Can You Trust Financial Influencers for Advice?

Social media influencers use their platforms to promote everything from new beauty products to financial services. Their audiences are often young, impressionable and eager for advice on managing their money. We explore the realities of using social media influencers as a financial advice source.

Kristina Fox Published on 03 December 2021. Last updated on 04 December 2021.
Can You Trust Financial Influencers for Advice?

Increasingly, influencers on social media platforms, such as TikTok and Instagram, are marketing financial services and products to their audiences.

As a consumer, how wary should you be about financial services influencer marketing? Can it be reliable and informative, or is it more risk than reward?

Below, we explore what this type of marketing is, the risks it carries, and alternative sources of financial information you might consider.

What is financial services influencer marketing?

Financial services influencer marketing is when those who are popular on social media platforms promote financial goods and services. Paid-for advertisements, such as collaborations with banks and platforms, come under this category.

This type of marketing also includes videos of people sharing their own financial decisions and experiences, often with a view to encouraging other users to follow their example.

Who looks for financial advice on social media?

Currently, 20% of 16- to 24-year-olds (the older age bracket of Generation Z) in the UK rely on social media for financial advice, according to a study by the debt management company Lowell. Almost a fifth (19%) of these young people preferred social media platforms TikTok and Instagram to their banks when looking for information on how to manage their money.

» MORE: How Gen Z manage their money and make financial decisions

But it is not just Generation Z who place trust in influencers and peers when it comes to financial advice. On TikTok, the general topic #PersonalFinance has racked up 5 billion views, while the more specific hashtag #investingforbeginners boasts some 215.5 million views. And these views won’t just come from TikTok’s youngest demographic – people of all ages use the platform and can watch these videos. Regardless of age, there is clear interest in financial content on the platform.

Should I use social media to get financial information from influencers?

Social media influencers gain a following through posting engaging content, building a rapport with their audience, and ultimately being a relatable voice in a sea of posts, pictures and videos online. Often, this builds a community of followers who implicitly trust the information shared by the influencer in question.

This is understandable. Being able to get advice from someone who seems to know their stuff on a free online platform can seem a game-changer, particularly if you feel alienated from traditional financial advice services.

However, there are a number of important factors to keep in mind when considering whether or not to trust social media influencers in the world of finance.

Lack of information

The nature of social media means that posts and videos have to catch users’ attention in the shortest possible time. As a result, content that includes financial advice often omits key pieces of information for the sake of brevity.

Perhaps this is the result of an increasingly mobile-driven social media landscape. Short, snappy videos with colourful graphics and tales of untold riches often fail to disclose the risks involved. These videos may suggest that some financial products are more of a game than a serious endeavour with real-life consequences.

Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), expressed such concern in a speech in July 2021, claiming that nowadays “more people see investment as entertainment… egged on by anonymous and unaccountable social media influencers”. An increasingly gamified financial landscape poses a threat to those who cannot see the risks involved.

Young people, whose level of financial literacy is often not as advanced as their older counterparts, are perhaps most affected by this mindset.

Research by the Financial Times found that only 71% of 16- to 24-year-olds could be considered “financially literate”. In comparison, rates among all older age groups were at least 83%. Meanwhile, over half of British 18- to 23-year-olds who invested for the first time between June 2020 and May 2021 take their advice straight from social media, according to F & C Investment Trust.

A lack of financial literacy may prevent Gen Z’ers from understanding the risks and consequences of their financial decisions, especially if these are not made clear by the influencers who are promoting financial services. This is particularly concerning when investment opportunities with huge potential for losses are advertised on social media.

» MORE: Is Generation Z financially literate?

Unqualified advice

Many social media influencers will not have undergone the same training as certified financial advisers. Financial advisers will often have a level 4 FCA-recognised qualification in Financial Advice or Financial Planning. They also need to be approved by the FCA to give financial advice. Influencers do not, as a rule, have this backing, unless they are also a qualified financial adviser.

It also seems that many creators use their own experiences as a guide for every viewer to follow, regardless of their personal circumstances. These videos can seem to suggest that financial activities have a one-size-fits-all approach, when in reality financial decisions will depend on each individual’s specific needs and circumstances.

TikTok, in particular, does throw up a warning to those looking at investment-related videos. When searching for the hashtag #investing, for example, the app displays the warning that all investments involve risks, and that users should consider doing their own research. However, this warning does not appear on the videos themselves.

This isn’t to say that everything that social media influencers claim is false or misleading, or that you always have to consult a financial adviser before making money decisions.

However, especially when it comes to financial commitments, it is important to see the full picture before making a choice, and this will involve doing your own research. Blindly following the advice of an online influencer is not usually the best way forward.

Scams

The digital world is full of tricks and scams and, unfortunately, the world of financial services is no exception.

In early November 2021, a crypto token based on the popular Netflix programme Squid Game scammed investors out of more than $3 million (around £2.25m). Getting caught up in internet crazes can have serious consequences when it comes to finance.

Influencers can get swept up into financial scams online, potentially threatening their audience’s finances. What is more, some social media stars seem to be disregarding their fans’ finances in order to make quick money themselves.

The FCA has advised caution when it comes to trusting social media influencers’ financial content, particularly when it involves cryptocurrency. Charles Randell, chair of the FCA, warns that influencers are “routinely paid by scammers” to advertise coins which “turn out simply not to exist at all”.

Interestingly, the FCA is now using influencers to combat other influencers who, perhaps unknowingly, encourage their followers to take huge risks or to invest in scams through social media. The regulator hopes that this will protect investors from harm when following online advice.

What to do if you have been scammed

If you think that you have been the victim of an online scam, you should:

  • Report the scam to Action Fraud.
  • Contact your card provider as soon as possible if you paid by debit or credit card to see if you can get your money back.

» MORE: Cryptocurrency scams – what to do if you’ve been affected

What other resources can I use to find financial information?

There are many other reputable sources you can use to find information about financial services and products, such as:

  • MoneyHelper, a government-backed website offering impartial guidance.
  • Citizens Advice
  • Certified financial advisers
  • Independent price comparison websites such as NerdWallet

Often, going directly to the service provider will enable you to find the information you need without risk. If you need general, impartial advice, Citizens Advice or MoneyHelper may be able to help.

Alternatively, if you want to compare different financial products on the same site, comparison websites can be useful.

Financial services influencer marketing has its benefits. It’s easy for everyone to access and can provide a more approachable service, especially for those who do not feel traditional sources of advice are appropriate for them.

However, taking financial advice from influencers comes with its own set of risks, and it is important to do your own research before jumping into any financial decision.

WARNING: We cannot tell you if any form of investing is right for you. Depending on your choice of investment your capital can be at risk and you may get back less than originally paid in.

Image source: Getty Images

About the author:

Kristina is a writer at NerdWallet. A recent Oxford University graduate trading French for finance, she has experience creating content for student newspaper Cherwell and an edtech company. Read more

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