Be warned if you’re a finfleuncer. The Financial Conduct Authority has its eyes on you.
The regulator recently announced it will launch a clampdown on financial influencers better known as ‘finfluencers’. It said it will deter them from promoting financial products that harm consumers.
It said it has been monitoring finfluencers’ online activities and found that majority of them promote products, particularly investment and credit products, to their followers without risk warnings.
It warned finfleuncers that social media spaces including TikTok and Threads are subject to regulation and that it will take punitive actions against violators.
“We’ve seen a growing number of ads falling short of the guidance we have in place to stop consumer harm.
“We want people to stay on the right side of our rules, so we’re updating our guidance to clarify what we expect of firms when marketing financial products online. And for those touting products illegally, we will be taking action against you,” says FCA director consumer investments Lucy Castledine.
As part of the clampdown, the regulator said it will update its social media marketing guidance following an industry-wide consultation.
It said it wants the new rule to reflect the current ways social media is being used to advertise financial products.
The consultation, which runs for eight weeks, ends on 11 September. The new rules will be finalised later in 2023.
Not another consultation, I hear you say. Well, we all know the FCA drill by now. Consultation. Consultation. And more consultation.
But to be fair to the regulator, the last time it ventured into the murky world of social media marketing was in 2015.
The old social media guidance, as the FCA conceded, was heavily based around character-limited media such as Twitter and made no reference to the use of influencers communicating financial promotions.
And a lot has changed since then with the advent of Tiktok, meme stocks and an army of netizens promoting investment products and other get-rich quick schemes.
Social media has become the go-to source of information for many consumers, particularly young people.
Almost 60% of under-40s based their investment decisions in high-risk products on social media posts and the news, a 2021 survey by the FCA found.
Little wonder those who worked in regulated financial firms welcomed the FCA’s crackdown on finfluencers.
Rosie Hooper, chartered financial adviser at Quilter, says: “This is long overdue given the spate of social media posts over a number of years that have lured people into high-risk schemes that don’t state the real risks of falling victim to scams on social media which have skyrocketed over recent years.
“This crackdown is particularly needed during the cost-of-living crisis as people are more likely to turn to alternative sources with the promise of high returns being tempting for cash-strapped individuals without their eyes open to risks involved.”
Myron Jobson, senior personal finance analyst, Interactive Investor, adds: “The advent of so-called finfluencers is a headache for the city regulator. The credentials of many so-called finfluencer are weak at best – if they exist at all.
“But there are also a number of well-versed and highly qualified financial professionals on social media offering solid guidance.”
Jobson’s latter point is worth highlighting. There are qualified professionals, including advisers and finfluencers, who are giving good and sensible financial guidance to people online.
Some of them are household names, including consumer champion Martin Lewis. These are good finfluencers making a difference in the lives of the have-nots.
My colleague Kim Dondo wrote a brilliant piece earlier this year about why we need more finfluencers.
The world of personal finance has long been the domain of the wealthy. And social media has created a platform for underserved communities and groups to access financial guidance and the investment markets from people they can relate to.
We have written extensively on these pages about the advice gap and the millions of people missing out on financial advice and guidance.
Six million adults — roughly the combined population of Birmingham, Manchester, and Sheffield — want advice but think it costs too much, according to data from OpenMoney.
There is clearly a need there. And these young and internet savvy finfluencers are filling that market gap.
Advisers have a lot to learn from these youngsters about social media communication and marketing. Or they can partner with them to bridge the thin line between advice and guidance.
For many outsiders, the financial services industry is not visible and doesn’t cater to the needs of the many. The FCA is unknown to many outside the industry including finfluencers.
And this is why some have questioned the rationale behind the FCA’s new social media consultation.
Some wonder what’s the point in the regulator seeking to mark out new territory for it to police when it is still failing to prosecute rogue advisers who flout the rules. The FSCS levy continues to rise due to bad advice.
Social media is a no man’s land better left to the tech giants to regulate. Even they struggle to moderate contents and monitor users. What chance does the FCA have?
Maybe the FCA should focus more on trying to educate finfluencers rather than opting for the stick.
Raising awareness of the long-term benefits of regulated financial advice would be a good start. After all, these influencers have the eyes and ears of the future generation of clients.
The regulator seems to be exploring this option. In April, it teamed up with the Advertising Standards Authority and Sharon Gaffka – a social media influencer and Love Island star – to help educate financial influencers about the risks involved in promoting financial products.
This is a better move that could harness the marketing skills of finfluencers for the greater good.
101% justified. If I had anything to do with I would ban all social media entirely. A medium for morons & criminals.