

What is the warning about too easy investing?

Investors are being urged to stay clear of fun-looking investment trading apps on phones – because they can easily result in users losing money by making ill-considered investments. 

The ‘gamification’ of investment trading apps is a growing trend where light-hearted images – for example, entertaining cartoons of people celebrating or perhaps surfing at a holiday resort – are used to reel in new customers. 

The apps often offer ‘free’ trades to entice new investors, many of whom are young, have not invested before and are drawn in by the prospect of making quick profits. 

Major players include eToro, Revolut, Robinhood, Trading 212 and Webull. 

Widespread concerns about these apps have now been picked up on the regulator’s radar. 

This week, the Financial Conduct Authority (FCA) will demand that the companies behind these apps provide clearer warnings about the risks of using such tradings hubs. 

California-based Robinhood started the gamification trend a couple of years ago – with investors seeing their phone screens fill with celebratory confetti every time they traded. Following widespread criticism, it replaced the confetti with floating shapes. 

Novice investors used the Robinhood service to buy exposure to video game firm GameStock. 

Its share price jumped from $20 to $480 in a matter of days. Robinhood was forced to stop customers from trading in GameStock when it was obvious investors were taking bets they could not afford to lose. GameStock’s share price later tumbled and now stands at $25. 

Robinhood blurred the line between investing and gambling. It encouraged novice investors to trade using complex financial instruments such as options and contracts for difference (CFDs) where two thirds of investors end up losing money. 

It is not the only risky investment punt available through these kind of apps. They also offer the chance to invest in high-risk cryptocurrencies. The price of Bitcoin, the most popular cryptocurrency, soared to $69,000 last year, but has since tumbled to about $17,000.

Robinhood has more than 19million users worldwide and attracted six million new customers last year. 

The biggest player investment app player is eToro which has more than 28million registered users – up eight million this year. 

Revolut, Trading 212 and Webull have 20million, 1.5million and 11million customers respectively. 

Krisztian Gatonyi, senior analyst at website BrokerChooser, says: ‘Many of these apps grab investors by using emotional appeal to make investments seem fun. They have a tendency to oversimplify complex products. Most people should never get involved with options or cryptocurrencies as they are high-risk investments.’ 

He adds: ‘These outfits make money by encouraging investors to trade. Unfortunately, investing is not all about buying and selling in the short term. An investor is unlikely to get rich quick and is usually better off making fewer trades and taking a long-term view – that is, investing rather than taking a gamble.’ 

Gatonyi believes that using a mobile phone to trade shares should be avoided by most people. He says: ‘There is something addictive about using a phone to invest. It encourages investors to check how their investments are doing several times a day – and to buy and sell more often than maybe is good for them.’ 

He adds: ‘This can prove financially unhealthy and create unnecessary stress. Investing is a serious pursuit that an investor should set time aside for.’ The analyst is also concerned that trading apps regularly text or email investors with messages encouraging them to trade more than they should. 

The man who thinks investors should take a test

Charles Archer is a respected independent investment consultant. He believes novice traders should be required to prove they understand complex financial products before being allowed to trade – in the same way that a motorist must pass a driving test before being allowed out on the road on their own. 

Archer says: ‘A simple 20-minute multiple choice quiz should be required before anyone is allowed to trade these complex financial investments. Maybe, they should have to trade on a trial basis to begin with.’ 

What the investment apps say

Wealth manager AJ Bell launched its own easy-touse investment app Dodl earlier this year. Although it includes cartoon images of friendly monsters to lure customers, it keeps the investment process simple by only offering share trading. It charges an annual fee of 0.15 per cent and a trading charge of 0.5 per cent. 

Russ Mould, investment director, says: ‘We are trying to make investing less complicated and easier to understand. As part of this, we have built Dodl around shares and investment funds. 

‘Introducing complexity in the shape of options and cryptocurrencies would increase the likelihood of confusion and investors overreaching their risk appetite.’ 

The Dodl app is regulated by the FCA as are Trading 212, Revolut and eToro. 

Although Robinhood is a US firm, its UK arm is covered by the FCA. US-based app Webull is not covered by UK regulation while cryptocurrency is not regulated by the FCA. 

On Friday, ahead of its announcement, the FCA told The Mail on Sunday: ‘We have concerns about the way firms may be encouraging consumer investment through apps and we are due to publish a report into their use very shortly.’ 

On Friday, Revolut said: ‘We provide clear and detailed information to our customers about our trading products and the risks that are associated with buying and selling shares or crypto assets.’ 

It added: ‘We launched a ‘learn and earn’ education tool on our app earlier this year.’ 

Robinhood thanked the MoS ‘for reaching out’. It sent links to educational blogs it said are available for all customers. 

Trader eToro said: ‘By nature trading and investing should be considered risky, but we will continue to do everything we can to ensure clients understand the risks involved.’ It insisted ‘gamification’ is not a feature of its platform but may be used ‘in an educational context’. 

Both Trading 212 and Webull did not respond to our requests for a comment.

Compare the best DIY investing platforms and stocks & shares Isa

Investing online is simple, cheap and can be done from your computer, tablet or phone at a time and place that suits you.

When it comes to choosing a DIY investing platform, stocks & shares Isa or a general investing account, the range of options might seem overwhelming. 

Every provider has a slightly different offering, charging more or less for trading or holding shares and giving access to a different range of stocks, funds and investment trusts. 

When weighing up the right one for you, it’s important to to look at the service that it offers, along with administration charges and dealing fees, plus any other extra costs.

To help you compare investment accounts, we’ve crunched the facts and pulled together a comprehensive guide to choosing the best and cheapest investing account for you. 

We highlight the main players in the table below but would advise doing your own research and considering the points in our full guide linked here.

>> This is Money’s full guide to the best investing platforms and Isas 

Platforms featured below are independently selected by This is Money’s specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence. 

Admin charge Charges notes Fund dealing Standard share, trust, ETF dealing Regular investing Dividend reinvestment
AJ Bell YouInvest* 0.25%  Max £3.50 per month for shares, trusts, ETFs.  £1.50 £9.95 £1.50 £1.50 per deal  More details
Bestinvest* 0.40% (0.2% for ready made portfolios) Account fee cut to 0.2% for ready made investments Free £4.95 Free for funds  Free for income funds More details
Charles Stanley Direct 0.35%  No platform fee on shares if a trade in that month and annual max of £240 Free £11.50 n/a n/a More details
Fidelity* 0.35% on funds £45 fee up to £7,500. Max £45 per year for shares,  trusts,  ETFs Free £10 Free funds £1.50 shares, trusts ETFs £1.50 More details
Hargreaves Lansdown* 0.45% Capped at £45 for shares, trusts, ETFs Free £11.95 £1.50 1% (£1 min, £10 max) More details
Interactive Investor*  £9.99 per month or £12.99 for Sipp £5.99 per month back in trading credit £5.99 £5.99 Free £0.99 More details
iWeb £100 one-off £5 £5 n/a 2%, max £5 More details
Freetrade* Free for standard account £3 month for Isa  Freetrade Plus with more investments is £9.99/month inc. Isa fee No funds  Free  n/a  n/a  More details 
Vanguard  0.15%   Only Vanguard funds Free  Free only Vanguard ETFs  Free  n/a  More details 
(Source: June 2022. Admin charges quoted annually, may be monthly or quarterly)