Posted: 05/07/2024
Financial influencers – known as ‘finfluencers’ – use social media to share financial and investment-related content. There has been a significant rise in financial influencing on social media over the past few years, with many finfluencers amassing followings into the millions as younger consumers increasingly turn to social media for their investment information.
Some finfluencers report earning upwards of six and seven figures for their work, often using simplified financial concepts to appeal to younger generations – such as ‘cash stuffing’, a budgeting method that went viral on TikTok in 2022, which advocates for dividing physical cash into folders or envelopes for allotted expenses to make overspending less likely. It is argued that finfluencers provide welcome insight into the often opaque and exclusionary world of personal finance, which young people in many cases are unaccustomed to navigating with ease.
To put the rise of finfluencing into context:
Linked to the advent of financial and investment-related content on social media, however, is the substantial risk to young people in relation to the consumption of unregulated information. Many firms are now partnering with finfluencers as a way of introducing new and accessible financial products to the younger generation via social media channels. However, the key difference between finfluencers and formal financial advisers is that finfluencers in many cases lack the necessary regulatory approvals or exemptions to advise on and/or distribute the products that they endorse, meaning that consumers will struggle to seek redress if they lose money as a result.
On 16 May 2024, the FCA reported that it was prosecuting nine individuals for using Instagram to provide unauthorised advice between 2018 and 2021 on buying and selling contracts-for-difference (CFDs). CFDs are agreements between investors and brokers to exchange the difference in the value of a financial product between the time the contract opens and closes – they are high-risk derivatives. FCA investigators have stated that 80% of investors have lost money when investing in this product.
The nine defendants, including former Love Island contestants and cast members from The Only Way is Essex, have been charged with issuing unauthorised communications of financial promotions and breaching a general prohibition under the Financial Services and Markets Act 2000, which prohibits the unauthorised conduct of regulated activities in the UK. The Instagram accounts used to promote the CFDs are alleged to have reached a combined 4.5 million followers.
These charges follow a similar pattern to a number of recent high-profile cases in the USA, following the rapid rise in cryptocurrency adverts on social media globally. Investors in cryptocurrency Ethereum Max, who suffered huge losses after it crashed and lost 97% of its value by January 2022, brought a lawsuit against Kim Kardashian (who as of today has a following of 362 million on Instagram) and other celebrities who endorsed the product, claiming that they conspired to inflate the value of the cryptocurrency tokens. While the case was eventually thrown out, the US judge gave a stark warning in relation to ‘celebrities’ ability to readily persuade millions of undiscerning followers to buy snake oil with unprecedented ease and reach’.
FCA guidance published on 26 March 2024 has sought to clarify and strengthen the rules finfluencers must adhere to when promoting financial products on social media, including introducing more stringent guidelines on what constitutes (and, importantly, does not constitute) a compliant advert. The FCA has underlined that promotional activity must be ‘fair, clear and not misleading’, incorporating appropriate risk warnings to enable individuals to make informed decisions about their finances, with finfluencers and the firms that hire them facing prosecution if they do not abide by these updated rules.
This guidance has been published almost a year after the FCA’s consultation into how finfluencing could be better regulated, amidst increasing concerns that a lack of adequate financial literacy is rendering young people particularly vulnerable to bad advice or false advertising on social media. The FCA has warned specifically against online promotions focused on paying off debt, suggesting that influencers involved in these posts are deliberately leveraging the vulnerabilities of a debt-ridden generation, now facing its first significant economic downturn, to enter into particular schemes.
The FCA’s most recent previous guidance on social media promotion was issued in 2015, but at that time it was heavily based on character-limited media such as X (formerly Twitter) and did not refer to the use of influencers to communicate financial promotions.
The FCA has also been working with the Advertising Standards Authority (ASA) to help educate consumers and influencers about the risks involved in promotion of financial products, following the ASA’s introduction of more stringent rules on advertising high-risk investments such as cryptocurrency. According to the FCA, over 10,000 misleading adverts were removed in 2023, an increase from around 8,500 being removed in 2022. For more information about the ASA’s guidance, see an analysis here.
Ultimately, the investment landscape will continue to evolve in line with advancing technology, bringing forth new mediums and methodologies for consumer engagement. Many young people argue that it is a step in the right direction for financial novices to be able to consume financial content and consider their investment options in an accessible and familiar way, on the basis that the world of investing has historically been financially and socially exclusionary.
With this evolution, however, comes an array of risks for investors accessing this content on social media, and it is critical that finfluencers, the firms that pay them for their promotions, and those who consume their content, are fully aware of these risks. Whether the FCA’s recent guidance and high-profile prosecutions of finfluencers will provide adequate warning remains to be seen.
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