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Regulators are warning consumers to be careful about taking financial advice from online influencers or so-called “finfluencers.” The criticism is mostly justified but also ignores some of the benefits of following financial influencers and some of the problems with relying solely on the financial industry itself.

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There may be a more balanced perspective on social media financial advice that can help consumers.

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Warnings from the regulators

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A recently released report from the International Organization of Securities Commissions (IOSCO) called Finfluencers recommended a worldwide strategy ranging from educational initiatives to enforcement actions aimed at cracking down on financial influencers.

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In the United Kingdom, it is now a criminal offence to encourage someone to invest in a security unless the person recommending it is licensed by the Financial Conduct Authority (FCA) or a specific exemption applies.

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A Swiss Finance Institute (SFI) research paper, also titled Finfluencers, concluded “(that) most finfluencers are unskilled or ‘antiskilled,’ producing negative … returns, while (only) a minority demonstrate skill.” The authors found that these less skilled financial influencers, whose investment recommendations led to lower returns, made posts that were more engaging and tended to attract more followers than the skilled finfluencers who may have been worth following.

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Closer to home, the Ontario Securities Commission (OSC) conducted a survey of retail investors who have made financial decisions based on the advice of finfluencers. They found these investors were more than 12 times more likely to have been scammed on social media and nearly five times more likely to trade their investments several times a week. (Frequent trading tends to lead to lower returns.) Respondents were also more than twice as likely to have had significant investment losses in the past and tend to be self-directed investors who have no professional support for financial advice.

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Self-directed investors or any investors who want an unbiased source to learn about investing basics should check out the resources on FAIR Canada’s website. FAIR is Canada’s only national, non-profit, investor-focused organization, independent of any government or regulator.

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Financial literacy increases overall wellness

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My own controversial take on finfluencers is that they have done a good job raising awareness about investing and other wealth building strategies for the masses. They have managed to reach people who may not have otherwise taken an interest in personal finance. Teenagers are learning about money and investing, even if the advice may not be great. Personal finance is becoming proactive and mainstream rather than just a responsibility for rich retirees.

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Studies show that financial literacy is good for both financial wellness and overall wellbeing. If TikTok and Instagram help reach an audience who would not care about their finances without financial influencers, is it all bad?

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The financial industry requires skepticism

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Most people in the financial industry are good people who care about their clients, but most businesses in any industry exist primarily to make a profit. There are concerning conflicts of interest in some areas of the Canadian financial industry that put profits ahead of people and that can lead to biased advice.