In June 2021, as markets roared higher, reality star Kim Kardashian published an Instagram post promoting EMAX cryptocurrency tokens to her 330 million followers. EMAX was one of many cryptocurrencies experiencing increased investor interest during the frenzy of 2021. Since her post, EMAX tokens have declined dramatically, losing nearly all their value.

While the advice likely proved disastrous for some of Kardashian’s followers, the venture didn’t pan out well for her either. Because she failed to disclose that she was paid US$250,000 by crypto company EthereumMax, violating US law, she was forced to pay US$1.26 million in penalties and fees in a settlement with the US Securities and Exchange Commission.

There are countless other examples like this one. Collectively, they highlight the need for enhanced regulations to protect consumers from the increase in financial advice being offered through social media.

The rise of “Finfluencers” in social media

Alongside news items, personal stories, and viral trends, financial advice has gained significant traction on social media platforms. Social media influencers, often called “finfluencers,” have contributed to a surge in financial advice content on topics such as personal finance, taxes, and investing.

Social media has increased the accessibility of financial advice, eliminating traditional barriers such as geographical location and financial status. It also provides a platform for diverse perspectives where people from different backgrounds and experiences can share unique insights.

Those different perspectives can help improve engagement for many consumers who are open to advice. In a recent FP Canada survey, only one in four Canadians (27 percent) said financial professionals often look like them.¹ And in an earlier 2021 survey, FP Canada found that just 4 percent of Certified Financial Planners can speak French, Mandarin, or Cantonese, and just 1 percent speak Hindi, Punjabi, or Italian, despite the growing diversity of the Canadian population.²

Growing risks with a new medium

While the democratization of financial knowledge is empowering, the unregulated nature of social media presents risks.

 Unlike traditional financial advisors, who must meet certain qualifications and adhere to regulations, social media influencers may not have the credentials or expertise to provide accurate financial advice. Misinformation and biased recommendations can quickly spread, leading to potential financial harm for unsuspecting followers. Social media can also be used to promote frauds and scams or high-risk investments that are unsuitable for most investors.

In a March 2023 report, various members of the International Organization of Securities Commissions (IOSCO) observed aggressive marketing practices via social media and sales techniques that are not in clients’ best interests. Some respondents noted that financial advice blogs, unlicensed celebrity and finfluencer endorsements and testimonials on social media, discussion on messaging groups, and marketing and sales techniques (e.g., Google or Facebook ads) for high-risk products all might overwhelm retail investors.³

Social media influencers often collaborate with brands or receive compensation for promoting financial products or services. This creates a conflict of interest, as their recommendations may be driven by financial gain rather than their audience’s best interests.

Due to the limited format of advice disseminated through social media channels, financial advice is often oversimplified and generalized. Complex financial concepts may be condensed into catchy soundbites, leading to a lack of nuance and potentially misleading information.

Under Canadian securities laws, if you offer tailored investment advice to someone, you must be registered as an adviser. Securities industry professionals must register with the securities regulator in each province or territory where they do business. Canadians can use a searchable online database to check if an individual or firm is registered.

Urgent need for increased regulation

Given the risks associated with obtaining financial advice on social media, regulators from various jurisdictions are exploring ways to better protect consumers. The following is a sampling of measures taken by some jurisdictions:

• In October 2021, the European Securities and Markets Authority (ESMA), the European Union’s (EU) securities markets regulator, issued a public statement on investment recommendations made on social media. In the statement, ESMA makes clear what investment recommendations are, how to post them on social media platforms, and the potential consequences of breaches of the EU Market Abuse Regulation.
• New Spanish regulations, effective February 2022, regulate rampant advertising of crypto assets, including by social media influencers. The National Securities Market Commission (CNMV) will be tasked with authorizing mass campaigns and making sure investors are aware of risks.
• In May 2023, the Belgian Financial Services and Markets Authority (FSMA) issued a new regulation to limit the commercialization of virtual currencies to consumers in Belgium. The new regulation is based on three pillars: minimum rules to ensure that the advertisement is correct and not misleading; mandatory warnings to be included in advertisements; and prior notification to the FSMA of mass campaigns.
• In May 2023, the European Commission proposed new rules that would make regulated investment firms responsible for content that they pay or encourage a social media “finfluencer” to promote.
• In May 2023, the British Columbia Securities Commission proposed new rules that would require anyone promoting securities on social media, through blogs/newsletters, or via videos to disclose items such as ownership of the security and any compensation received.
• In June 2023, the French Parliament adopted a bipartisan bill to regulate social media influencers’ activities to curb the promotion of dangerous products and trends.
• The Australian Securities and Investments Commission (ASIC) plans to work within their existing regulatory framework and has warned social media influencers they will need a license to provide financial advice or risk facing jail time.

Some potential solutions

Given the risks associated with unregulated advice, industry participants must step up monitoring, regulation, and enforcement efforts.

Social media platforms could offer tools to verify the credentials and expertise of individuals providing financial advice. This can help users identify trustworthy sources and reduce the spread of misinformation.

Financial institutions and regulatory agencies should partner with social media platforms on educational initiatives. By helping promote financial literacy through better access to informed sources of information, users won’t be as reliant on social media influencers for advice.

Clear disclosure of potential conflicts of interest will enable users to make informed decisions. Influencers and other content creators should be transparent about any financial interests or affiliations that could influence their recommendations.

Establishing reporting mechanisms for users to flag misleading or harmful financial advice is crucial. Platforms should promptly remove such content and enforce penalties for repeat offenders.

Some industry advocates argue for imposing more investor protection-related obligations on internet companies.

Meta, which owns and operates Facebook, Instagram, and WhatsApp, among other products and services, removes content that purposefully deceives, misrepresents, or otherwise defrauds or exploits others for money or property.

TikTok requires users promoting a brand, product, or service to turn on the content disclosure setting. This ensures transparency about the type of content being posted and helps build and maintain trust between TikTok users and advertisers. The platform has also added warnings to popular finance-related hashtags, such as #fintok, #stocktips, and #cryptotrading, encouraging users to do their own research and consider the risks involved.

While social media has democratized access to financial advice, the absence of regulations poses risks to unsuspecting users. Regulatory measures are imperative to ensure the authenticity and accuracy of financial advice. By implementing appropriate regulations, social media platforms can help foster a safer and more reliable online environment for individuals seeking financial guidance. 

¹ “FP Canada Finds Lack of Trust Among Diverse Communities”. Investment Executive, May 10, 2022. 

² Kolluru, Srivindhya. “The New Wave of Money-Smart Mentors or ‘Fin-fluencers” Is Here.” Pivot Magazine. CPA Canada, February 23, 2023.   

³ The Board of the International Organizations of Securities Commissions. Retail Market Conduct Task Force Final Report. International Organization of Securities Commission, March 2023.