The information ecosystem of the stock market is rapidly changing as digital adoption becomes more widespread, and more individuals can leverage innovative tools to participate in public market trading and investing.
In the past, investing and stock market trading were reserved for a select group of seasoned professionals. However, technology, and perhaps more importantly, social media has helped to remove these entry barriers, allowing everyday individuals unrestricted access to many investing opportunities.
With access to tools that will allow you to grow your wealth and create a more diversified approach to building your savings or retirement accounts, droves of social media personalities and influencers became financial experts seemingly overnight.
The rise of “finfluencers” or financial influencers has seen massive growth in recent years as more people take to social media for financial advice. Nothing seems to be off limits; the biggest and most followed financial creators share tips on everything from saving, investing, and budgeting to promoting financial products with paid promotions.
However, the line between reality and deception is becoming increasingly blurred as financial authorities are beginning to crack down on social media creators who may be sharing outlandish and unvetted financial advice that could put the people who follow them at risk of losing more than a few dollars but could land them in a very tough financial situation.
Finfluencers: Who Are They and Where Do They Come From?
Financial influencers were born out of the need to provide everyday individuals with a more human element to managing their personal finances, investing in the stock market, and building a long-term financial portfolio.
Consumers are found to be more likely to purchase a product or service that has been endorsed or promoted by an influencer they follow on social media. This is due to the high level of personalization influencers create for products, making consumers feel more connected with the person sharing or telling them about the product or service.
Consumers feel the same way about their finances, including investing or trading stocks. Research by the CFA Institute and the Financial Industry Regulatory Authority Investor Education Foundation (FINRA Foundation) found that 60 percent of Gen-Z individuals started investing due to their increased access to financial information on social media and the proliferation of investing apps.
Financial influencers help to bring insight into an opaque world of personal finance, decoding hard-to-understand terms, helping individuals make more sense of their finances, and teaching them tricks on what to do and avoid when investing in the stock market.
Despite their welcoming, and often much-needed insight, financial regulators are starting to question finfluencers authority and their qualifications, or perhaps their lack thereof.
Trusting these online personalities has become a big part of modern culture, and younger and less-experienced individuals are more inclined to fall victim to murky financial advice.
Roughly 78 percent of recently surveyed individuals have said that they have more access to financial advice compared to previous generations. The removal of social barriers, such as race, gender, and income level, has allowed more people to access immensely valuable financial advice, something that many people have lacked or did not have access to earlier in their lives.
Finfluencers play an important role in plugging the gap between people who lack the experience, knowledge, or expertise to appropriately manage their finances or take more active measures to build their fortunes.
Why You Shouldn’t Trust Finfluencers
Finfluencers have brought increased access to financial literacy to many people — however, there’s more than meets the eye when it comes to taking financial advice from strangers on the internet.
An unregulated industry
Financial institutions, services, and products are subject to an alphabet soup bowl of regulators that ensures consumers can access compliant, safe, and reliable financial services that minimize their financial risk. However, the net of regulation is not cast over the online community of influencers that provide financial advice, tips, and information, which can lead to discrepancies and a lack of supporting evidence.
Conflict of interest
Influencers have monetized their online platforms, with some raking in six figures. This can create a conflict of interest concerning the compensation some finfluencers may receive in exchange for promoting a service, product, or institution. While there are community guidelines that help protect consumers from potentially harmful advertising, there is still not enough regulation to help mitigate the spread of misleading financial advice.
Biased market sentiment
Veteran investors may use different sources, platforms, and tools to help them make more informed investment decisions. For many, this enables them to establish a more objective approach to see an investment decision from each possible angle. In the case of finfluencers, many of them may steer followers away from having an objective approach, and instead push a biased agenda.
Unvetted advice
Financial advisors and institutions tend to leverage authoritative research and market insights to support their financial decisions and those they make on behalf of their clients. Finfluencers can fuel the spread of misleading information that is not vetted or supported by more authoritative sources, organizations, or financial professionals.
Lack of accreditation and licenses
Numerous influences promote services and products without the necessary accreditation or licenses. This has created multiple challenges in the past, as they often advertise their services as “not providing financial advice,” which may be in line with social media guidelines but oversteps financial regulation standards.
Lack of neutrality
Most finfluencers will post content that is subjective to their experience and personal interest. Many will sell training courses, books, and guides or provide subscription-only services. A study by the Dutch regulator Authority for Financial Markets (AFM) found that of the 150 finfluencers observed, around 50 offered online courses, 17 had “self-authored books, and 24 provided trading signals.” The majority, or 80 percent provided “investment tips,” some of which were considered investment recommendations.
Finfluencers will typically share content and advice that include examples of PR strategies that promote a service or product in which they have a personal or financial interest. This creates a lack of transparency and neutrality, which in turn could be monetized through promotional work or partnerships.
Promotion of risky financial products
Aside from sharing unvetted advice, many finfluencers will promote risky products or services that do not meet regulatory or compliance standards. For instance, back in 2022, Kim Kardashian posted on her social media about the cryptocurrency Ethereum Max. Following the success of Ethereum in 2021, the digital currency quickly gained traction before crashing and losing 97 percent of its value by January 2022.
In the aftermath, many investors claimed that celebrities and influencers who promoted the cryptocurrency conspired to inflate its value. This is only one of many instances where high-profile individuals, along with influencers and finfluencers may promote a product or service that could put consumers at risk or endure financial loss.
Uses followers as a proxy for authority
Plenty of finfluencers have amassed a large following on social media. Social media users tend to assign a higher authority level to individuals with a larger following. Financial experts believe that finfluencers with a larger following tend to go viral, and are often the creators behind outlandish audacious financial content that can easily be taken out of context or mislead followers. Having more followers, or going viral more frequently is not a substitute for being a trusted and accredited financial professional.
Creates a fear of missing out
“FOMO,” or the fear of missing out, is not a rare occurrence when it comes to investing, and many times, investors have landed themselves in hot water over making investment decisions primarily driven by the fear of missing out on a potential opportunity. Roughly two in five Gen Z investors have cited FOMO as a factor in their decision to begin investing. Finfluencers can create a similar feeling among novice and inexperienced investors, pushing them to take a bigger risk they are not comfortable carrying.
10 Financial Tips To Follow Instead
There is another side of the coin where finfluencers, at least those with the necessary accreditation and training can be a force of good for their online community.
Free access to relevant and vetted information can help individuals become more comfortable with managing their finances and teach them to be more confident when making investment decisions.
In those instances, an influencer, with the necessary accreditation or license, can provide authoritative advice to their online community and help remove social and financial barriers many people may have encountered in the past.
Despite having wider access to financial literacy on social media and other digital platforms, users will need to approach this content with caution and reassure themselves that the person giving them the advice has the necessary skills and qualifications.
Follow licensed professionals
Make an effort to review a person’s credentials before accepting what they are saying as the truth. By searching for an influencer online, you can learn more about them and their experience level. The less you can find about a person and any relevant information pointing to their qualifications or expertise, the more likely they are deceiving you and others.
Trust your instincts
Listen to what your instincts tell you. It’s usually the case when something sounds too good to be true. Investing is an unpredictable process, and a person will have to navigate plenty of risks. When building an investment portfolio, you must invest extra time and effort to cultivate a portfolio that reflects your financial needs. Following risky, often outlandish advice will only land you in hot water.
Ignore sensational content
Plenty of trained professionals are setting out to provide their community with honest service. Unfortunately, this is not the financial content that will go viral. Often, content that makes audacious promises will experience a surge in popularity. Ignore sensationalized content that promises outlandish returns on your investments or how to “get rich quick” by investing in a specific stock or financial instrument.
Investing takes time
Learning how to make smart financial decisions requires you to learn how to work with your money and make decisions that can support your short and long-term needs. Investing takes time, and there aren’t any quick ways to make good money. The longer you spend honing your skills and learning from professionals, the more comfortable you will become in building your portfolio.
Stick to traditional methods.
The stock market is always changing, and economic conditions will constantly influence how an investment will grow or how much your portfolio will deliver in return. Sometimes, it’s best to stick with what you know, but also to apply methods with a proven track record. Sometimes being boring and taking the slower route is better in the long haul.
Know your personal finances.
Your personal finances will always concern you and your needs. Each person will have a different way of managing their finances, and there is no one-size-fits-all approach. Sometimes, the best advice is to make financial decisions that can help you become more financially confident and build a more robust financial background.
Use different sources
Aside from social media, there are multiple other platforms where you can learn about personal finances. Try to diversify your sources and seek to learn more about financial topics from other people or companies. Read blogs, listen to podcasts, and watch videos online from industry-leading experts and authoritative sources.
Limit emotional bias
Making any financial decision should not be driven by an emotional reaction. Mixing emotions with your finances can create mistakes that will cost you time and money. Instead, try to remove any emotional bias you may have towards a person or investment, and use available data or information to guide you through the process.
Know your risk appetite.
From the beginning, know your risk level and how much you can afford to lose. There are no guarantees with investment products; taking on bigger risks when you are still starting will cost you a lot of time and money. Try to stick with a strategy that allows you to take calculated risks and provides opportunities to grow your investments sustainably.
Your portfolio is unique.
Regardless of what finfluencers may tell you, there is no perfect portfolio. Two investors may share the same risk profile, investment style, and expertise but will have two completely different portfolios. Only by reading and researching will you notice that there is no correct way to invest and build your portfolio. You can build a portfolio suited to your needs by applying timeless investing principles.
Finishing Off
For a very long time, financial literacy wasn’t widely shared or spoken about. The concept seemed foreign to many and was reserved for a selected handful of people. However, technology has changed this, removing the barriers and allowing more people to access quality financial advice they can apply to their personal finances.
However, the rise of finfluencers has masked the truth from reality and has created unrecognized pitfalls that can lead one to make costly mistakes. Although not all finfluencers are worth calling out for their seemingly unrealistic claims, and looking a bit deeper, you will find that some content creators that do provide valuable advice to their online community.
Becoming more confident with your money and investments takes time, and plenty of resources will help you make more calculated and informed decisions. Growing your money takes time, and nothing on the market is guaranteed, so remember to stick with advice that you trust and support your long-term financial goals.
Featured Image Post: Photo by Andrea Piacquadio; Pexels
