Finfluencers: Friend or Foe?

From viral dance challenges to clever life hacks, social media has such a strong influence in our lives that younger generations are relying heavily on social media trends not just for entertainment and relationships, but also for financial advice from “finfluencers”. According to a survey conducted by marketing firm Vericast, “Gen Z investors say they’re more likely to get financial advice from TikTok and YouTube than from a financial advisor.”

On the one hand, we view this increase in availability of knowledge as a good thing! We’ve often said that we believe financial knowledge is a widely undertaught subject in schools, and knowing that younger generations are gaining easier access to financial information is a step in the right direction. On the other hand, there are a few red flags that we hope social media users understand when it comes to financial advice on the internet:

• Financial planning is highly contextual. The best advice for Person A is not necessarily the best advice for Person B. A common phrase in financial planning is, “it depends!” The best financial advice, in our view, takes into consideration your goals, your worldviews, your risk tolerance, and much more. These aspects are missing in social media’s one-size-fits-all advice and may not bear the same results that the finfluencer promised.

• As the saying goes, “with great power comes great responsibility” and unfortunately, some of these powerful finfluencers skirt the responsibility and share content or endorse opportunities for their own financial gain or personal agenda.

With this in mind, we wanted to highlight an article we came across from the California Department of Financial Protection and Innovation (DFPI) discussing the risks and red flags of trusting social media finfluencers. We’ll review some of the definitions, stats, and examples they shared to help you and those you love gain a better understanding of the true nature of the viral finfluencer advice you see on social media and how to protect yourself. At the end of the day, social media is a powerful tool and, just like the finfluencers, with great power comes the great responsibility of doing your own due diligence to make the best decisions for your financial life.

Excerpt from DFPI: What is a Finfluencer?

“A finfluencer is a person who, by virtue of their popularity or cultural status, can influence the financial decision-making process of others through promotions or recommendations on social media. They may influence potential buyers by publishing posts or videos to their social media accounts, often stylized to be entertaining so that the post or video will be shared with other potential buyers. While there is nothing new about marketers paying for celebrity endorsements, what is different is that such breezy and hyper-emotional endorsements are being made in what is otherwise a very regulated industry with stringent rules about performance claims and disclosure of potential conflicts of interest.”

Excerpt from DFPI: Who Should You Trust?

“According to a study by TIAA, a third of all new investors use social media to research investment ideas. Thirty-two percent of those investors also say they trust social media influencers and celebrities’ financial advice. However, consumers should be aware of the risks involved with taking advice from unlicensed financial advisers. Financial influencers or “finfluencers” often don’t have the experience or qualifications to guide people on what’s best for them.”

“For example, Kim Kardashian recently agreed to pay a $1.26 million settlement with the SEC for promoting crypto security EMAX on her Instagram account without disclosing she was paid $250,000 to do so. EMAX has fallen by more than 99 percent since peaking in May 2021. This case is a reminder that, when celebrities or influencers endorse investment opportunities, it doesn’t mean those investment products are right for all investors or that they are even legitimate.”

We recognize that it can feel nearly unavoidable to encounter finfluencer content through social media platforms and/or casual conversations. As such, we think the best course of action is to educate yourself and be mindful of common red flags when engaging with finfluencer content.

Excerpt from DFPI: Watch Out for Red Flags

• Dubious Advice – While some financial content may include helpful advice like the basics of financial literacy, other content might include reckless advice (e.g., “Avoid Paying Your Debts” or “Avoid Making Your Next Mortgage Payment Using this HACK!”) which could result in serious consequences, including a lowered credit score, losing significant amounts of money, or civil or criminal actions being brought against you. If it sounds too good to be true, it probably is.

• Free Offers – Free is never free. Before investing, look for hidden fees and ask for payment commitments in writing.

• Booklets or Training Courses – Beware of purchasing repurposed and outdated investment strategies that offer lofty promises. There’s no need to purchase courses or e-books containing information you can find online for free.

• A Sense of Urgency – Some finfluencers use scare tactics or pressure to manipulate you into investing or paying up-front for a service that hasn’t been performed. If you experience this or simply feel anxiety while interacting with a finfluencer, it is most likely a scam. Before making an investment, end your discussion and seek the advice of a trusted friend, family member, or licensed investment advisor before taking an action you may regret.

• FOMO or “Fear of Missing Out” – Do you have a strong urge to be on the forefront of something “new” or want to be “the first” to be involved with a new product? The stream of information on social media tends to build fear of being left behind by others who have claimed wealth from speculative investments. Don’t buy into the hype.

• Peer Pressure – Do you feel pressured to invest in order to be “friends” with the finfluencer or feel like you “belong” to their online community? The bottom line is unless you know them personally, finfluencers are not your friends. And your money is your money. Take control by doing your own independent research and consulting with a licensed professional financial advisor.

At the end of the day, your money is your money, and you get to choose what to do with it. We consider it a privilege to be alongside our Clients on their financial journeys, and we take the responsibility very seriously. We believe that engaging with a competent, ethical financial planner is the most reliable source of financial information – we’d love to connect with you! That said, here are a few additional suggestions to protect yourself when engaging with anyone for financial advice.

Excerpt from DFPI: How to Protect Yourself

• Do Your Research – Before investing, do your own independent research outside of taking advice from a finfluencer. It is problematic to take advice from unlicensed financial advisors, especially if they are targeting you for scams or fraud.

• Show Me the Data – Some finfluencers build their following by promising “to the moon” stock picks or investment strategies on a regular basis. If they only promote their amazing results, they are likely too good to be true. Ask for the data to back up their claims.

• Credentials Check – If the finfluencer claims to hold a financial certification or designation of any kind, check to see if the certification or designation comes from an accredited organization and if they are currently in good standing.

• Keep Records – It’s important to keep thorough records on who you are investing with, including their full legal name, affiliate organization, and contact information, and how much money you are investing and on what dates. Should you get into trouble, this information will be helpful to file a complaint or to try to get your money back.

READ MORE:

• “Finfluencers”: How Social Media Has Influenced Financial Decisions