Finfluencers, or financial influencers, on social media platforms can pose several significant dangers.
Finfluencers can affect both individual investors and the financial market’s integrity. Here are some of the key risks associated with them:
Misinformation and lack of credentials
Many finfluencers lack formal financial education or credentials. They might share advice based on personal experience or limited knowledge, which can lead to misinformation. Investors might follow this advice without understanding the risks, potentially leading to substantial financial losses.
Conflict of interest
Finfluencers often earn through sponsorships, affiliate marketing, or by promoting specific investments. This can create conflicts of interest where they might promote products or services that benefit them financially rather than genuinely serving the interests of their followers.
Promoting high-risk investments
To gain attention or demonstrate quick returns, finfluencers might advocate for high-risk investments like cryptocurrencies, penny stocks, or options trading. These can be particularly dangerous for novice investors who might not understand the inherent risks involved.
Market manipulation
Some finfluencers have been known to engage in or inadvertently cause market manipulation, such as through “pump and dump” schemes where they inflate the price of a stock through positive hype and sell off their holdings once the price peaks, leaving others with losses.
Lack of accountability
Unlike regulated financial advisors, finfluencers often operate with little to no oversight. If their advice leads to financial loss, there’s typically no recourse for followers. This lack of accountability can encourage reckless or unethical behaviour.
Over-simplification and sensationalism
In the quest for viral content, complex financial concepts might be oversimplified or sensationalised. This can give followers a false sense of understanding or confidence in investing strategies that are far riskier or more nuanced than portrayed.
Emotional investing
Social media platforms thrive on emotional engagement. Finfluencers can influence decisions based on fear, greed, or FOMO (Fear Of Missing Out), driving irrational investment behaviours rather than sound, long-term strategy.
Privacy and data security risks
By engaging with finfluencers, individuals might expose themselves to data breaches or scams, especially if encouraged to use unverified apps or platforms for trading or investment.
Creating a false sense of community
The community aspect of social media can lead followers to trust finfluencers as peers or friends, reducing critical judgment of the advice given. This camaraderie might blind individuals to the commercial intentions behind the content.
Regulatory challenges
The rapid evolution of social media makes it challenging for regulatory bodies to keep up with practices like hidden endorsements or misleading promotions by finfluencers. This regulatory lag can leave investors vulnerable until rules catch up.
Mitigate these risks
While finfluencers can offer valuable insights, the potential for harm is significant and there will be little comeback/redress for those that lose some or all of their savings.
We would always strongly recommend taking regulated advice from a properly regulated, insured and qualified financial adviser with all the protections this offers to the consumer. If it looks too good to be true, it probably is!
