Finfluencer Risks

Over the years, we’ve weighed the pros and cons of various social media platforms on financial literacy. Sometimes, preference for social media runs along generational lines. Lately, two trends may have combined to create an important issue for financial advisors: a reduction in attention span and the rise in so called “Finfluencer” may mean clients are relying on TikTok for financial education. What may be particularly challenging is determining when younger clients, such as those in Generation Z, are learning financial recommendations from unregulated communication on TikTok. A recent report by the CFA Research and Policy Institute provides important concerns and makes recommendations for financial advisors.

Finfluencers, a portmanteau of the words financial and influencer, has been loosely defined by their activities. “Finfluencers represent a new intermediary between financial institutions and consumers. They provide general investment information, promote investment products, offer guidance, and, in some instances, make investment recommendations.”^[1]
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Substack and TikTok may indicate two contradictory trends happening when it comes to information. On the one hand, Substack’s popularity may show a preference for longer format pieces. We noted for plan sponsors that some financial writers had moved their newsletters over to the highly readable Substack platform.^[2] Many clients may be getting the favorite newsletters on Substack now and their use of Substack. Because of that, clients may be changing their preference for visual information. “The platform allows readers to read the newsletters in a blog-like format and interact with other readers through comments and notes. Its growth in readers is exponential.”^[3] That trend isn’t terribly different from what we’ve noted about the increase in popularity of podcasts. In a survey a few years ago, almost half of those 18-34 noted listening to podcasts at least once a week. “Podcasts have taken on a life of their own, and not just because more celebrities have found the platform fun or a great source of creative outlet. Instead, the Pod world is now full of edu-tainment programs – those programs that both educate and entertain, like podcasts about paleontology.”^[4]
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On the other hand, shorter form visual information sources like YouTube and TikTok also has a rise in popularity. The universe of financial educators on YouTube includes former magicians as well as well-established companies such as Charles Schwab.^[5] Some think that a turn towards TikTok and YouTube reflect a shortening in the attention span of the public. Experts in attention have described the attention online as requiring less mental energy than other sources, which may explain some of the popularity of Finfluencers.^[6] However, the length of those more visually based content may also be explained by a shortening of average attention span over the last 20 years. “So back in 2004, we found the average attention span on any screen to be two and a half minutes on average. Throughout the years it became shorter. So around 2012 we found it to be 75 seconds…. And then in the last five, six years, we found it to average about 47 seconds, and others have replicated this result within a few seconds.”^[7]
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The regulation of this financial information is less robust than what some experts recommend. A new paper by the CFA Research and Policy Center titled The Finfluencer Appeal: Investing in the Age of Social Media addresses some of these issues.^[8] As they’ve noted: “It is often unclear whether Finfluencers are authorised to conduct regulated activities; however, they have become an important source for young investors—particularly those aged 18–25, who are part of Generation Z—to access investment information…. And although some studies do show the potential risks of using influencer content, such as risks arising from inadequate disclosures and a lack of transparency, they rarely situate them in a broader regulatory framework to see how these risks could be reduced”^[9]
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Recommendations to address the concerns over risks of incomplete information or lack of disclosure include, among others: 1) asking for a more universal definition of an investment recommendation; 2) creating a database of complaints on Finfluencers; and 3) enhancing social media controls.
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At the same time, use of Finfluencers and of social media platforms does provide a positive impact by making financial education easier to access. Advisors that do use social media managers and content creators in their communications should consider ensuring compliance training extends to all employees in their communications department. Other recommendations include making sure to keep copies of social media communications.

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^[1] https://rpc.cfainstitute.org/en/research/reports/2024/finfluencer-appeal

^[2] https://www.bcgbenefits.com/blog/substacks-for-plan-participants

^[3] https://www.bcgbenefits.com/blog/benefits-boost

^[4] https://www.bcgbenefits.com/blog/end-of-algorithm

^[5] https://www.bcgbenefits.com/blog/should-you-youtube

^[6] https://www.apa.org/news/podcasts/speaking-of-psychology/attention-spans

^[7] https://www.apa.org/news/podcasts/speaking-of-psychology/attention-spans

^[8] https://rpc.cfainstitute.org/en/research/reports/2024/finfluencer-appeal

^[9] https://rpc.cfainstitute.org/en/research/reports/2024/finfluencer-appeal

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‍These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.

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