Social media has evolved into an incredible tool for sharing information, highlighting creators, and spurring on new trends like shouting “Tuesday! Tuesday!” at your friends. But it can also be a vehicle for misinformation — and when it comes to financial advice, sometimes the results can be dire.
“Finfluencers,” or financial influencers, have seen their powers grow across social media over the last few years, particularly after meme stock madness and the crypto gold rush gripped investors in 2021. Viewers eager to capitalize on roaring stock market returns turned to would-be gurus online in droves, particularly younger investors: a survey by the CFA institute published last year noted that 37% of Gen-Z investors in the United States say that social media influencers are a major factor in their investment decisions.
The problem isn’t that you can find investing advice on social media — in fact, finfluencers can help enhance financial literacy in a new generation, as well as circumvent inequalities inherent in the world of finance.
The problem is that the motivations of finfluencers can be murky at best, and downright manipulative at worst.
The CFA Institute found that only 1 in every 5 finfluencers who tout investment recommendations have any disclosures about a creator’s financial incentives or positions in the investments they’re promoting.
And as an NYU paper published late last year notes, the bigger a finfluencer’s audience, the more incentive they have to deceive their viewers:
“...the more influence finfluencers wield, the more they can predict and even control trading patterns among their followers. From a finfluencer’s perspective, stock price movements can become more predictable, which can weaken finfluencers’ incentives to provide valuable information to their followers and make profiting at the expense of their followers more tempting.”
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Obviously, not all finfluencers are out to scam you, and many provide genuinely insightful information. But even if TikTok is outlawed in the US, social media and the people who use it to tout investment advice aren’t going anywhere — and the viewers who follow that advice need to be smart about who they listen to.
The CFA Institute has a few pieces of common sense advice for anyone who turns to social media for investing ideas:
- Consider motivations
- Keep in mind that many finfluencers are paid to highlight a product or service.
- Be critical of advice
- Don’t just rely on one source for advice before making an investment decision.
- Look for disclosures (or lack thereof)
- Many disclosures on social media are purposefully unspecific, but any endorsements should come with clear, unambiguous disclaimers.
- Question credentials
- Remember, you don’t have to be a certified investment adviser to promote investment advice online, and the number of followers a finfluencer has isn’t a replacement for credentials.
- Examine purported performance
- Many finfluencers will try to sweep their losses under the rug — look for those who are upfront about the entirety of their investment performance, not just the winners.