Report finds trusting financial advice on social media can be highly risky
There are some powerful voices on social media. Some are a force for good, many are not. And when it comes to financial advice, it can be a risky place.
But more than one third of Canadians have trusted advice from financial influencers or ‘finfluencers’ on social media to inform a financial decision, according to new research from the Ontario Securities Commission.
Perception is reality and those that have used social media for financial advice believe these platforms to be free, accessible, and informative. For the finfluencers they follow, 40% of respondents believe them to be trustworthy. Those that have acted on finfluencer advice are seven times more likely to say this.
However, those who made a financial decision based on something a finfluencer advised on social media were 12 times more likely to be scammed.
"Finfluencers have a clear capacity to affect their audience's behaviour, and this influence could diminish retail investor well-being – especially if the advice is poor quality," said Leslie Byberg, Executive Vice President, Strategic Regulation at the OSC. "Our findings reaffirm the importance of understanding how finfluencer content affects retail investor behaviours."
As well as 635 retail investors, the study also included 1,465 Canadian users of social media users, investors and non-investors, who took part in a simulated trading session and were shown posts similar to those shared by finfluencers on X, Reddit, and YouTube.
The content shown in the posts promoted a particular financial product and almost 40% of those shown the post bought the product compared to 10% of those who were not exposed to be posts.
Overall, the study found that those that had been exposed to real social media posts from finfluencers in the past 12 months were more likely to trade stocks or other investments frequently, several times a week, willing to take moderate risks and accept some losses to potentially earn higher returns and have experienced significant investment losses in the past. They are less likely to work with a professional financial advisor.
“From the perspective of retail investors, financial advice on social media is valuable due to its perceived ease of access, perceived ease of understanding, cost-free nature, and informativeness. However, the quality of this advice varies widely, and our research highlights several concerns about its impact on retail investors,” the study concludes.
