A 1,000-person survey conducted by the Financial Conduct Authority (FCA) earlier this year found that young Brits take a much longer-term approach to dating than they do to investing.
The report, which was published this May, found that 18% of Gen-Z investors are more likely to be influenced by social media when making investment decisions, than in their dating decisions.
This statistic highlights the growing influence of social media on young investors, where ‘finfluencers’ have become their predominant source of financial advice.
These popular social media users can be divided into two groups: the first consists of qualified financial advisers who use social media as a platform to share responsible advice. The second group comprises of unqualified spokespeople who provide financial advice and promote financial products on which they have little-to-no expertise.
The latter group has raised alarm bells for financial advisers because these influencers run the risk of spreading misleading information to impressionable young investors. For example, promoting Forex fraudsters and unlawful activities such as crypto scams.
Unfortunately, as many of these ‘finfluencers’ are ‘verified’ on the likes of Instagram and ‘X’ (formerly Twitter), prospective Gen-Z investors are more likely to believe their advice is trustworthy. This is because, as Dean Kemble, chief commercial officer of GSB Capital Ltd, suggests: “the social proof of having millions of followers gives authority and credibility to those who many not use it appropriately”.
To read more on this, visit: 21% of young Brits get investment tips from Instagram
Victoria Ross, chartered financial planner at Progeny, explains: “There are glaring gaps in the provision of personal finance education in schools and the government-approved financial guidance websites such as MoneyHelper and Pension Wise aren’t necessarily the places that many younger people will be attracted to visit.
“This has left a natural space for so-called ‘finfluencers’ to enter and according to research, almost half (44%) of Gen-Z believe they can source good financial advice on social media.
“This is concerning and it is especially important that the advisory world helps to highlight the difference between opinion, guidance and financial advice, with the latter being bespoke to individual needs, circumstances and finances as well as the difference between speculative trading and long-term investing.”
This is particularly dangerous given that generic financial education and bespoke financial education is becoming blurred, according to Ross, who warns that financial guidance is “bespoke to individual needs, circumstances and finances, alongside the difference between speculative trading and long-term investing”.
“The investment space is becoming riddled with irresponsible influencing or even scams,” she adds.
To reduce the amount of misinformation circulating around social media platforms, several financial planners have offered easy ways to tackle this ‘finfluencer’ epidemic.
Education is key
Financial planning firms should provide structured financial education to young investors to tackle the spread of misinformation, according to several advisers.
This education can come in the form of teach-in sessions at schools and universities, or campaigns that teach those from a young age how to spot misinformation, reduce the risk from financial scams, and learning how to responsibly invest.
For example, following the publication of the survey, FCA partnered with Celebs Go Dating’s Anna Williamson to host the event “Swipe Left, Invest Right: how dating principles can be applied to investing”.
This event gathered young investors and encouraged them to adopt the same principles when investing as they do when dating.
Alexandra Loydon, director of partner engagement and consultancy at St James’s Place, says: “Education here is the key; ensuring young people understand the basics of investing, are aware of the risks and equipped to know what checks to carry out before they part with funds.”
Social media is helpful, not a hindrance
That being said, many advisers believe social media should be utilised rather than be seen as a hinderance, according to Ross.
She says the advisory industry must engage with the “clients of the future”, and so, using their “preferred mediums” – whether that be Instagram, TikTok, YouTube or professional sites like LinkedIn – is crucial to ensure the investment industry does not get left behind.
According to Alex Salter, financial planner at The Fry Group, engagement with Gen-Z investors increases via “short, engaging content tailored to the preferences of younger audiences, who typically prefer concise information over lengthy articles and videos”.
This could be enhanced by financial regulators collaborating with social media platforms by sharing “success stories and case studies of individuals who made wise investment decisions and achieved their financial goals”. Or, using social media as a platform to “break down complex financial jargon into simple, understandable and bite-size content”.
Salter adds: “By establishing a social media presence, firms can connect and engage with the younger generation.”
Robyn Allen, partnership development manager at The Openwork Partnership, concludes: “If 18% are more likely to be influenced by social media then that’s where the great advisers and educators in the financial advice industry need to be.”