The impact of finfluencers on Millennial and Gen Z investment preferences

Posted: 26/11/2024

Social media, in recent years, has witnessed a significant rise in ‘finfluencing’ (financial influencing), with many finfluencers amassing followings into the millions as younger consumers increasingly turn to social media for investment information and advice.

The hugely extensive public reach of finfluencers was made clear by a 2023 study conducted by Forbes, which highlighted that nearly 80% of young adults now turn to social media platforms for financial advice.

More concerning, however, was the accompanying statistic in Forbes’ report that just 31% of Gen Z and millennials regularly check the experience and qualifications of people who supply financial advice on social media. Research by Barclays has shown that more than half of UK adults who use social media for investment guidance assume finfluencers’ advice is reliable, and a further study carried out by BaFin in May 2024 suggested that (i) around 37% of young investors were unaware that finfluencers typically receive payment for their recommendations and, (ii) among those who purchased products via a finfluencer’s link, 15% were unaware of the compensation practices.

The Financial Conduct Authority (FCA) announced on 22 October 2024 that it is cracking down on finfluencers who may be deemed to promote or advise on financial products and investments on social media without requisite FCA authorisation. The FCA is currently in the process of investigating 20 such finfluencers, who are each under caution.

Our previous ‘finfluencing’ article referenced nine defendants, including former Love Island contestants and cast members from The Only Way is Essex, who were charged in May 2024 with issuing unauthorised communications of financial promotions and breaching a general prohibition under the Financial Services and Markets Act 2000. Since then, these defendants pleaded not guilty to promoting an unauthorised investment scheme on Instagram, and are set to be tried in 2027. Should they be convicted of the charges, each defendant faces up to two years in prison.

Following the 2023 Forbes study, Social Capital Markets (SCM) set out to investigate the credibility of the advice circulating on social media platforms. The results of its subsequent research concerningly revealed that a staggering 71% of the financial advice consumed by Gen Z and millennials is misleading.

Some key takeaways from SCM’s study are as follows:

• 83% of videos lacked disclaimers, offering a one-sided view of financial decisions;
• 70% of videos encouraged stock-specific investments without sufficient context or addressing risks;
• 57% of stock content implied guaranteed returns, a misleading claim given market volatility;
• 45% of videos encouraged viewers to invest a specific proportion of income, a personal decision that should consider individual circumstances; and
• just 13% of finfluencers had the relevant qualifications or credentials to speak on financial matters.

Amongst the platforms analysed by SCM, it found that TikTok was the most problematic in terms of financial advice, with 90% of videos lacking disclaimers and 70% encouraging stock purchases. It reported that TikTok was the most used social media platform by finfluencers who implied guaranteed returns (65%) and encouraged viewers to invest specific portions of their income (50%), which SCM concluded carried significant risk for novice investors, especially those within Gen Z, who are likely to still be burdened with student loans and to be on low starting / entry-level salaries.

While some social media platforms such as YouTube enable longer-form content, which allows for deeper discussion of the financial products and opportunities promoted (although it still does not guarantee reliability of advice), the majority of platforms provide short-form content that often lacks context. This lack of context can be especially misleading, as many young investors therefore rely on tips that may not suit their particular financial situation.

BaFin’s 2024 study also highlighted generational shifts in investment preferences, with millennials tending to favour traditional investments such as call money and fixed-term deposits, and Gen Z showing a stronger inclination towards investments into cryptocurrencies and precious metals. This correlation between social media usage and crypto investment is striking – among social media users, 43% are reported by BaFin to have invested in crypto, in contrast to only 25% of non-users – which suggests that social networks play a critical role in shaping investment decisions, particularly regarding cryptocurrencies.

Given the volatility and rapidly evolving nature of the crypto market, financial advice about crypto assets on social media provides an even riskier environment for young investors who are not provided with the critical contextual analysis that is required to make informed decisions on these products.

Ultimately, whilst financial advice from social media can be helpful in providing general tips (as well as relatable, engaging content that speaks directly to a younger audience), it lacks the regulation, oversight and personalised guidance offered by professional financial advisers. Better understanding of risk must be prioritised, and it will be interesting to see whether the increasing attention given to finfluencing will lead to social media platforms requiring greater transparency and/or a verification system for influencers promoting financial content, to assist with identifying genuine accounts and their financial credentials.

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