A significant portion of financial influencers, commonly known as finfluencers, has been found to neglect proper disclosure practices when promoting products or services, according to a study conducted by the CFA Institute. The institute is now calling on investment firms that engage with these finfluencers for promotional activities to shoulder the responsibility of ensuring compliance through adequate training.
Finfluencers have carved out a niche as indispensable resources for a burgeoning segment of the market: young investors who lack formal financial education and the means to access regulated financial advice. According to Rhodri Preece, CFA›s senior head of research, there’s a pressing need for enhanced collaboration among regulatory bodies, social media platforms, and content creators to demystify the rules surrounding compliance and disclosure.
In its commitment to fostering a well-informed investment community, the CFA Institute—renowned for offering investment professionals comprehensive educational resources and a strict code of ethics—has taken the initiative to delve deeper into the workings of finfluencer engagement.
Through focus groups involving young investors and a thorough analysis of 110 content samples across platforms such as YouTube, TikTok, and Instagram, the study sought to dissect the nature of the content being disseminated, segregating it into categories like promotions, guidance, and recommendations. While instructional content was lauded for its potential to enlighten novice investors, promotional materials were scrutinized for their lack of consistent and transparent disclosure, highlighting a grey area in the rapidly evolving digital marketplace.
Regulator studies pointed at risks
Regulatory bodies like France’s AMF and the Netherlands› AFM have already pointed out risks associated with finfluencers, such as market manipulation and spreading unreliable tips. A significant portion of Gen-Z investors in the US and UK view social media influencers as critical to their investment decisions, yet research on finfluencers› influence remains scarce.
Preece believes social media can be a constructive channel for investment information, effectively addressing the informational needs of the Gen-Z demographic by providing accessible, engaging content.
“With a bit of proactive support, hopefully, that will drive a greater uptake in the prevalence of disclosures,› said Preece. ‹If you still have a problem then it’s really up to the authorities and the social media platforms to consider what sort of enforcement action should be taken. But it starts with more proactive engagement and a drive to educate to make sure that the rules are understood and respected.”
Constructive channel
Preece said he believes social media and influencers can serve as a constructive channel for investment information. They effectively bridge the informational gap, offering readily accessible, free, and engaging content that resonates with the Gen-Z demographic by tapping into their financial concerns and aspirations, he said.
“We did these focus groups with young investors in France, Germany, the Netherlands, also the UK and US, and found that your levels of formal financial education are extremely low,” Preece said, underscoring the engaging nature of influencer content. “It’s accessible. It’s relatable to a younger audience here. They can play an important role in really delivering important information and in educating younger investors to get them more engaged and involved in saving and investing at an earlier age.”
“Why do people turn to social media as opposed to a traditional advisor? Costs, obviously, is one clear aspect of this, and again, relatability and the preference for digital engagement. INfluencers have an important role to play here in financial education. It just needs to come with appropriate guardrails and disclosures and that., consumers know that they need to balance this information alongside other sources of information. So you check your facts, and don’t base your decision solely on what’s on social media.”
“There’s some positives for sure. We did find that the content could be informative and fun. And, again, this is a way to drive greater participation in the markets, which, if it’s done in a responsible way, an appropriate way, that has to be a positive.”
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