Snake Oil 2.0 - The Rise of the Fin-Fluencer

I was recently on the receiving end of financial advice from a colleague. Intrigued, I clicked on a Twitter link to find a teenager espousing his very strong views on TikTok as to why Bitcoin has bottomed out and now is the time to buy. In response to my comment on the video, one poster compared the youth to a young George Soros. The Fin-tok account promoting the teen replied directly to me as well, intoning: “Welcome to the future of finance.”

Let’s hope not.

Snake Oil 2.0

This led me to wondering how many of our kids are investing under the influence. In a world of crypto FOMO, YouTube gurus, Facebook finance groups and TikTok money merchants spruiking get-rich-quick schemes, fin-fluencers have emerged to magically solve all the money problems for today’s youth. The seemingly unstoppable upwards trajectory of share markets and crypto prices makes it all seem like solid advice. Fin-fluencers have been giving advice during a rising tide that has floated all boats.While the post-pandemic world has proven that, in the short run, the economy and asset prices don’t always mirror each other, in the long run, this will eventually happen.

We should have known that the sphere of social media influence would inevitably cross over into the thorny world of investment and financial advice. It’s fine for influencers (digital-speak for someone who has a large audience) to sell fashion or give restaurant recommendations. However, when they enter the world of finance, the results are potentially catastrophic. Especially so when it impacts a generation’s first foray into investing. Of course, we shouldn’t be surprised. Whenever a new technology or consumer possibility arrives, the snake oil sales agents are never far behind, over-promising and under-delivering. It’s during the lag period before regulators catch up that the wide-eyed get hurt.

Historically, the first investment for most school leavers has been their first home, a seemingly safe investment. It’s traded on average every seven years, requires disciplined saving and limits, post-house-purchase cashflow, any type of equities investing, creating a natural barrier. After being constantly reminded that the housing market is likely out of their reach, many young investors have been committing the cardinal sin of trying to make up for lost ground and confusing speculating with investing.

Free Financial Counsel

Millennials and Generation Z have been trained over the past two decades that they don’t really have to pay for anything digital or virtual – a version can almost always be found for free. From music to movies and now, financial advice.

A trend propelling the shift to seeking advice in social media forums is the rising costs of professional financial advice, created by increasing regulatory red tape and a decline in adviser numbers.

Before the 2019 Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, there were more than 28,000 advisers registered in Australia. By December last year, the number of advisers had dwindled to 21,141. With trailing commissions coming under heavy scrutiny, there has been a move towards unencumbered fees for advice. It would appear some young investors either don’t think financial advice is worth paying for or don’t have the wisdom to see its value.

Ironically, fin-fluencers skirt around regulation and are often get paid for ‘sign up’ numbers and affiliate links that sit outside the investment advisory framework. Ironically, fin-fluencers deploy avoidance language like DYOR (Do You Own Research) and NFA (Not Financial Advice) in their bio descriptions of channels that are dedicated to dispensing what looks, smells and sounds like financial advice.

False Metrics and Finding the Vulnerable

Past performance is not an indicator of future performance, but to a new generation, social proof is. The metrics that matter in a digital society aren’t verifiable financial performance or a five-star Morningstar Rating. Social proof usurps all. The value of advice in the digital domain is an amalgam of views, likes and subscribers.

In a post-digital world, the metrics that matter aren’t product performance or investing record (though unverified performance claims are common). It is all squarely focused on the attention the spruiker has managed to garner. Not only are such metrics irrelevant to investment hopefuls, they are very easy to game.

In the early days of social media, authenticity and knowledge were game-winning strategies. These days, it is cheaper and faster to buy your audience – just like the olden days! On most social media channels, a million views can be acquired for somewhere between a few hundred to a thousand dollars. Similarly, you can easily purchase likes, subscribers and even seemingly genuine comments generated by ever-improving bots.

In recent years, an entire ecosystem has metastasized to support these false metrics. People seeking advice from their favourite social influencer, or fin-fluencer, would be wise to check the ratios. Not P.E. and cashflow ratios – but the right ratio of subscribers to views, views to likes, and likes to comments. Metric norms are analysed enough now to identify which accounts have been gamed and which are genuine.

As you’ve already guessed, these can all be manipulated to flatter the content publisher. Another problem with social proof is the spiral effect it creates among social channel algorithms. These same metrics, that are often gamed, decide what to recommend to the next enthusiastic but novice investor.

Hashtags like #Fintok, #StockTock, #Debtfree, and #CryptoMillionaire attract many who are chasing online investing advice. However, we must not ignore the ability of fin-fluencers to utilise click data in re-targeting the financially curious, or to prey upon desperate and vulnerable audience groups. Sites they visit tell a story of their financial position and weaknesses that can be weaponised to place ads for predatory product offers.

What we end up with is a digital media financial ecosystem that thrives on misinformation and unqualified advice. The big tech platforms win, the fin-fluencers win and those they purport to help end up losing. It might just be that the current bull market is the only thing keeping copious amounts of blood off the floor.

Financial Grooming

Democratising the tools for investing is, in theory, a good thing and digital tools are generally effective at reducing barriers to almost anything. However, when this newfound simple investing ability is met with gamified incentives, it’s akin to grooming for future financial loss.

Discount brokerage app Robinhood Markets, which recently filed SEC Form S-1 to register its IPO, has not only democratised investing through zero-fee trades, it has gamified it. One could argue Robinhood encourages risky trading instead of investing, as it has managed to collect over US$100 million of fines in its lead up to going public.  

Robinhood is more like Candy Crush than CommSec - aping poker machine visual rewards like (the now removed) confetti exploding on the screen to celebrate each trade, neon pink Bitcoin prices and lists of highly traded stocks to consider buying and selling. Robinhood even has a referral programme offering free stock in exchange for signing up. Snare enough friends to join and you can earn up to $500 in free stocks per year.

The shares of free stock are chosen randomly from their inventory of settled shares. While investing apps available in the Australian market like Superhero, SelfWealth and eToro aren’t as overt in their promotion of high-risk trading, the overall drift from stewardship to casino is concerning.

It’s easy to write this off as something not too dissimilar to getting stock tips at the pub or over dinner. Alarmingly, it is all being done at incredible scale, in an all-time bull market and with first time investors caught up in a crypto craze. If anything, it again points out the requirement of regulators to get up to speed with our rapidly changing technology sector and its undue influence on wider society.

If we tell our kids anything about investing, we could do a lot worse than recounting the story of famed investor Peter Lynch, who suggested we invest in the products we ourselves use most. In this case, it would be the tools upon which the fin-fluencers spread their messages.