Social media personalities will play a role in investments, the CFA institute's new report pushes for changes to meet this new reality
Financial influencers (finfluencers) are already shaping the investment decisions of Gen Z, Millennials, and even some older individuals. These social media personalities offer engaging content that aims to inform investors about opportunities, strategies, and approaches to investing. The trouble is, finfluencers bring the unregulated world of social media into the highly regulated and sensitive world of investing. Noting the inherent conflict that can arise, the CFA Institute has released a new report on how finfluencers are shaping the investment landscape, especially for Gen Z.
The report entitled Finfluencer Appeal: Investing in the Age of Social Media found that Gen Z investors in particular turn to finfluencers when seeking investment information. The report attributes this to insufficient financial literacy, limited interaction with financial advisors, and a preference for obtaining information through digital platforms.
"Finfluencers now play an increasingly significant role in educating young people about finance, with accessible content that is both informative and engaging,” said the CFA Institute’s senior head of research, Rhodri Preece. “However, our research shows that finfluencer content often lacks sufficient disclosures, which can hinder the ability of consumers to evaluate the objectivity of the information, and some investors may be unaware when and how finfluencers are being paid to promote financial products."
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The CFA team reviewed content on TikTok, YouTube, and Instagram across the United States, the UK, France, Germany, and the Netherlands. They found that 45 per cent of the content reviewed offered guidance: meaning general investment information which does not recommend a particular course of action. 36 per cent of the content included investment promotions and 32 per cent included investment recommendations.
Only 53 per cent of the content containing a promotion included a disclosure of any financial relationship between the finfluencer and the product they’re promoting. 20 per cent of the content containing a recommendation had a disclosure.
"Differences in definitions across markets for investment recommendations means complexity for finfluencers and a grey area for consumers of their content. Some finfluencers may be unaware that their activities are regulated and need appropriate disclosures,” Preece said. “We urge regulators to consider a universal definition of an investment recommendation, and firms and social media platforms should work with finfluencers to ensure compliance with applicable policies."
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Given the challenges presented by finfluencers, the report made a series of recommendations aimed at simplifying policy, strengthening disclosures, and improving financial literacy. Those include a push for regulators to design and implement a more universal definition of an investment recommendation. They also want regulators to clarify which influencer activities are regulated, and to report data on complaints and whistleblowing activities regarding finfluencers.
The CFA Institute is also recommending that the investment companies working with finfluencers provide them with compliance training, review their content, maintain records of content commissioned, and ensure that finfluencers clearly disclose then they are promoting content.
The CFA Institute also recommends that advisors seek to engage Gen Z more. By promoting their own knowledge and competency, advisors may be able to help these young investors better navigate a confusing digital landscape.
