By: Dounya Hamdan
In a world full of blue check marks, a million-plus followers, and an infinite amount of likes, more and more potential investors are falling for unregulated financial “advice” found on social media apps.
From get-rich-quick schemes, to real estate and crypto threads, fraudulent tactics and misleading information designed to separate investors from their cash abound.
On August 9, 2022, the North American Securities Administrators Association (NASAA) issued an Informed Investor Advisory recommending investors to use caution when considering advice from social media financial influencers, or “Finfluencers.”
If you find yourself scratching your head and asking yourself what exactly is a “Finfluencer”, you’re not alone.
Red Flags and Blue Check Marks
Social media apps, like Instagram and TikTok, have exploded in use by social media influencers offering financial advice to their followers. Digestible, bite-sized posts, and videos are the attention-grabbing choice of content-sharing.
On TikTok, the hashtag #FinTok has been viewed more than 1.9 billion times with #financetiktok viewed approximately 900 million. Over on Discord, countless channels purport to offer easy-to-access financial information, often with the hook of a subscription service to receive the channel’s best trades, trading rationale, and market commentary. Some focus on option trading, some trade so-called “penny stocks”. Other channels dispense technical analysis with a gusto and certainty that would make professional traders blush.
There’s an unfortunate downside of “finfluencer” advice that many novice investors overlook: “finfluencers” are not required (yet) to adhere to the same regulations (Reg BI and the fiduciary standard) as financial advisors. Without BrokerCheck or full disclosures readily available to shine a light on shady practices, this can create breeding grounds for misleading information to be shared amongst users and platforms without recourse.
Yet, for younger generations, the blue check mark is all the credibility that’s needed to seek and trust the advice they read.
But even with a blue check mark, there may be red flags.
Influencers promise guaranteed returns from investment strategies that lack any pretense of a track record. They persuade their audience to follow advice they dole out over trusted financial professionals, and with a lack of transparency, this often creates a financial mess for potential young investors.
Move Over, Warren Buffet…
Generation Z (10-25 yrs old) is considered to be the first college graduates who entered the workforce right before the world shut down (Covid-19), and are living through the effects of rising inflation and a potential recession. It’s no surprise that they are pursuing multiple streams of income and turning to social media for advice.
Compared to other generations, Gen Z grew up with the internet. HubSpot notes in an article that, “Gen Z spends more time online each day than millennials. They’re also usually logged on to multiple social media channels at once, have a mobile-first mindset, and love video content.”
TikTok knows and exploits this and perfected algorithms to deliver tailored content, specifically for Gen Z, in video format. Anything from product reviews to how-to tutorials, from current and socially-charged events, younger generations consume this information through videos rather than long-form written content.
Recently, ConsumerAffairs surveyed 1,000 Americans on an array of financial topics. When Gen Z was asked who they follow for financial advice, it wasn’t Warren Buffet. The Oracle of Omaha shored up the bottom of Gen Z’s list. This is in stark contrast to Boomers, Gen X, and Millennials, each of whom affixed Buffet at the top.
In today’s tech-forward society, we simply can’t write-off social media and assume it’s completely riddled with red flags and horrible financial advice. The ConsumerAffairs survey also found that financial influencers have been helpful in encouraging saving and debt reduction. Survey respondents noted that by following advice they found online, they were able to contribute $1,500 to their savings and reduce their debt by $800, on average.
With Gen Z becoming the primary players in the global market in the years to come, financial advisors must find ways to be a resource for younger generations.
Financial Advisors and the Digital Experience
Financial advisors are regulated by the SEC, under Reg BI (Best Interest), to act in the best interest of their clients, provide transparency regarding cost, highlight investment risks, and offer resources for portfolio management, insurance products, tax and retirement planning and more.
The community guidelines provided by these apps do not apply or enforce the same rigorous standards as Reg BI.
While most financial influencers want to provide their audience with helpful tips and financial advice, some use social platforms for monetary gains through undisclosed advertising and sponsorships, which can cause conflicts of interest.
With financial influencers rapidly gaining popularity, this highlights the public’s demand for affordable and accessible financial advice.
So, how and where can financial advisors find their footing with digital financial services?
With 66% of Gen Z having more money in cryptocurrency than life savings, financial advisors can assist younger clients by giving them access to a wide range of asset classes, including crypto and other digital assets.
More than any other generational cohort, Gen Z wants information to make their own decisions. Advisors can work with these clients by offering personalized and holistic advice that empowers and inspires confidence, and a story customized to each client.
Millennials and Gen Z also explore sustainable investing. Thematic investing gives financial advisors tools to educate their clients about investing in ways that mean the most to them and to their values.
Advisors use LOGICLY to tell the story of each client’s portfolio in simple, easy-to-understand terms. Every client wants to know if they will make it, and advisors can answer this question with confidence by guiding clients in knowing what they own, paying the right price, and staying invested.
Recently, LOGICLY and 401 Financial have formed a strategic partnership in offering a new way to manage all client assets, including crypto, by using a theme-based scoring and investing system in building and managing client portfolios.
Young investors look to advanced technology to guide financial decisions. Digital platforms give advisors ways to enhance their relationships and personalize client experiences. The future of technology is evolving rapidly. Deploying the latest, most advanced technology meets today’s business needs while anticipating future objectives.
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- The Appeal of Thematic Investing
To connect about media inquiries or to discuss the article, please email Dounya at: firstname.lastname@example.org