In this age of social media, many adults, such as those from younger generations, are influenced by what they read online, and that includes how to manage money, invest, and conduct business.

Generation Z people, who prefer to get financial ideas from online “influencers” on TikTok, YouTube and similar tech channels, lack financial literacy and don’t have much contact with advisors, according to the CFA Institute.

The organisation is calling for changes, such as improved financial education, to ensure that the use of “finfluencers” doesn’t lead people astray. 

The phenomenon has already prompted the Financial Conduct Authority, the UK regulator, to comment. In February 2023, the watchdog said: “‘Finfluencers have also been a growing concern.” “Unauthorised individuals should not advise people on the merits of certain investments, as this will likely be subject to our regulations and it could lead to action being taken against them. The FCA has already acted against several social media influencers over the past year.” It added that it required firms to amend or remove 8,582 promotions during 2022 – 14 times more than 2021.

“Last year [2022] we saw an increase in the use of bloggers and influencers on social media such as Instagram, Facebook, and YouTube, promoting financial products, particularly investment products, to younger age groups. We also saw an ongoing trend in the number of bloggers promoting credit on behalf of unauthorised third parties, with a particular growth in financial promotions targeting students," it said.

With social media channels showing no sign of losing their hold on the younger generation, and shifts in work/life patterns continuing to feel the impact of technology, the finfluencer sector needs to change, the CFA Institute said. 

The report, Finfluencer Appeal: Investing in the Age of Social Media, looks at what’s driving interest in new ways of dealing with their finances – and the associated risks. The report reviewed 110 unique pieces of finfluencer content on YouTube, TikTok, and Instagram in the UK, US, France, Germany and the Netherlands. The authors of the study also interviewed young investors. 

“Finfluencers now play an increasingly significant role in educating young people about finance, with accessible content that is both informative and engaging,” Rhodri Preece, senior head of research, CFA Institute, said. “However, our research shows that finfluencer content often lacks sufficient disclosures, which can hinder the ability of consumers to evaluate the objectivity of the information, and some investors may be unaware when and how finfluencers are being paid to promote financial products.”

While some might query the benefits of "finfluencers," others argue that it is a trend with value behind it. According to alti.com (June 2023), figures in the fintech sector say social media is essential for democratising access to financial education and personal finance, relying on the intersection between social media and financial inclusion. It also quoted Nicky Senyard, CEO at Fintel Connect, as saying: "Financial literacy is not widely taught in schools, and many parents lack financial knowledge. They have made finance less intimidating to discuss by creating interesting and easy-to-understand content in formats that this audience wants."

The numbers
Across the content reviewed by the CFA Institute, 45 per cent of it offered guidance (content that provides general information about investments but does not recommend a particular course of action), 36 per cent included investment promotions (marketing and advertisements of investment products), and 32 per cent included investment recommendations (content that recommends a specific course of action). More than half (53 per cent) of content containing a promotion included a disclosure, compared with 20 per cent of content containing a recommendation. 27 per cent of content included an affiliate link.

“Many finfluencers inadvertently provide financial advice that may be subject to regulatory scrutiny or that violates applicable laws,” Ignacio Ramirez Moreno, a LinkedIn finfluencer, said.

The phenomenon is a global one. In December 2021 for example, the European Securities and Market Authority (ESMA) issued a “Statement on Investment Recommendations on Social Media.” In the US, on 13 December 2022, the Securities and Exchange Commission announced charges against eight individuals in a $100 million securities fraud scheme in which they allegedly used the social media platforms Twitter and Discord to manipulate exchange-traded stocks.    

(Editor’s note: With all the interest in AI and digitalisation of wealth management, topics such as "finfluencers" become more relevant. And this issue of where one gets financial advice applies as much to HNW individuals as to the wider public. This makes it all the more important for advisors to ask clients about their reading habits and try to encourage clients to be on their guard, while also taking genuine value from content that is available online.)