What we currently know about social media and investing

Social media has transformed how investors access financial information, but it also introduces significant risks. Research shows that 69% of unlawful financial promotions identified in the UK involve social media, and regulators have received multiple complaints about misleading advice from finfluencers. Key risks to consumers include hidden marketing, misinterpretation of expertise, poor-quality recommendations, misinformation, and scams. Gen-Z investors, particularly those aged 18-25, are more prone to these risks due to lower levels of financial literacy and their greater risk tolerance. Notably, 37% of US Gen-Z investors and 38% of UK Gen-Z investors cite finfluencers as a significant influence in their decision-making.

How well do existing policy frameworks account for finfluencer activities?

Regulatory frameworks in the UK, US, and EU differ in defining investment recommendations, posing challenges in managing finfluencer content across borders. While financial promotions are generally well-regulated, there are gaps in how investment recommendations are defined and controlled when provided by unregulated individuals. Finfluencer content often crosses jurisdictional boundaries, making this divergence problematic. The report suggests that regulators, such as the International Organisation of Securities Commissions (IOSCO), collaborate to create a universal definition of investment recommendations. Additionally, regulators are advised to maintain public records of complaints and whistleblowing activities related to finfluencers, enhancing transparency and enforcement.

What are the key characteristics of finfluencer content?

An analysis of 110 unique pieces of finfluencer content from TikTok, YouTube, and Instagram reveals that 45% of the content provided investment guidance, 36% was promotional, and 32% included investment recommendations. However, only 20% of the content with recommendations included appropriate disclosures, and just over half (53%) of promotional content provided some form of disclosure. Furthermore, when disclosures were present, they were often vague, with phrases like “some of the links may be affiliate links,” making it difficult for users to understand the financial motivations behind the recommendations. Popular topics included individual shares, index funds, and exchange-traded funds (ETFs), with a concerning focus on risky products like cryptocurrency.

Why and how are gen-z investors engaging with finfluencer content?

Gen-Z investors are drawn to finfluencers due to their lack of formal financial education and limited interaction with regulated advisers. Finfluencers provide engaging, accessible, and free content, which appeals to Gen-Z’s preference for digital platforms. However, Gen-Z investors are particularly vulnerable to poor-quality or misleading advice due to lower financial literacy and a high tolerance for risk. For example, 48% of US Gen-Z investors use social media as a primary source for investment information, yet many fail to critically evaluate the quality of the advice they receive. The report recommends enhancing financial literacy initiatives to help Gen-Z investors better assess the reliability of online content.

Recommendations

The report recommends that regulators work towards a universal definition of investment recommendations and engage more directly with finfluencers to raise awareness of regulatory obligations. It also suggests that regulators maintain public records of complaints and whistleblowing activities regarding finfluencers. Social media platforms should automate advertising disclosures and improve content moderation to ensure posts comply with regulations. Financial firms using finfluencers should adopt best practices such as compliance training and pre-reviewing content. Lastly, educators should focus on increasing financial literacy among Gen-Z investors to help them critically evaluate the information they encounter online.