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Navigating the new investment landscape in MENA

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The investment landscape in the Middle East and North Africa (MENA) is rapidly evolving, as traditional banking institutions face up to the burgeoning influence of social media and the role of content creators in reaching customers and influencing investment decisions. What challenges and opportunities lie ahead for retail investors and industry professionals navigating this changing landscape?

The rise of alternative investment channels

Financial influencers (or “finfluencers”) on social media are redefining how investment decisions are made. Finfluencers, with their unique ability to engage users with accessible and informative content, play a pivotal role in demystifying finance and investment, particularly for younger investors or those lacking formal financial education. Finfluencers provide a mixture of financial guidance and promotions of investment products and services. They also provide recommendations, challenging the monopoly traditionally held by banks in the provision of financial advice and investment services.

Challenges and opportunities

The impact of finfluencers on investment choices is pronounced in the UAE, where finfluencers provide a democratized platform for investment information, transcending the confines of traditional financial institutions.

In the digital era, finfluencers wield the power to shape consumer behavior and drive trends. However, this new investment landscape poses challenges for retail investors. The abundance of information, often conflicting, necessitates a heightened level of financial literacy. Retail investors should check the facts presented with other sources to ascertain the veracity of the information provided and understand the motivations and qualifications of the finfluencer. Following these simple steps can greatly reduce the risk of making poor investment decisions.

Regulations also provide a layer of consumer protection. Social media finfluencers that are remunerated for promoting brands in the UAE are obligated to obtain a media license as per regulations set by the National Media Council. However, the transboundary nature of social media content presents a formidable challenge to the current regulatory framework which remains the jurisdiction of national regulators. To mitigate risks, the establishment of a universal or harmonized definition of an investment recommendation is essential, addressing the variations in laws across regions where finfluencer content is accessible. Moreover, prioritizing the enforcement of marketing disclosure rules is crucial to prevent potential harms associated with finfluencers who are paid by third-party affiliates to promote their products.

Investment

Financial education

As investors explore new avenues beyond traditional banking, in a world where financial information is both freely accessible and voluminous, enhanced financial literacy becomes paramount.

Generation Z investors (Gen-Z, those aged 18-25) often display lower levels of financial literacy and a greater tolerance for higher investment risk. Financial education thus becomes crucial to empower Gen-Z in identifying accurate information online and recognizing unsuitable content. Online investment content, when adhering to high standards, can improve investors’ ability to evaluate investment options. Empowering consumers to evaluate such information through principle-based questions that address a finfluencer’s credentials and motivations is beneficial.

The UAE, with its ambitious financial initiatives like the digital dirham, positions itself as a laboratory for testing the integration of digital currencies into mainstream financial systems. This experimentation demands a populace well-versed in the language of finance. Finfluencers, with their ability to communicate with diverse audiences, can become a useful conduit for translating complex financial concepts, such as digital finance, into understandable terms, contributing to a more financially literate society.

Digital engagement practices used by finfluencers, such as gamification, demand careful consideration. These practices can attract new audiences into investing and increase participation in capital markets. However, the balance between fun and responsible information dissemination is critical to prevent the unintentional encouragement of risky investment behavior.

Read: FinTech-telecom fusion: Redefining digital finance

Risk management

Alternative investments (such as gold, commodities, cryptoassets, and others) introduce unique risks to retail investors. Here, finfluencers bear the responsibility to transparently communicate the specific risks associated with alternative investments which may differ from traditional investment products and to ensure false claims or inappropriate advertising of products that may not be permissible for retail investors under social media platform policies or local regulations. Finfluencers need to strike a careful balance between regional customization of content so that it is appropriate in the local context while providing exposure to diverse investment ideas.

In the UAE, where the integration of digital currencies into the financial ecosystem is a tangible reality, collaboration becomes a foundational element. Traditional financial institutions, with their established frameworks, stand to benefit from the innovation and audience reach that finfluencers bring. This collaborative approach in the promotion and distribution of investment products and financial services ensures that investors have a diverse range of options.

Future trends

The role of finfluencers in shaping the future of finance is evident. Their ability to gauge the pulse of the audience, adapt to changing consumer preferences and an evolving set of products, and collaborate with traditional institutions positions them as not just trend-followers but trendsetters. As the financial landscape continues to evolve, finfluencers will become a mainstay in leading the discourse and decisions of investors in the MENA region.

Rhodri Preece is the senior head of research at CFA Institute.

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