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Should You Trust Finfluencers?

Finance

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3.2.21 |

Become Wealth Editor

Should New Zealand online financial gurus (“finfluencers”) face jail time, like they do in Australia?

Imagine this: someone younger than you living the dream life – exotic locations, fancy cars, big watches, designer clothes – their financial freedom achieved seemingly overnight.

They share their “secrets” on social media, promising to guide you down the same path to wealth.

These are “finfluencers”, aka financial influencers. But before you hit that “follow” button and hand over your financial future, hold on. Are these online money wizards the real deal, or are they peddling flashy fiction?

Let's face it - traditional financial advice often feels stuffy and intimidating. Here at Become Wealth we provide financial advice, even we admit that!

Finfluencers, with their relatable personas and bite-sized content, offer a refreshing alternative. They talk your language, break down complex topics, and make wealth creation seem more fun! But hold your horses, because with great entertainment comes great responsibility (and sometimes, shadiness).

Background: What Is an Influencer?

According to the Collins dictionary, an influencer is someone who is able to persuade a lot of other people, for example their followers on social media, to do, buy, or use the same things that they do. They are often paid or given free products in exchange for doing this.

What is a Finfluencer?

A "finfluencer" is a blend of the words "finance" and "influencer." It refers to people who use social media platforms, such as Instagram, YouTube, TikTok, or Twitter, to share content related to personal finance, investing, budgeting, and other financial topics.

Finfluencers typically aim to educate and engage their audience on financial matters, often sharing tips, advice, strategies, and personal experiences to help others improve their financial literacy and make better financial decisions.

They may also promote financial products, services, or tools to their followers, sometimes earning income through affiliate marketing or sponsored content.

Finfluencers thrive on engagement. The more likes, comments, and shares they get, the more their influence (and income) grows. This can create an incentive to present information in a way that grabs attention, not necessarily in a way that's accurate or balanced. Think catchy captions, "get rich quick" schemes, and heavily filtered portrayals of success.

The Rise of Finfluencers

The financial world has long held a reputation for stuffiness, jargon, and suits and ties.

Enter the finfluencers – charismatic individuals with a knack for describing complex financial concepts in bite-sized nuggets, using humour, relatable stories, flashy portrayals of success, and practical tips to engage millions of followers eager to learn how to make their money work for them.

But what exactly qualifies someone as a finfluencer? Unlike financial advisers who have qualifications and registrations, finfluencers usually lack formal credentials, instead relying on personal experiences, self-education, trial-and-error, and even deception to shape their financial philosophies.

While this might raise eyebrows among traditionalists, it can also lend a relatable and approachable quality to their content, resonating with audiences who find traditional finance intimidating or inaccessible.

Their content often offers practical tips that speak directly to the everyday struggles and aspirations of their followers. From budgeting basics to investment strategies, they can offer their audience actionable advice that can be implemented immediately. This accessibility, coupled with the convenience of consuming content on social media platforms, has propelled finfluencers to the forefront of the financial education landscape.

However, their lack of formal training, plus absence of accountability, brings its own risks. Finfluencers may inadvertently promote risky strategies, lack the expertise to address individual financial situations, and often simply don’t know what they are talking about. Then, if someone follows a finfluencer’s strategy and fails, the finfluencer is unaccountable for the failure.

The Dark Side of Finfluencer Advice

Most of us have been exposed to the modern versions of “get rich quick” schemes shown on videos on social media. It may go something like this. A young woman with beautifully styled hair and designer accessories who sits in a minimalist studio apartment as music plays in the background. An attention-grabbing headline pops up onto your screen: "I make $160k a month from my side hustle and you can too!" She exudes energy as she swipes through suggestions, perfectly timed to the music. One option, "dog walking," gets a thumbs-down emoji, as does a music blog. "Freelance writing"? Nope. But "ecommerce drop-shipping", “business coaching”, “cryptocurrency” and "forex trading" get enthusiastic nods. Intrigued viewers are instructed to slide into her DMs (direct messages) to unlock the secrets to her six-figure success. Maybe the video is shot on a resort in Bali instead of the apartment, maybe it’s a man instead of a woman, maybe it’s a supercar instead of designer accessories, maybe the lines are different, but the overall message is the same – “I can teach you how”.

It's a clear nudge towards a paid course, membership program, or similar product or service with a referral program. The profile is complete with fancy cars, cocktail-filled nights with glamorous friends, and photos lounging poolside. It's tempting, that undeniable allure of quick riches. But then, reason sets in.

This isn't an isolated incident. Videos like this are multiplying across social media. Search for #investing, #crypto, or #finance on platforms like TikTok, and you'll be bombarded with millions of clips, racking up billions of views. Even Instagram is swamped with finance-related hashtags.

The messages from these social media personalities range from the practical ("invest regularly") to the fantastical ("become a crypto millionaire overnight"). Diving into the world of "fin-tok" and "fin-sta," one thing becomes undeniably clear: not all advice is created equal. There's a lot of misinformation out there, some of it downright dangerous. But thankfully, there's also a wealth of valuable information – you just need to know how to spot it.

Lack of Accountability

One of the primary concerns surrounding finfluencers is the lack of accountability and regulation.

While finfluencers may offer valuable insights and inspiration, it's essential to approach their advice with a healthy dose of scepticism and conduct your own research.

Unlike licensed financial professionals who are bound by fiduciary duties and regulatory oversight, finfluencers operate in a largely unregulated environment, free to dispense advice without repercussions for misinformation or poor outcomes.

The rise of sponsored content and affiliate marketing raises questions about the objectivity of finfluencer recommendations.

While disclosure of partnerships is mandated by regulatory bodies, it's not always clear whether an endorsement is genuine or motivated by financial incentives. This blurring of lines between helpful tips and promotional content can erode trust and lead followers astray.

Another potential pitfall of relying solely on finfluencer advice is the lack of personalised guidance.

Financial situations, ambitions, and appetite for risk all vary greatly from person to person. This means what works for one individual may be unsuitable for another.

While finfluencers may offer general advice and principles, this is the total opposite to an individual seeking personalised guidance from qualified professionals who can assess their unique circumstances and tailor recommendations accordingly.

Finfluencers Don’t Make Sense

Much of the time, even well-intentioned finfluencers make little sense. This can be for any number of reasons, most commonly:

Because there is no easy way to build long-lasting wealth, what many finfluencers are peddling is merely motivational babble. At worst, the babble is coupled with a sales pitch for a gimmicky course or product. Building true and resilient long-lasting wealth nearly always takes plenty of time and effort – even if that’s something most people mindlessly scrolling online don’t want to hear!
Because finfluencers usually have no financial services industry experience or qualifications, they haven’t taken a deep dive into many people’s financial lives before in the same way financial professionals do. Even consider a mortgage broker and all the personal situations they would see on a weekly basis when helping clients obtain a mortgage. Finfluencers usually don’t have even this basic up-close knowledge of common financial situations, the financial challenges facing most people, and how to overcome them.
In the unlikely event an opportunity arises, and someone does find a new financial technique to exploit to make money, the opportunity soon passes as global financial institutions jam-packed with some of the smartest and most well-incentivised staff on earth, swoop. This happens long before the opportunity can be turned into courses or products and peddled online by finfluencers.
So, if these finfluencers really did have such foolproof techniques, they’d be applying those same concepts to managing hedge funds or other businesses worth billions of dollars, not pitching their ideas to you watching at home! Put differently, the actual financial experts who deeply know about financial matters don’t have to try to sell you anything, they’re already earning megabucks.

In most cases, finfluencers are motivators with a sprinkling of financial tips. That’s a far cry from genuine financial information or advice.

The Finfluencers Crackdown

Regulators around the world are introducing stricter rules for influencers who promote financial products or services.

The Financial Markets Authority (FMA) in New Zealand released guidelines for financial influencers back in 2021. The guide says individuals must have a Financial Advice Provider licence when giving regulated financial advice to everyday consumers or risk a penalty of up to $200,000.

Rob Everett, FMA Chief Executive at the time, said the Financial Markets Authority (FMA) guidelines were primarily intended for social media influencers, but also for consumers when they come across someone providing financial commentary on social media.

“Many people now offer their thoughts and perspectives on all sorts of financial matters and some have built strong followings,” Everett said.

“It’s great to see more people taking an interest and talking about financial matters online, helping others get more familiar with financial products.

“However, influencers do not want to find themselves caught offering advice they’re not qualified or authorised to give. It’s also important for consumers to be wary of taking an influencer’s recommendation that might not be suitable for them.”

The new guide emphasises that discussing money or investing can sometimes cross over into providing financial advice, for which you are required to have a licence from the FMA.

Though does this approach go far enough?

Finfluencers Face up to Five Years Jail and Million-Dollar Fines in Australia

New Zealand’s approach falls short of the financial consumer protection crackdown happening in Australia.

Australian finfluencers can face up to five years in prison if they offer financial services, like investment advice courses, without having a federally issued licence.

The Australian Securities and Investments Commission (ASIC) issued an information sheet in 2022. In it they warned that influencers who continue to offer unlicensed financial services could face significant fines and prison time.

Influencers were warned to make sure their content is "accurate and balanced" and to ensure they understand their legal obligations when discussing financial products and services online or when promoting affiliate links.

"If your online post is misleading, you may be breaking the law.”

These aren’t mere threats either as the Australian regulator has already taken action:

Two and a half years jail for a finfluencer known as ‘Fibonarchery’ for market manipulation. This was a pump and dump scheme where the price of an asset, usually a publicly traded company on the stock market, is driven up artificially, often through misleading or false statements, so the asset could be sold at an expensive price.‍
Injunctions against a Lamborghini-driving finfluencer known as ‘ASX Wolf’ whose references to shares online was found to be defined as financial advice under Australian law.

Meanwhile, the European Securities and Markets Authority (ESMA) is conducting a joint supervisory action to check whether marketing communications, including collaborations with influencers, follow disclosure rules.

The Financial Conduct Authority (FCA) in the United Kingdom in 2023, released its financial promotion data for 2022. It showed regulatory authorities have taken steps to address the rise of bloggers and influencers promoting financial products on social media, requesting major platforms to remove unlawful promotions and enhancing capabilities to detect such content.

The FCA even banned an investment app from using paid-for social media promotions in February 2022, over concerns about its partnership with a finfluencer, and then separately warned the public about crypto-products promoted on social media.

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Red Flags to Watch Out For

So, how do you separate the financial fairy godmothers from the wolves in designer clothing? Here are some red flags to keep an eye out for:

Guaranteed returns: If it sounds too good to be true, it probably is. The market is inherently volatile, and anyone promising guaranteed results is either delusional or dishonest.
Excessive hype: Beware of excessive bragging, flaunting luxury lifestyles, or using urgency tactics to pressure you into decisions. True wealth is built on solid strategies, not flashy displays.
Unrealistic expectations: Finfluencers often showcase their successes without highlighting the failures, setbacks, and hard work that got them there. Even then, that supercar you see a finfluencer driving might well be rented, leased, or financed. Don't compare your starting point to someone else's highlight reel, as those highlights might not even be real!
Unlicensed advice: Hardly any finfluencers are qualified financial professionals, let alone financial advisers. Check their credentials and ensure they're registered with the Financial Markets Authority (FMA) before taking what they say too seriously.
Affiliate marketing: Many finfluencers promote financial products or services for a commission. While this is not necessarily bad, be aware of potential bias.

The world of wealth-building may not be as glamorous as an influencer's feed, but responsible decisions built on a solid foundation will ultimately be more rewarding than any modern get-rich-quick scheme.

The Bottom Line: Call in the Financial Experts

Finfluencers can be a source of information and inspiration, but don't let the catchy sayings, dreamy locations, luxury goods, and entertaining reels fool you.

Financial decisions come with high stakes. When it comes to any general high stakes matter, decisions shouldn’t be made based on catchy one-liners from someone on the internet. Think about it:

You wouldn’t trust a health influencer to diagnose you with an illness then prescribe you medicine to get better.
You wouldn’t head off to defend yourself in court having watched a few legal Tiktoks.
You wouldn’t have a car influencer somehow perform your vehicles’ warrant of fitness, and so entrust them with the safety of you and your family.

So, why would the approach with your finances be any different?

To book your complimentary initial consultation with a trained financial professional who can analyse how you can best build true long-lasting wealth, get in touch.