Join our community of smart investors

Get Stocks looks promising but is one to avoid

In the world we live in today everyone seems to know what everyone else is doing via social media, such as Facebook and Twitter. And the natural progression is to apply this feature to stock trading, allowing investors to make their trades public and openly follow other investors' strategies.

This is already possible in the trading arena where social investment network eToro allows people to trade currencies, commodities, indices and contracts for difference (CFD) stocks online and copy other traders. But not everyone has the high risk appetite to be a trader.

However, imagine a world in which you could automatically and instantly replicate top investors' strategies, such as the IC's John Baron's investment trust trades or Simon Thompson's smaller companies tips. This was not even a possibility five years ago, but the technology is moving quickly to bring features like this to you today. It might not be a world that you like - or it may get you highly excited - but it is certainly one step closer.

Get Stocks aims to allow good investors to charge followers to piggyback their trades via an automatic copying facility. "We can do stuff that other brokerages can't," says Roy Shaham, chief executive of Get Stocks. "We can let you know what's the hottest stock. It's not Twitter sentiment, it's actual sentiment. Other brokers give you insights into the stock market by volume of traders. For us, it is 'these 25 people bought this stock today'. It's personal sentiment."

Unfortunately, groundbreaking though the service may seem, investors should not get involved with Get Stocks at all - and that's despite the hardly enticing dealing charge of £12 per trade.

Like eToro, the company is regulated by the Cyprus Securities and Exchange Commission, but doesn't yet have UK authorisation. This is despite adverts on the London Underground claiming that it is "registered by the UK Financial Conduct Authority".

 

Get Stocks in advertising on the London Underground

 

Although Get Stocks' managing director claims that under the EU Mifid regulation and cross-border licensing the Financial Conduct Authority is obliged to register the company in its system, according to the FCA companies authorised by other EU regulators would still need to apply for a passport to operate in the UK and require a six-digit FCA reference number. The FCA says they have no records of Get Stocks.

The FCA consumer helpline told me: "You need a passport permission under Mifid before you target UK consumers. Lots of companies passport across the EU but would come up on our register - with the main regulator of their home country shown. The Financial Services Register is updated immediately."

Without UK authorisation, investors wouldn't have recourse to the Financial Services Compensation Scheme in the event of the firm going bust. The limit for investor compensation under the Cyprus scheme is €20,000 and investors would have to apply to this scheme rather than the FSCS even if the firm had FCA passport-authorisation.

Further investigation reveals Get Stocks is backed by an Israeli fund, has a head office in Cyprus, a customer support centre in Tel Aviv and investors' assets are held in "a third-party publicly listed US financial institution".

Another caveat is that following investors with good track records (as with fund managers) doesn't always have a good outcome. Under the Get Stocks model, the potentially 'good' investors are anonymous and no checks are made on their past records.

Anyone remember Jayesh Manek? He was the winner of the Sunday Times Fantasy Fund Manager competition in 1994 and 1995 and subsequently went on to establish the Manek Growth Fund, a unit trust open to public investment that suffered terrible performance.

If you are curious to see the initiative, visit www.getstocks.com. But please don't register your details unless the company is UK authorised and appears on the Financial Services Register. It's just too risky.

UPDATE, 25 Sep 2015: Following the publication deadline for this article, the FCA confirmed that GS Sharestocks Limited, which trades as Get Stocks, is registered with effect from 24 September 2015 as an EEA-authorised firm on the Financial Services Register, under six-digit reference number 714881, with a passport to operate in the UK.

* This article is the subject of a legal complaint.