‘Finfluencers’: financial education and regulator surveillance

The desire to take control of their finances has skyrocketed among millennial and centennial generations (or generation Z) due to two factors, according to Finder.com: the economic crisis caused by COVID-19 and the rise of new investment and trading apps that make it easier than ever to get started in this world.  Perhaps for these reasons, discussing finance is now in style in social networks: at the end of September 2021, the hashtag #FinTok on TikTok had over 500 million views;  #cryptocurrency had over two billion views, and #investing over 3.7 billion. On Instagram, #financialfreedom appears in more than 10 million posts and #investing in nearly 12 million.

These and many other hashtags are used by ‘finfluencers’, people who make all kinds of financial information go viral - from investment strategies, how to manage personal finances, analysis of the latest cryptocurrency and shares on the rise, to products like mutual funds, digital platforms to take your first steps as an investor, and how to create an ecommerce business. In some cases, it is educational content that explains technical terms in an easy-to-understand manner, for example, or in-depth analytical explanations. Others focus on sharing their own experiences, such as gains and losses in the stock market or personal tricks to save and earn money on a small scale.

The value of a voice like theirs

The topics that ‘finfluencers’ cover are as diverse are their origin. In this pond of ‘likes’ and views, self-taught investors with more or less experience in the markets coexist, but so do students taking their first steps in managing their finances, and their hundreds of thousands of subscribers are looking to listen to voices like theirs.

Some feel that ‘finfluencers’ are filling a void in financial education

Knowing what information to trust is precisely one of the biggest concerns of those interested in starting to have greater control over their economy, but who do not yet have enough financial education. Research from the group of experts, Common Vision, reports that millennials point to a need for financial information that addresses their generation’s specific concerns. They do not trust the information available in specialized digital media, or find it to be insufficient or confusing (according to PwC, this generation has less financial knowledge than previous generations).

Some feel that given that commercial news channels tend to be limited to offering market updates, ‘finfluencers’ are filling a void in financial education.

The figures show that searches are on the rise for useful and simple information on social networks and online communities. 71 percent of centennials and millennials appreciate financial information coming from someone like themselves, compared to 48 percent of the Baby Boomer generation (those born in the 1950s and 1960s), New Morning Consult reports. In addition, another survey published by the financial advice firm MagnifyMoney Advisor in January 2021, found that nearly 60 percent of investors under the age of 40 belong to investment communities or forums, and 46 percent had turned to social networks for information on investments in the previous month (by order of preference to YouTube, TikTok, Instagram, Twitter, Facebook groups and Reddit).

Transparency regarding risks

‘Finfluencers’ profit from these visits to their digital profiles, either by monetizing views of their channels, selling investment courses through sponsorships or by introducing promotional content. The transparency problems start when they do not indicate the risks associated with the products and strategies they mention, or when promotional content is not properly described as such. And it gets worse when their followers, due to a lack of financial education, do not understand the complexities in the markets and are not aware of the risks associated with the information they receive on social networks.

Many of those creating YouTube content add a disclaimer to each video, warning that the information they provide and their opinions are educational in nature and should not be interpreted as investment advice, so they are not responsible if it is used inappropriately.  Others put this disclaimer in more obscure places like the channel description page, where their followers barely see it. And on social networks like TikTok and Instagram, they disappear nearly completely, although the network itself adds a warning message on the general page for hashtags that it has identified as sensitive.

It is also important not to forget how social network algorithms work, recommending content similar to what the user is currently viewing.  In this case, a user could start by viewing educational content with accurate, proven information that weighs the benefits and risks, but end up with other, less credible content that hides hidden interests, or are actual scams.

Regulators react

For these reasons, regulators are paying close attention to this content. In Spain, Rodrigo Buenaventura, chair of Spain’s financial market regulator, the CNMV, has called on influencers and public figures to act responsibly to prevent “investors from falling into offers that could be erroneous or even fraudulent.”

CNMV warns of a change in investment patterns and of the risks of turning it into a “videogame”

Montserrat Martínez Parera, the organization’s vice chair, held a positive view of young people’s digital knowledge and familiarity with social networks: “It’s a way for them to get in contact with the investment world and seek advice. These new options are certainly useful and interesting.” But she also warned of a change in their investment patterns, of the risks of turning it into a “videogame” and the rising presence of unregulated products, which could turn into a breeding ground for fraudulent activities.

In the UK, the Financial Conduct Authority (FCA) issued a report that concludes that many young people (those most vulnerable to losses) are taking on risks that are too high for their investment profile. “We are concerned that some of them feel tempted - often due to online ads or high pressure sales tactics - to purchase higher risk products, which in all likelihood are not appropriate for them,” said Sheldon Mills, executive director of consumers and competition at the FCA.

Before following online advice, the FCA recommends that potential investors ask themselves the following questions: Do I feel comfortable with the level of risk? Do I completely understand the investment being offered to me? Do I have protection if things don’t go well? Are my investments regulated? Should I receive financial advice?

In New Zealand, the Financial Markets Authority (FMA) has released a guide for talking about finance online. Rob Everett, executive director of the FMA, welcomes the fact that there are more and more people expressing interest in and discussing these issues online, which helps others to become more familiar with financial products. But he adds: “Influencers shouldn’t offer advice that they are not qualified or authorized to provide. It is also important for consumers to be careful to not follow recommendations that may not be appropriate for them.”

The FMA guide offers consumers the following advice to consumers:

• Be careful with what you see on the Internet. Some influencers are paid to promote products or financial services. Although it should be specified, that is not always the case.
• Some products promoted online - particularly cryptocurrencies and some derivatives could pose a very high risk and are often not appropriate for generalist investors. Take into account that digital financial content attracts scammers, including ‘scam bots’ (automated scam software).
• When in doubt, get financial advice from an authorized provider.

Meanwhile, the Australian Securities and Investments Commission (ASIC) is reviewing the activities of some ‘finfluencers’ in the country in order to understand their business models and how the financial services law would apply to their work.

In response to this regulatory surveillance, the social networks have started to respond. In July 2021, TikTok updated its content policy to ban influencers from directly promoting specific financial services and products.

Measures like this will reduce the presence of fraud and recommendations for high risk investments on social networks, leaving space for more generalized informative and educational content.