In the September 2023 issue of The Analyst, I wrote about the rise in social media influencers advising on personal finance and investing topics and the urgent need for greater transparency and regulation. 

In January 2024, CFA Institute Research & Policy Center delved deeper into this topic with a report titled The Finfluencer Appeal: Investing in the Age of Social Media.¹ In the report, authors Serena Espeute and Rhodri Preece examine how young investors are increasingly consuming financial content from various social media platforms to make investment decisions. 

The report, summarized below, details many industry statistics, cites studies by various organizations, and identifies actions taken by regulatory bodies across the world. 

Rise of the finfluencers 

Social media influencers, often called “finfluencers,” have contributed to a surge in financial advice content on topics such as personal finance, taxes, and investing. Some finfluencers also promote investment products, offer guidance, or make investment recommendations. 

Finfluencers have become an important source of financial information for many viewers, particularly those aged 18 to 25 belonging to the Generation Z demographic cohort. Younger investors are often attracted by the educational and engaging content posted by these finfluencers. According to the report, 37 percent of Gen-Z investors in the United States and 38 percent in the United Kingdom cite social media influencers as a major factor in their decision to invest. 

However, this free and instantly accessible content often carries risks, such as a lack of proper disclosures, conflicts of interest, and advice that sometimes violates local securities regulations. 

The authors researched finfluencer content in five geographic markets (the United States, the United Kingdom, France, Germany, and the Netherlands) and three social media platforms (TikTok, YouTube, and Instagram). They attempted to answer three main research questions: 

1. How well do existing policy frameworks account for finfluencer activities? 

2. What are the key characteristics of finfluencer content? 

3. Why and how are Gen-Z investors engaging with finfluencer content? 

Growing risks require increased regulations 

Influencers may be sponsored by firms or brands to create content or paid to promote certain products and services, representing a clear conflict of interest. 

The report authors’ analysis of finfluencer content found that 32 percent of content contained investment recommendations, of which only 20 percent included any form of disclosure such as professional qualifications or potential conflicts of interest. It is often unclear whether finfluencers are even authorized to conduct regulated activities. 

The growing risks arising from inadequate disclosures and a lack of transparency around finfluencer activity have increased concerns among regulators. 

A detailed study with several recommendations 

While the authors acknowledge the important and beneficial role that finfluencers play in making financial information more accessible, they remain concerned about the risks they pose. To address these risks, the authors offer recommendations for various industry participants, such as regulators, social media platforms, educators, and firms that use finfluencers in their marketing initiatives. A few of those recommendations are highlighted below: 

• Regulators across different jurisdictions should work together to define what constitutes an investment recommendation, so existing laws and regulatory frameworks can be better utilized 

• National regulators should engage with finfluencers to help them improve disclosures, identify conflicts of interest, and understand which of their activities may be subjection to regulation 

• National regulators should record and report data on complaints against finfluencers to better protect the investing public and take enforcement actions against social media platforms when required 

• Social media platforms should implement controls that improve disclosures 

• Industry professionals should increase financial literacy initiatives and empower investors to critically evaluate finfluencer content 

To access all the recommendations and the full report, please visit the CFA Institute website, www.cfainstitute.org. 

¹ Espeute, Serena, and Rhodri G. Preece. The Finfluencer Appeal: Investing in the Age of Social Media. CFA Institute Research & Policy Center, January 25, 2024.