Are 'finfluencers' the future of financial advice?

What happens when memes and viral videos start to become the primary source of investment advice for new investors? Feeling overlooked by traditional financial advisors and institutions, retail or non-professional investors have flocked to digital channels, such as social media platforms Reddit or TikTok, to learn about investing.

Retail investing volume has doubled over the past 10 years, with 19.5% of all stock market shares traded coming from such investors in 2020. With more people than ever before active in capital markets, it is critical to understand the impact of social media advice. The World Economic Forum, Accenture and BNY Mellon explored this phenomenon in the 2022 Future of Capital Markets: Democratization of Capital Markets report.

Social media has made learning about financial topics more engaging and accessible for new retail and non-professional investors through short, entertaining videos that use creative ways, such as memes and metaphors, to explain financial concepts. While this trend has brought increased access to financial literacy and advice to many people, the quality can be inconsistent, surface level and susceptible to fraud and misinformation. Given the infancy of this new trend, investor protections relating to social media influencer financial advice are nascent. Left unaddressed, this could have long-standing implications for many in the capital markets industry.

We studied three prominent social media channels to better understand why retail investors are leveraging these channels for advice. Here is what we learned:

The face of financial advice is changing. So-called “finfluencers” or influencers who share financial advice on social media may supercede traditional advice mediums in terms of popularity. A FINRA study found over 60% of US investors under age 35 use social media as a source of investment information, compared to 57% who use financial professionals. Access to digital channels is becoming increasingly widespread around the globe, with around 60% of the global population using social media. Financial advice content shared on social media is contributing to the growth of the “creator economy”, which is valued at $127 billion globally. As a result, financial institutions are beginning to create pathways from social media to their product and services, with room to further connect those whose interest has been piqued by social media to more robust financial advice tools.

Social media makes financial advice feel inclusive and accessible, while creating strong communities representing a wide range of geographies, ethnicities, cultural backgrounds and special interests. According to a Forbes survey, 78% of respondents believe that they have more access to financial advice than previous generations would have because of their identity (such as gender, race or income level).

For many people, these online communities may be the one place they can go to discuss these important personal finance topics; 76% of millennials and Gen Z polled believe that financial topics have become less taboo due to the prevalence of financial advice on social media. Some finfluencers use relatability and authenticity to show the “real” side of personal finance. To build credibility and address this growing demand, institutions can learn from the successful growth of communities and outreach to engage with a wider group of investors.

Social media is often one of the first landing points for younger generations when researching how or where to invest. Platform content, however, is influenced heavily by proprietary and opaque algorithms, meaning catchy posts may be prioritized over quality. Our research found that advice posted on social media is non-linear and unstructured, with videos being surface level, inadequately representing the riskiness of the investments they promote.

Further, finfluencers present two key risks: quality of advice and lack of disclosures present on their social media posts. Finfluencers’ credentials vary significantly – from self-taught to formal accreditation, making the quality of advice hard to distinguish for a novice investor. In addition, finfluencers can earn six figures or more annually from brand partners or advertisements, presenting conflicts of interest between creators and their audiences that are typically undisclosed or difficult to distinguish.

While some platforms have added disclaimers or warning labels on financial advice content, the labels may apply only to certain search terms and/or may be difficult for viewers to identify. With the lack of consistent global regulations around this content, the risk of making misguided investment decisions due to misinformation and fraud is greater than the risk would be if the advice was taken from traditional advice channels. In the first six months of 2023, the Federal Trade Commission reported losses totaling $2.7 billion from investment-related fraudulent scams initiated on social media in the US alone; 37% of those fraud losses were reported by investors aged 20-29.

Innovations in social media content and delivery, the rise of finfluencers, and increasing access to engaging content are exciting developments in the capital markets industry. However, traditional financial advisors and institutions still have a large and important role to play to ensure people have access to holistic, personalized advice, risk management and education to enable successful investor outcomes. Our 2024 report on the Future of Financial Advice details a host of calls-to-actions for the capital markets ecosystem to create a more responsible investing ecosystem, particularly when it comes to financial advice on social media.