The rise of ‘finfluencers’ – how social media advice affects financial planning

Sign up for the new Globe Advisor weekly newsletter for professional financial advisors on our newsletter sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.

From investing and cryptocurrency forums on Reddit to TikTok influencers who combine personal finance content with catchy dance routines, financial advice has exploded on social media – and young Canadians are taking notice.

A recent survey that Pollara Strategic Insights conducted on behalf of Bank of Monreal shows a third (33 per cent) of Generation Z and almost a quarter (22 per cent) of millennials look to financial influencers – or “finfluencers” – and social media to help them make investment decisions. The survey also billed the two generations as the “most engaged” when it comes to tracking financial goals and investments.

Finfluencers use social media platforms to share advice on everything from personal finance to specific financial products and investments. Many don’t have designations or licences, and the sector is currently largely unregulated.

Advisors working with younger clients or who want to attract them say this interest in social media advice can be a double-edged sword.

“I like them as a spark to get [young clients] to ask good questions about personal finance because financial literacy is so low in Canada,” says Kurt Rosentreter, portfolio manager and senior financial advisor with Manulife Securities in Toronto.

However, he adds online advice is “dangerous for being relied on for detailed answers.”

Shannon Lee Simmons, certified financial planner and founder of The New School of Finance in Toronto, says she’s noticed an increased interest among millennial and Gen Z clients in do-it-yourself investing, robo-advisors and cryptocurrency over the past three years, which she attributes to social media sourcing.

It’s a significant change from a decade prior, she says, when opening a brokerage account and picking stocks was seen as the domain of sophisticated investors.

Ms. Lee Simmons sees the danger in advice that encourages investors to make big bets on one stock such as with the meme stock craze of January last year that sent GameStop Corp. GME-N stock hurtling to stratospheric highs, or pile money into highly volatile cryptocurrency.

“One thing I’ve noticed with social media is people talk about their gains but they don’t really show their losses,” she says. “It gives a false impression that if you just take a risk and do it yourself, you can make money.”

Ms. Lee Simmons says she’s encouraged clients who’ve put most of their eggs in one basket to diversify their portfolios and limit risky investments to a small percentage, say 5 per cent, of their overall mix.

Verify credentials, advice and disclosures

It’s also important, she says, to make sure young investors look at the credentials of the social media personalities they’re following and whether they’re being compensated to promote certain companies or products.

There’s still plenty of good advice on social media, and many influencers are reputable and prudent.

“Just because they’re on TikTok, it doesn’t mean they don’t know what they’re talking about,” she says.

Financial influencers have helped develop young investors’ confidence to take charge of their finances and learn more about their personal risk tolerance, which Ms. Lee Simmons sees as positives.

Mr. Rosentreter says he has no problem with influencers who share general personal finance advice on budgeting, cash flow management, and setting financial goals.

But he takes issue with people who use social media to give investment, insurance or mortgage advice, especially given advisors must be qualified and licensed to operate in those spaces.

Jennifer Tozser, senior wealth advisor and portfolio manager at National Bank Financial Wealth Management in Calgary, says she worries about the lack of oversight on what influencers can say online. Her young clientele consists mostly of the children and grandchildren of existing clients.

“There are no checks and balances and often no repercussions to what’s being said or acted upon,” she says, adding that she questions whether influencers know that they’re actually giving advice when they publicly endorse certain products or investments.

“What bothers me the most is … these young people are trying to use the resources that they have in a delivery channel that they are familiar with to make the best possible decision to move their wealth forward.”

Mr. Rosentreter adds it’s only a matter of time before Canada begins regulating finfluencers in line with recent changes in Australia.

The Australian Securities and Investments Commission announced it would crack down on unlicensed social media influencers who give financial product advice, arrange a deal for followers or share “misleading or deceptive” advice. Influencers that fail to follow the regulator’s guidelines could face up to five years in prison, it said.

The B.C. Securities Commission also proposed in May 2021 that anyone promoting stocks on social media or on video platforms like YouTube have to disclose whether they own the security or derivatives, and any compensation they receive for promoting it.

Meanwhile, social media activity among financial advisors has also changed rapidly over the past five years.

Regulators had taken a strong stance against advisors using social media in the past, but they’ve since allowed advisors to be active on certain platforms. Advisors’ online presence will also vary depending on which licences they hold, Mr. Rosentreter says.

Professionals should be online to address misinformation and share credible information, he says. But he has scaled back his social media activity because it had become a “beast” to manage, and often led to inquiries from “tire-kickers” who only wanted free advice.

Ms. Lee Simmons has a personal Twitter account and Twitter and Instagram presences for her firm, but limits her social media engagement.

“We’re doing financial planning with people, and there’s only so far you can go online. You have to give generalized information,” she says.

“Everything’s about information and not about advice. If [young investors] actually want answers, they eventually will have to talk to someone.”

For more from Globe Advisor, visit our homepage.