How TikTok is transforming financial advice
Social media influencers are playing a vital role in promoting financial literacy and encouraging younger generations to start investing. Is the investment industry under threat?
As a new generation of investors enter the financial markets, they are bringing with them a new breed of financial advisors with the power to influence how millions of people manage their money.
Platforms like TikTok, Instagram and YouTube have become integral to the way digital natives of Gen Z – those born from 1997 to 2012 – consume information.
A study by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation and CFA Institute in 2023 found that 37% of US Gen-Z investors aged 18 or above in the US cite social media influencers as a major factor in their decision to start investing. The sway of social media is even stronger in China, where over half of respondents said the same.
With social media becoming ever more pervasive, what does this mean for the future of the investment industry? And, just as importantly, are younger investors getting the right advice?
New research from CFA Institute analyzing content from so-called “finfluencers” – a portmanteau of financial influencers – found that it was, by and large, highly accessible, explaining investing concepts in plain language and making frequent use of data visualization to help illustrate key points.
Taylor Price, who describes herself as a Gen Z “financial activist” and has 1.1 million followers on TikTok, says that financial jargon often comes across as complex or intimidating.
“Finfluencers step into this space with a language and presentation style that resonates with a broader audience. We break down complex concepts into digestible, easy-to-understand pieces of content,” said Price.
“It's about showing the impact of starting now through real-life examples and stories, simplifying the concept of compound interest, and making the process of investing seem less daunting,” she added.
Sound advice resonates
Like Price, the finfluencers with the largest followings generally dispense sensible guidance that aligns with messages from investor protection watchdogs like the U.S. Securities and Exchange Commission.
For example, they may suggest that before individuals start investing, they should look to create an emergency savings fund and pay off existing high-interest debt. Some influencers also highlight the risks of actively trading individual stocks, which usually lead to lower portfolio returns than buying and holding the market through an index fund. Passive investment products, such as ETFs and index funds, also feature prominently in finfluencer content. (See Figure 1.)
But a fair share of content was also made up of investment promotions and investment recommendations, which have greater potential to cause harm. (See Figure 2.)
The especially harmful investment recommendations and promotions range from get-rich-quick schemes and speculative investment tips to outright misrepresentations. Regulators have started to crack down on the worst offending finfluencers, especially in the cryptocurrency segment. FINRA went further in in March 2024 by fining a brokerage app provider for social media posts made on its behalf that were deemed to be not fair or balanced, or contained exaggerated, unwarranted, promissory or misleading claims.
Let caution prevail
As with financial advice delivered via other mediums, people should always be wary of financial advice on online communities. According to Rhodri Preece, Senior Head of Research at CFA Institute, there are three steps to take when deciding whether to make an investment decision based on advice from a finfluencer.
First, be critical and corroborate facts and claims. Second, understand the motivations of the finfluencer, asking, for example, whether they are paid to make a particular recommendation or promotion. And third, question their credentials, because a large number of followers does not necessarily mean they have investment knowledge or success.
Other tips for vetting finfluencer advice include scrutinizing their purported investment performance and looking for disclosures, such as financial, employment and personal relationships with a brand. In the analysis by CFA Institute, only 20% of content containing recommendations included any form of disclosure.
It is important to vet influencers before trusting their advice.
The study also found that Gen-Zs relied on disclosures to gauge the trustworthiness of finfluencer content, making them potentially vulnerable to hidden marketing and acting on unsuitable recommendations.
Gen-Z investors, however, also said they typically cross-reference and supplement finfluencer content with other sources of information before making investment decisions.
Moreover, the study by FINRA and CFA Institute found that Gen-Zs are more likely to place greater faith in investment information from parents and family as well as their own research, while being less trusting of social media content and evaluating it more critically for credibility.
Keeping up with the finfluencers
Some Gen-Z investors in the focus group discussions were of the view that the abundance of free and alternative sources of information reduced the need for professional financial advisors. But in practice, finfluencers and financial advisors believe that their offerings are more complementary than competitive.
“Our broad advice lays the groundwork, sparking interest and building foundational knowledge. This broad base of engagement can then lead individuals to seek out more personalized, in-depth guidance from professional wealth managers and financial advisors,” said Price.
Kate Freeman, CFA, CFP, a financial advisor at UBS in Los Angeles, echoes that view. She recognizes that the advice provided by finfluencers to the wider population is helping to democratize financial literacy and started several of her younger clients off on their investing journeys, ultimately leading them to her.
“When you’re learning the basics in front of someone, you can sometimes feel uncomfortable. Social media allows people to learn from home watching videos that can be funny and entertaining. This can be a more comfortable way for them to come up the learning curve,” explained Freeman.
She stresses, however, that financial advisors can offer more customized advice and solutions based on a deeper and more personal understanding of clients’ circumstances and needs. Empathy is key to being an effective financial advisor, she adds, and that is something that cannot be replaced by a finfluencer directing their message to millions.
Future cooperation
Finfluencers and financial advisors have shown that they can co-exist, but can they work together?
Freeman says the industry could look to finfluencers to develop more effective ways to communicate with Gen Z and discover which investment topics and broader issues they identify with. But she sees limited scope for financial advisors to work with finfluencers – at least in the near future.
Regulations and platform rules still need to be made clearer to address the fallout from scams and bad actors. And even then, firms wishing to work with finfluencers need to vet them thoroughly, set clear boundaries and educate them about the firm’s compliance obligations on an ongoing basis.
The current regulatory crackdown on finfluencers is not about to remove all financial advice from social media, but it will eventually make the content more credible and trustworthy. This could lead to exciting possibilities for creators and financial advisors to work together for everyone’s benefit.
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