In the digital age, social media has rapidly evolved into a hub for financial advice, with people increasingly turning to platforms like Twitter, YouTube, and others for investment guidance, stock tips, and recommendations. Financial influencers—popularly known as finfluencers—have become a significant source of such information.
Yet, not all finfluencers offer genuine value. In recent years, the number of finfluencers has surged, making it more important than ever to be discerning. This blog will delve into the Unknown and Unseen dark side of Finfluencers, common tactics finfluencers use to engage their audiences, the potential risks of following their advice, and practical tips to help you choose the right ones.
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Basics First
Who are Finfluencers?
A simple way to define them is as individuals who have the ability to influence their followers on matters related to money and finance.
Below are two formal definitions.
Finfluencers are people who use their social media platforms to share advice, opinions, and personal experiences regarding money management, cryptocurrency, financial trends, budgeting, and investments. (Reference: Rise of ‘finfluencers’ sparks debate over influence and accountability)
(Note: The definition above includes personal finance under “money management” and encompasses all types of investments, such as stocks, mutual funds, real estate, etc., under “ investment”.)
A finfluencer is short for financial influencer and refers to an individual who uses social media to share information, recommendations, guidance or opinions on financial advice, news or other related matters. (The future of Financial Advice, 2024)
The Rise of Finfluencers
In 2012, as I began my journey into investing, I relied primarily on books authored by successful investors and fund managers. Over time, I added a few YouTube channels that offered quality educational content on investing to my learning resources. (For a detailed list of the books and YouTube channels that shaped my investing journey, you can refer to my earlier blog.)
At that time, 12 years ago, the term “Finfluencer” didn’t even exist in my vocabulary. In 2015, when I opened a Twitter account, I could count of less than 20 handles that provided valuable insights into finance. Social media platforms had not yet seen a significant presence of financial influencers.
It took a few more years for finfluencers to begin making their mark on social media. However, the real surge came during the COVID-19 period from 2020 to 2021, when there was a sharp increase in content, particularly through YouTube videos. With people having more free time due to lockdowns and work-from-home arrangements, content creation and consumption skyrocketed. More individuals started producing videos, while many others sought content to fill their time.
After this period, the number of influencers on Twitter also grew rapidly. In fact, the growth has been astonishing over the past two years. Today, my timeline is filled with content from influencers—even those I don’t follow! The rise of finfluencers has been so exponential that, at this rate, every other handle on social media could soon belong to a finfluencer.
How big is the Finfluencer Community?
A back-of-the-envelope estimate shows India has more than 80 million (8 crore) social media influencers and the number is only growing. (Reference: Rise of ‘finfluencers’ sparks debate over influence and accountability)
The Two Sides
The Positives
On the positive side, social media allows followers to connect directly with influencers of their choice and gain access to their advice and views on financial topics. Without platforms like Twitter or YouTube, this level of accessibility to financial insights of different experts would be much harder to achieve. Content creators, in turn, benefit from a platform to share their perspectives, build an audience and also gain visibility.
The Negatives
The negatives often outweigh the positives. A few of the concerns include:
- Followers Dilemma: The sharp rise in influencers has created a dilemma for followers. Who should they follow, and who should they avoid? Each finfluencer has different investment philosophies, capacities, and risk profiles, which may not align with their followers. Following the wrong influencer and adopting a mismatched investment strategy can pose significant risks.
- Not Genuine: Many finfluencers are not genuine. They may post fake success stories or fabricated profit screenshots to make their content go viral. These deceptive practices can mislead followers who are seeking trustworthy advice.
- No Credentials: Credentials are often lacking. Some influencers claim to be experts, yet have no real success or qualifications to back their claims. In some cases, individuals who present themselves as derivative trading experts on social medial were, in reality, suffering financial losses. They make money not from trading, but from training and the content they produce. In these situations, followers are at a disadvantage.
We will delve deeper into these issues in this blog and future ones. To address the question, “Are finfluencers bad?”—the answer depends on who you choose to follow. We’ll also explore how to identify the right finfluencers who are worth your attention.
How Finfluencers Benefit
Why do finfluencers thrive on social media? BENEFITS. They gain both monetary and non-monetary benefits from their presence. Here’s how:
Monetary Benefits
- Direct Platform Payments: Platforms like YouTube and Twitter pay finfluencers based on engagement metrics such as likes, retweets, and comments. This incentivizes them to create more viral content, often leading to an obsession with maximizing interactions.
- Indirect Monetary Gains: Finfluencers also earn through advertising revenue, corporate sponsorships, and affiliate agreements for promoting links or products. For larger audiences, brand partnerships and advertisements can bring in six-figure sums.
- Other Revenue Streams: In addition, many finfluencers offer exclusive content for paid subscribers, publish books, conduct training sessions, consult clients, or launch podcasts.
However, as finfluencers focus on maximizing engagement for financial gain, their content often shifts toward sensational or trending topics instead of well-researched financial advice. As their earnings increase with each viral post, the quality and accuracy of the financial information they provide can suffer.
Non Monetary Benefits
- Social Recognition: Finfluencers also enjoy non-monetary benefits like social recognition through interviews, media appearances, and other opportunities that boost their visibility.
This is where the conflict of interest arises. The pursuit of these benefits can sometimes come at the expense of their followers, as the drive for personal gain may overshadow their responsibility to provide valuable financial insights.
In the Next Blog
In the next blog, we’ll dive deeper into the different red flags of finfluencers and risk to followers. Stay tuned!
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