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Should you take investment advice from a ‘finfluencer’?

Written by: Emma Lunn
Unregulated self-styled experts are offering financial advice via TikTok, Facebook, Instagram and Twitter.

One in five (21%) 18 to 34-year-olds who became interested in investing during the pandemic were influenced by TikTok, with more than one in 10 people (12%) of all ages thinking about investing after viewing the video-sharing website.

According to a study by Hargreaves Lansdown, 11% of people said they’d developed an interest in investing through Facebook (15% of younger people), 10% from Instagram (15% of younger people), 10% from Twitter (14% of younger people), and 7% from Reddit (12% of younger people).

Overall people were more likely to have learned about investing through traditional news (12%) than most forms of social media. But for 18 to 34-year-olds It was the other way around.

Family and friends tend to be more influential in getting people into investment than most social media. However, TikTok was more influential than family for younger people, and matched the influence of friends.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Social media can be a brilliant way to build your knowledge on almost any topic, and your finances are no exception. However, there’s a real risk of harm while you’re hunting for the gems of sparkling insight among the dangerous detritus, and the rules make it incredibly difficult for any regulated company to guide the way.

“Social media is great at getting people interested in financial issues. It’s designed specifically to appeal to whoever is using it, so they see posts from people who are like them, and talk in a way they relate to. They can join in the conversation, so they feel closer to the subject. It’s presented in bite-sized chunks so it’s all accessible, and the algorithms show us things specifically to pique our interest.”

The problem is, anyone can set themselves up as a ‘finfluencer’ (financial influencer), without any skills or experience. In fact, it makes their life much easier if they’re unregulated, because the regulator isn’t monitoring what they say, so they can say what they like.

This is in sharp contrast to the rules for regulated firms who want to use social media to help inform people about money, and share sensible tips on planning and investing.

Coles said: “If you’re using social media and you have a choice of sensible advice from a regulated firm complete with reams of risk warnings that make everything sound terrifying, or simple 30-second tips from a finfluencer who makes it sound foolproof, the temptation is to opt for the latter.”

Hargreaves Lansdown is campaigning for a change in the rules around guidance, to allow regulated companies to offer sensible tips designed to respond to an individual’s finances in an engaging format.

The investment firm is calling for a level playing field between those who are regulated and the unregulated self-styled ‘experts’.

The downside of ‘finfluencers’

  • You don’t know who they are

Anyone can claim to be a finfluencer and set up without any knowledge, skills or experience. You don’t need to be regulated to offer people tips on social media.

  • People equate popularity with reliability

There’s no link at all between how many views something has and the quality of the information, but people can be convinced to trust charlatans if they’re popular enough.

  • They can say whatever they like

There’s no rules stopping someone unregulated saying whatever they want, however misleading or dangerous.

  • It could be a scammer

It’s not just ignorance, criminals also use the approach to find victims. It’s so much harder to spot something that’s too good to be true when you’re first starting out

  • It’s not the full picture

The finfluencer may not be trying to mislead you. Sometimes the content is too short to give a full picture, and some just don’t have enough experience to understand the downsides of what they’re doing yet.

  • The rules in action

If a regulated company wanted to post on social media about a financial product, they would need a number of risk warnings. But finfluencers don’t have to do the same.

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