Ethically Conflicted

I would qualify this by saying that I am a satisfied user of Freetrade, and support the mission to democratise investing.

Nevertheless, I have become increasingly concerned at the trading activity which the platform is implicitly encouraging. Long-term lurking on the forums has only affirmed my concerns are not misplaced. The fact that SPACs are among the most requested stocks is telling indeed.

From what I understood Freetrade’s aim was to enable young investors and those with small accounts to invest soundly for the long-term. This is a commendable aim, and brings some much needed disruption to the UK discount broker market.

However, I would ask what purpose does the current Discover tab serve in meeting this aim? It seems disingenuous to contend that profiling select stocks or categories does not foster trading activity on these names; even if not an explicit aim, it implicitly encourages it. A regular reader to these forums, would be hard pushed to deny the consequence.

This morning my discover tab profiled stocks in the below categories:

  1. 2020 IPOs
  2. Green Energy
  3. Female CEOs
  4. Crypto Miners
  5. SPACs

As any investor knows, realised future returns come only from the price paid for future profits. Even the frothiest of sectors or stocks cannot defy basic arithmetic and asset pricing; and technological innovation is no guide to future profitability and price performance, nor is the relative hype around a SPAC target.

Betting on innovation and technological transformation is a notoriously poor investment strategy, due to the intersection of sector specific risk and market risk, which displace the discount rate previously applied.

It is well documented that >80% IPOs underperform their relevant index in the first 18-months of trading. I also don’t believe there is a clearly evidenced connection between the gender of a CEO and the performance of the company.

Considering all of this, I do not see how Freetrade can meet with its mission statement, whilst centring the app around a page which is implicitly toxic to its users long-term financial well being.

This is an issue I have raised before with Freetrade staff privately, although I have never received an clear answer on why the Discover tab is populated as it is. In fairness to these staff, its not their area of operations so I would not expect them to have a good answer. However, I am hopeful that perhaps someone out there can enlighten me on the thinking behind this page.

Disclosure: I am a Plus user with a modest sum on the platform (~£25k), and this combined with some functionality issues, constitutes my sole reservations for not placing further assets with FT.

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As much as I understand where you’re coming from, it’s not Freetrade’s job to decide where people should invest. SPACs may well be alarming to some, but it’s not Freetrade’s job to make sure that people invest in a way they deem responsible or sensible. If they were doing that, they’d essentially be giving financial advice. I don’t think it’s unreasonable for the Discover page to highlight trends, or to reflect what Freetrade’s data says users likely want.

I feel like anything deciding what’s “ethical”, leads to a slippery slope and a situation in which the broker is pretty much deciding what’s best/safe for the user. It is their money and their choice.

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I think this raises an important point and your argument for either doing away with or massively revamping the Discover tab is valid and sound. Implicitly it will be influencing the investing decisions of certain customers, even if only at a subconscious level.

Playing Devil’s advocate, where would you draw the line though? For example, the FT content team is publishing blog posts that is putting certain stocks into focus. By this same way of thinking, should they attempt to cover a broad array of stocks or be led by what the community is saying they want?

At the heart of this is whether or not investors know what is good for them and also how impartial FT should be. Impartiality does not need to be mutually exclusive to educating customers but sometimes the lines get blurred.

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This is what turned me off. You’d managed to convey your position quite well and then leaped into this nonsense.

I don’t give two hoots what the discover tab promotes. I don’t use it for anything other than looking for stocks I plan on investing in, or marking for later investigation. That you believe the awesome power of the tab can convince people into poor investment choices is nonsense; if people are plowing their savings into SPACs based off the Discover tab, then they have greater issues to deal with frankly.

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The issue for me is more that by featuring them it serves to implicitly foster trading on those names. That they are listed on the discover tab serves as a cognitive shortcut for many users, who respectfully are very fresh-faced investors.

Surely the most neutral stance for FT to take would not be actively profiling or featuring any stocks on a discover tab, instead featuring a search bar for instruments, and neutral information such as global indices and sector specific sub-indices? This would certainly be closer to what most discount brokers currently offer.

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I agree, and at the moment the current discover tab leans beyond impartially educating customers and seeks to be leading.

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I agree about IPOs and SPACs, it’s certainly not something I’d get into as I consider them both more like gambling. IPOs less so if you know the company AND plan to hold long term, but IPOs are always timed for the peak valuation so the initial investors can extract as much as they can at the IPO.

I agree, there’s a danger in the app suggesting new companies and making it incredibly easy to invest in something you’ve never even heard of before. But actually, things like the female directors thing is good for raising awareness, and I know I’ve looked up a few companies after reading about them through that. I’ve not invested there though.

Also, FT’s main selling point of commission free trades, while being good for diversity also encourages people to just dabble with any old stock without doing the research. When I first joined, I’d bought 15 different stocks in 24 hours. None had been researched properly. Some I got rid of quickly, some I wished I’d got rid of now. But OTOH, I’m glad I was able to diversify cheaply. I’m happy with about 10 of my stock picks because they’re in an industry I know and I believe those specific companies are better than the sector overall.

That said, I think this whole thing about having to request stocks is a bit weird. If you have plus, you should just be able to invest in anything that’s on the standard exchanges. Once the ticker symbol is known, if the system for dealing with that exchange is in place, I don’t see what the issue is. Why can’t we just trade everything.

Of course, I’d also prefer more visibility on company information, volatility and bid-ask spreads, because I did get burned on some AIM stocks in my first week. I’m not doing that again until I’ve researched a company a lot more and want to hold for a really long time.

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Based on what evidence, please?

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To be fair they are probably 5 of the most demanded/popular stock types of the moment :joy: I get your points are well meaning but the company does need to be attractive and not just dull and plain. Bad investors will always chase pipe dreams and the insight page won’t stop them. :+1:

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On that basis, would you suggest that new stocks don’t get shown either? What’s new is part of Discover and what’s new is often based on user demand. Thus, if a highly-requested stock is a SPAC that’s risky, is it wrong to “promote” what’s new?

The problem I have with this stance is that every investment app will on some basis be “promoting” a stock. Be it what’s popular, highly traded, new or whatever. If user demand is focused on riskier stocks, would you not show what users definitely want? It’s likely automated and based on data, so it’s not like a person is suggesting people put their money into things. People like inspiration and should always do their own research, but some people never will. Should companies never display any stocks that are on the riskier side, on the basis that a certain type of user never does their own research before investing?

At the end of the day, I don’t think an algorithm highlighting certain stocks that may interest a user is fundamentally different in nature to a Netflix recommendation based on what people have previously watched. Unless you have access to what’s behind the algorithm in Discover for showing stocks to a given user, you don’t know why they’re being suggested. This could be personalised and is only leaning into what the user already does. I don’t think Freetrade has any right to try and manipulate a user into investing the “right” way than they do the “wrong” way.

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To a large extent Tony this post confirms my fears, and underscores the points I made, as you confirm that you use it as a jumping-off point for your own research.

My argument has two legs.

  1. The discover tab is used as a starting place for research - But it should not be.

  2. Since it is used in this fashion FT should be very careful about what is featured on there - Or better, it should not feature any specific companies and instead only display neutral information indices/news etc.

Re. SPACs and toxicity to long term wealth, I’d sugest looking at some of the research surrounding SPAC performance. AFAIK >90% of SPACs decline in press after the acquisition of the target company.

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You can’t lose your life’s savings picking the wrong Netflix film.

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This is obvious. You don’t need a research paper or a/b test to prove: monkey see, monkey do. I imagine almost all of us have been guilty of being compulsive investing / not doing due diligence at times. The difference is that some people do this with a £5 stock and others gamble their life’s savings.

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And if people do this, life savings, based on an insight page then they are idiots who will no doubt be parted with their money anyhow :joy: :man_facepalming:

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‘Annecdata’ from lurking on the forums.

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Very true, but I don’t see why FT needs to assist them in their pursuit of the pipe dream, even in a minor way by putting these companies front and centre on the app.

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Don’t think FT can really claim this when they’re being sued cus someone committed suicide as a result? This has already happened with Robinhood in the US

True, but Freetrade have no intrinsic right to tell people what to do either way. If we don’t know for sure how the algorithm works, we could take a different view on this: that the algorithm is completely neutral and that the OP wants to impose his/her will on others because he/she knows what’s best for them. Guiding people towards only “safe” or “sensible” investments - many of which likely crashed during the start of the pandemic - is no better than guiding them towards “unsafe” investments. At the end of the day, people have a right to invest in what they want and no stock or ETF is guaranteed to be safe.

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I think you will find that was NOTHING to do with an insight page :+1: and to do with the person believing they were now in debt. Not sure how you link the 2.

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Isn’t this an argument for getting rid of the discover feature?

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