The Good, the Bad, and the Ugly for Highly Accessible Finfluencers
You may be familiar with the term influencers, but the latest rage across social media are finfluencers, who are becoming the hottest new thing across sites such as TikTok, YouTube, and Instagram.
Finfluencers are spreading through social media like wildfire and are using various platforms to share advice on anything financially related. This includes budgeting, buying a house, and investing.
You will find a plethora of advice from finfluencers on how to gain from cryptocurrency, tax loopholes, or how to day trade in less than 30 minutes.
Finfluencers will argue that they are empowering people to become financially savvy. Ultimately, when done right, they can positively increase the conversation and engagement on financial topics and improve the knowledge and lives of consumers, especially young people.
“Social media is designed specifically to appeal to whoever is using it, so they see posts from people who are like them, and talk in a way they relate to, and they can join in the conversation, so they feel closer to the subject,” says Sarah Coles of Hargreaves Lansdown about young people being attracted to finfluencers.
Unfortunately, finfluencers have also been accused of touting particular products for their own benefit and gain. You may get financial advice that is really not in your best interest.
“The problem is that anyone can set themselves up as a finfluencer. In fact, it makes their life much easier if they’re unregulated, because nobody is monitoring what they say, so they can say what they like, in any way they want. If you’re using social media, and you have a choice of sensible advice from a regulated firm, complete with reams of risk warnings that make everything sound terrifying, or simple 30-second tips from a finfluencer who makes it sound foolproof, the temptation is to opt for the latter,” added Coles.
The rise of finfluencers has been correlated to an increase in investing by millennials and the Gen Z generation. Roughly 435,000 new investors bought stocks for the first time in 2020. Eighteen per cent were younger than 25, while 49 percent were between 25 and 39, says research house Investment Trends.
The Finfluencer’s rise to popularity is additionally backed by CommBank revealing that 1 in 2 millennials wish they could have more open discussions about money and the easiest place to turn to for advice is their smartphones.
While finfluencers are highly accessible and offering services for free across social media, one must wonder how credible the advice is when many are so young and lack a financial education and experience.
One Tik Tok user, who goes by the name Queenie Tan, is a 23-year-old woman with no financial degree or license, but is making up to $5,000 a month advertising on her videos.
“I started my YouTube channel last year during COVID because I saw there were a lot of people struggling financially during that time,” said Queenie Tan, who has over 20,000 followers on Instagram, nearly 18,000 on YouTube, and about 62,000 followers on Tik Tok.
“It’s important for young people to feel inspired and to have money not be a taboo topic. And that’s why I wanted to create content for free to help people that maybe don’t have thousands of dollars to see a financial adviser,” she explained.
“I don’t come from a rich family, and I felt like I needed to share information and things that I’ve learned over the past couple of years.” In one video she gives a disclaimer and says, “I am not a financial adviser and this is not financial or investing advice.”
It should come as no surprise that there has been a push for more regulation and oversight over what finfluencers may do. The standard of advice from these finance renegades varies widely from solid information to empty pitfalls that can lead to inexperienced people losing their hard-earned money.
It was this past April that the Financial Conduct Authority (FCA) warned social media sites that it may take action if they continue to promote risky, and sometimes fraudulent, investments to consumers.
Angel Zhong, senior lecturer in finance at RMIT believes there is a “dark side to the phenomenon” despite most finfluencers acting responsibly.
According to Zhong, “pump and dump” scams are all over online and are promoted by many American social media users. “I’ve seen people encouraging their followers to borrow on a specific lending platform to invest in a particular cryptocurrency or they’ve been encouraging some of the followers to quit their job and become a full-time day trader, which is a highly risky behaviour,” she said.
Because many finfluencers have no license, it may not hold them accountable which can be very problematic for followers who get into financial trouble after following their poor advice.
Judith Fox, the CEO of the Stockbrokers and Financial Advisers Association, points out law protects that the clients of financial advisers.
“You [financial advisers] can also have complaints lodged against you. And that means that you are accountable to make sure that you’re always fulfilling the clients’ best interest. If you’re not licensed, none of that applies, which means there’s no regulation, no accountability.”
This lack of accountability could become a PR nightmare for any agency who wants to use a finfluencer. While many offer an element of good and are opening up the door for financial discussion, the highly unregulated arena may still be very problematic to deal with.