This blog helps to uncovers your Finfluencers and guiding you in spotting red flags. This will enable you to distinguish between Finfluencers with genuine expertise and mere attention-seeking thus helping you make informed choices about whom to follow. The red flags are grouped under four key categories:
- What is known about Finfluencers
- How Finfluencers engage on Social Media
- Financial motivations
- Red flags in stock advice
This is a two-part series. In this blog, I will cover the first two categories. (Do check my related previous blog Rise of Finfluencers)
Know Your Finfluencer
Before trusting and following any financial influencer, it’s crucial to know about them. Let us call this exercise as “Know Your Finfluencer (KYF)!”. Here you take the time to research their background, credentials, and track record. KYF helps you protect yourself from misleading information and ensures you’re following someone who aligns with your financial goals and values. Below are a few red flags:
Unverified or Anonymous Profiles
- They could operate under anonymous accounts, using fake names or avatars. They do not use their real names, photos and provide little to no information about their real identity. This anonymity makes it hard to evaluate their credibility.
- Their profiles typically lack verifiable credentials, certifications, or any affiliations with reputable financial institutions, raising doubts about their expertise.
Some may choose anonymity to protect their privacy and avoid social visibility. Hence this in isolation isn’t necessarily a red flag. However, it becomes concerning when combined with other warning signs that you read in rest of this and next blog.
Note: In my own Twitter account, I have refrained from using personal photos—not just to avoid social visibility but also because I am uncomfortable sharing personal images on social media.
However, if their profiles carry their name and pictures, try to verify if they have any formal education in finance, relevant certifications, experience or affiliations with reputable institutions.
Fancy Show up and Overemphasis on Lifestyle
This red flag is almost the opposite of the previous flat “Unverified and Anonymous Profiles.”
- Luxurious Lifestyle: These finfluencers use pictures and videos often to emphasize their wealth through content showcasing expensive cars, mansions, foreign vacations, and other symbols of material success, linking it to their success in investing or trading.
When encountering such displays, always ask yourself, “What’s the catch?”. Below are few possibilities.
- Selling an Image: This behavior often indicates they are more focused on selling an aspirational image than providing practical, actionable financial advice.
- Potential for Fraud: Some may fake their lifestyle and financial achievements to gain your respect and trust, projecting themselves as successful to lure you in.
- Staged Appearances: It’s not hard for them to arrange photo shoots with luxury cars, hotels, or even hire bouncers for added effect. For example, a few months ago, a video surfaced of a finfluencer arriving at a training session with four bouncers!
- Tactics to Persuade: They use these displays of wealth to convince you they’re living the life you aspire to, subtly suggesting they can help you achieve the same success.
Lack of Transparency
- They avoid sharing details about their own financial background, experience, education or past investment success.
- They don’t disclose conflicts of interest, such as financial relationships with companies, stocks, or products they promote.
- They do not disclose information of the payment they receive from promoted products and affiliates.
- Most of them openly share their stock successes while conveniently ignoring their ideas which were failures
Testimonials or Reviews
- They showcase glowing testimonials or reviews that seem exaggerated or suspiciously perfect, often without any verifiable sources or details.
- In some cases, these testimonials might be fabricated or paid for, rather than genuine endorsements from real followers.
No Proof of Success
- They claim to be experts but fail to show verifiable track records of success.
- Their success stories or screenshots of profits may seem too good to be true or lack credible backing.
Engagement in Social Media
Why do finfluencers thrive on social media? BENEFITS. They gain both monetary and non-monetary benefits from their presence. Here’s how:
The Allure of Hot Topics
- Finfluencers often gravitate toward the trending topic of the day to capture attention.
- Whether it’s a popular stock, an economic event, or a political development like election results, geopolitical tensions such as the Ukraine conflict, or even high-profile events like Anant Ambani’s wedding, these influencers quickly produce content or tweets to stay relevant.
- They typically have an opinion on every hot and trending issue.
When engaging with such content, consider whether the influencer is genuinely investing time and effort in providing meaningful insights that can benefit your investment journey.
Engagement-Driven Content
- Finfluencers often prioritize creating viral content rather than offering substance. Typical posts could be sensationalist polls, vague questions, and shallow insights that generate likes and comments but provide little educational value.
- To drive engagement, they frequently jump on trending topics, focusing more on social media algorithms than on delivering meaningful financial advice that could genuinely help their followers.
To illustrate this, let’s look at two recent events. One related to election outcomes and the other concerning the Quant Mutual Fund.
Finfluencers posted simplistic one-liners like “Quant or PPFAS?” or “NDA or UPA?” These posts are easy and straightfoward for the finfluencer, but they generate a massive response, creating a buzz, generate massive engagement and boosting their visibility without offering any real value to followers.
Ask yourself: What value did this tweet provide for you? Did the finfluencer invest time and effort in crafting this post? These are typically engagement traps designed to hook followers without delivering meaningful insights.
Controversial Topics, Contents & Headlines
Finfluencers often stir up engagement by posting controversial content that challenges conventional norms. These posts spark debates, leading to increased replies and engagement. They focus on provocative topics that trigger arguments and counterarguments. Some examples from a few recent posts:
- “Housing loans are a scam / Renting is better than owning.”
- “PPF or EPF isn’t good investment option compared to equity.”
- “You need to invest a huge sum in stocks to become wealthy; amounts like ₹1.5-2 Lakhs are insignificant.”
Each of these topics touches on deeply personal financial choices:
- Housing Loans vs. Renting: Choosing between a housing loan and renting is highly individual. Some people prefer the security of owning a home, while others find renting more flexible. Renting may be preferable if an individual frequently switches jobs. However, renting often comes with compromises.
- PPF/EPF vs. Equity: PPF and EPF are debt instruments and shouldn’t be directly compared to equity investments. While equity may offer higher returns, PPF/EPF provide the best post-tax guaranteed returns within the debt category and ensure the highest level of safety—something that equity investments can’t guarantee.
- Investment Amounts: For someone earning ₹1 Lakh per month and paying a large EMI, being able to start investing with ₹1.5 Lakhs is already a significant achievement. Financial circumstances vary greatly, and what might seem small to one person can be substantial to another.
By leveraging these controversial topics, finfluencers aim to generate significant engagement. However, the content often lacks context and fails to account for the personal nature of these financial decisions.
In the Next Blog
By staying vigilant for these red flags, you can better identify whether a finfluencer is worth following or if they are merely chasing engagement.
Stay with me in the next blog, where I will discuss the next two categories, Financial motivations and stock advice.
Hope you found this blog useful. Do share my blogs with your friends, peers and fellow investors.
Very nice and informative.