A growing number of young investors are turning to financial influencers — or ‘finfluencers’ — on social media platforms, such as Instagram, TikTok and YouTube, for investment information and advice.
TikTok alone has seen a 373% rise in financial content videos over the past year.
This highlights a gap in financial literacy among young people and a need for accessible financial guidance.
The financial services industry voluntarily delivers financial education to millions of people across the country, but UK Finance (representing 300 firms) estimates this reaches only 40% of school children. Such a lack of education in schools means Gen Z are being forced to learn about money on their own.
In a recent survey of more than 2,500 UK consumers, a quarter of 18- to 24-year-old banking customers said they used social media for financial guidance, with 20% of this age group having invested money based on social media recommendations.
Social media is an opportunity to unlock an emerging investor base
This period of economic uncertainty is the first for younger generations and they are turning to finfluencers to help them through the storm.
Social media offers youngsters comfort and familiarity. Financial tips can be provided in an accessible way, using simplified terms, with terminology and examples that relate to pop culture. But it can also expose this audience to unvetted advice — with scammers ready to prey on vulnerable people.
Blurred line
Finfluencers have complex incomes and often receive money for endorsing products, blurring the line between objective advice and advertisement.
Most have no background in finance — let alone being accredited by a regulated firm — resulting in surges of self-directed investing following questionable advice.
Advice firms must rise to the challenge and pivot to provide content that is engaging, relatable and instantly accessible
Easy access and over-simplified advice are the norm for large social media platforms — but this often ignores the complexity and nuance of personalised financial advice from qualified and reliable sources.
To address the issue, the Financial Conduct Authority issued finalised guidance on financial promotions on social media in March, clarifying its expectations of firms and finfluencers.
While it stated that the guidance was not intended to impose new obligations on firms and did not have the same force as FCA rules, there are consequences people would be well advised to take into account.
In May, the regulator brought criminal charges against nine individuals — some of whom were reality TV stars from Love Island and The Only Way is Essex, with a combined following of 4.5 million people on Instagram — for promoting an unauthorised foreign exchange trading scheme on social media. If convicted, they could face up to two years’ imprisonment.
Easy access and over-simplified advice are the norm for large social media platforms
Whether you like it or not, the social media Wild West is the new source of financial information, guidance and advice for Gen Z. But, while finfluencers pose a challenge to the traditional advice industry, social media also offers an opportunity to unlock an emerging investor base.
Creating pathways
Financial institutions are beginning to create pathways from social media to their products and services, with room to further connect to more robust financial advice tools those whose interest has been piqued.
BlackRock’s iShares, for example, has leaned in to social media to capture this new generation of investors, landing clear, jargon-free messaging with bold, headline-driven visuals.
Such a lack of education in schools means Gen Z are being forced to learn about money on their own
That said, most financial services firms barely have a social media presence. If the industry doesn’t adapt quickly to capture these consumers, the greater danger will be for this susceptible and vulnerable audience to fall foul of the unscrupulous, unqualified and unvetted finfluencers looking to increase their own earnings.
There is a wider responsibility on the social media giants to be more responsible for the content that is being posted, but the FCA can’t directly force them to police bad advice.
Advice firms must rise to the challenge and pivot to provide content that is engaging, relatable and instantly accessible, without bearing too much cost.
They must step up because, without the protection of registered firms and approved advisers, many people will be left with large losses and little recourse.
Giang Hughes is business support manager at Simplify Consulting
This article featured in the October 2024 edition of Money Marketing.
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The issues raised above are much more a matter for elected officaldom and their lickspitttles…
Quite how advice is supposed to earn a living and change the world is anybody’s guess…
Perhaps the masses once bitten, or twice more, will change their habits… personally I would focus upon existing clients and await those fleeing the unscrupulous!
As John says!
If the industry wasn’t so difficult for the honest regulated advisers to function effectively within, then we would have better incentives to spread the message, but for now it’s in the hands of unregulated internet-savvy shouters, welcome to the 21st century alternative to the bloke down the pub!