Legal   |   ADV   |   Privacy   |   CRS

How Reliable are Financial Influencers on Social Media?

There has been a big increase in financial content on social media over the past year or so, especially on popular platforms like Instagram and TikTok. On the later, videos with the hashtags #finance, #investing and #stocktok have been viewed more than seven billion times.

This phenomenon has given rise to a new type of social media influencer sometimes referred to as a financial influencer, “finfluencer.” Young investors in particular, including Millennials and members of Generation Z, are flocking to these online financial influencers. Many of them are being driven by the FOMO — or Fear Of Missing Out — culture that is prevalent among many members of this generation.

Influencing How Financial Decisions Are Made

Research indicates that many of these young investors are adopting risky investing strategies as a result of following some of these finfluencers. For example, in a study conducted by Barclays, 16% of Gen Z investors said they are trying to play the markets. A separate study conducted by Motley Fool determined that social media plays a key role in how members of Generation Z make financial decisions.

And a survey published by Interactive Investor revealed that more than half of young investors in the UK who purchased bitcoin or dogecoin did so using money from credit cards, student loans or other forms of consumer debt.

The authors of the Barclays report noted that over the past year, younger investors have “picked up investing habits that are traditionally viewed as unfavorable.” These investors have developed an increased risk appetite and are investing more speculatively, trading more frequently and monitoring their portfolios more often and more closely, notes the report.

Questionable Content Isn’t New

The financial content that permeates social media platforms ranges from get-rich-quick and cryptocurrency schemes to higher quality educational content from some qualified financial industry experts. Some of these experts point out that questionable advice about finances and investing isn’t new. It’s the distribution of this content across popular social media platforms that could prove harmful to some young and inexperienced investors if they don’t put the content in its proper perspective.

Therefore, it’s important to view any financial or investing advice you find on social media with a critical eye. The first rule of thumb: If something sounds too good to be true, it probably is. Content that promises high returns on investments with little or no risk, or the opportunity to get in on the ground floor of a “secret” investment opportunity that nobody else knows about, should probably be ignored.

Also remember that some supposed financial or investing experts on social media may not really be experts at all. Finfluencers with large social media followings can earn money from platforms like TikTok and YouTube simply by serving up their large audiences to advertisers. So you should perform thorough independent research on any finfluencer before following his or her financial or investing advice.

No Substitute for a Fiduciary Advisor

Regardless of how helpful a finfluencer’s advice may be and how qualified he or she may be to dispense such advice, there’s no substitute for working with a fiduciary financial advisor. A fiduciary has a legal obligation to make investment decisions that are in your best interest. While this might sound like a no-brainer, not all financial advisors are required by law to do this.

For example, broker-dealers are only obligated to offer advice that is suitable for your needs at that particular time. This is referred to as the “suitability” standard and it could open the door to conflicts of interest if the advisor could earn more by recommending an investment that pays him or her higher compensation, but isn’t necessarily in your best interest.

You can find out if a financial advisor is a fiduciary by asking whether he or she is Registered Investment Advisor, or RIA. Unlike broker-dealers, all RIAs are held to a fiduciary standard. By working with an RIA, you can be sure that the financial and investment advice you receive is unbiased and isn’t being offered simply to increase the advisor’s compensation.

A good place to start your search for a fiduciary financial advisor is to ask your family and friends for recommendations. You can also consult online resources like The National Association of Personal Financial Advisors (NAPFA) which features a search tool on its home page that can help you find a fiduciary advisor. Other helpful online resources include the Financial Planning Association and the Garrett Planning Network.

Please give us a call if you have more questions about social media financial content and finding a fiduciary financial advisor.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.