OSC research found social media financial influencers, or “finfluencers” have considerable influence on the decision making of retail investors. Find about more about how you may be persuaded by finfluencer posts.
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What’s a finfluencer?
Your social feed may include posts from financial influencers or “finfluencers”. They use their social media platforms to share finance and investing insights. A finfluencer could:
- Share a post about their recent successful stock picks, alongside positive comments and testimonials from followers who profited.
- Make claims about their own financial successes to create a perception of authority.
- Emphasize the limited time frame or availability of an investment opportunity, creating a sense of urgency.
- Offer exclusive insights or a free educational webinar on investment strategies to ask for investments in the future.
Finfluencers tend to fall into one of three categories: unregistered individuals, unregistered individuals hired by financial firms, and registered investment advice professionals.
It’s important to always check the registration of any person or business trying to sell you an investment or give you financial advice. Checking registration can help you protect your money and avoid fraudulent people or companies. Dealing with a registered adviser or dealer means you can expect certain things from them.
While some finfluencers may offer quality advice or guidance, others may have ulterior motives, questionable credentials, or be subject to various incentives, affecting the quality of advice offered.
Read the full report Social Media and Retail Investing: The Rise of Finfluencers.
How risky is following finfluencer advice?
Finfluencers’ persuasion tactics may lead you to make financial decisions that you otherwise would not have made.
About 35% of respondents to a survey of Canadian retail investors reported making a financial decision based on advice from a finfluencer.
Retail investors generally think finfluencers are motivated by self-interest. But about 40% of investors believe the finfluencers they follow are trustworthy. Those who made a financial decision based on finfluencer advice were seven times more likely to trust finfluencers they follow.
Relatedly, survey participants who reported following finfluencer advice were 12 times more likely to have been scammed on social media. These results suggest that people who trust and follow the advice of finfluencers may be more vulnerable to social media scams.
Learn more about social influencers and your finances.
What could reduce the impact of finfluencers?
There are some ways that the influence of a finfluencer can be reduced. The survey found working with a financial advisor or portfolio manager — and spending less than an hour a day on social media — were each associated with a three-fold reduction in the likelihood that a retail investor followed finfluencer advice.
Beyond working with a financial advisor and using less social media, there are other ways to reduce finfluencer influence.
Social Media and Retail Investing: The Rise of Finfluencers includes the results of an online experiment assessing the impact of finfluencers and strategies to combat misinformation.
Canadian social media users were exposed to social media posts during an online trading simulation, where some posts promoted particular assets. Nearly 40% of participants exposed to finance-related social media posts purchased the assets that were being promoted, compared to about 10% of those who weren’t exposed to the same posts.
The experiment included 1,465 participants (59% retail investors and 41% non-investors). Non-investors were more likely to be influenced by social media posts compared to investors. The experiment found 29% of non-investors compared to 21% of investors purchased a promoted asset they saw in finance-related social media content.
Researchers tested various interventions to reduce the persuasiveness of social media content. Interventions that were effective at reducing finfluencer influence included:
- Disclosure – A message that reveals or discloses information about potential biases and conflicts of interest in the social media post.
- Prebunking – A message to debunk misleading content before the social media post appears.
- Inoculation – A message before each social media post illustrating an example of misinformation on social media and explaining the flaws.
Results showed that these interventions can protect investors from social media-driven influence, however they only eliminated about half of the impact of social media messaging.
Why is there concern about finfluencers?
You may think of financial advice found on social media as accessible, free and potentially informative. But the quality of advice varies widely.
The research details the ability of finfluencers to influence your investing decisions. Exposure to persuasive finfluencer posts can heighten your risk of acting on their financial advice, regardless of whether that advice is credible and makes sense for you.
While the survey shows retail investors believe finfluencers are generally motivated by self-interest — a sizable portion of investors believe the finfluencers they follow are trustworthy. This increased trust in the finfluencers they follow could put investors at risk — particularly if the finfluencer posts offer poor quality advice.
The experiment goes a step further. It found finfluencer recommendations cause retail investors to make certain trading decisions. While finfluencer-investor relationships are not inherently harmful, the experiment demonstrates the capacity for finfluencer content to influence investor behaviour. Once again, this influence could diminish retail investor well-being — especially if the advice is of poor quality.
Interest in retail investing continues to grow as does social media. The research findings reaffirm the importance of the continuance of regulatory oversight to ensure finfluencer content is not harming retail investors.
The OSC collaborated with The Decision Lab to explore the relationship between Canadian retail investors and non-investors and the financial information they encounter on social media.
Be cautious when you encounter investing information on social media. What you see may be incomplete or misleading — and it may not comply with securities laws. Find out how to evaluate information found on social media.
