By Sarah Pulis - Head, and Pauline Tonna - Senior Manager, Conduct Supervision, MFSA
Social media has become an indispensable tool for information sharing across various sectors. In the financial services industry, it plays a pivotal role in engaging with both current and potential clients. Increasingly, companies are leveraging the influence of individuals with substantial online followings— known as "finfluencers"— to generate content on financial topics. These influencers wield significant power over their audiences' purchasing decisions and opinions regarding products and services. However, it is important to note that many of these finfluencers lack the necessary expertise and qualifications to provide accurate financial advice. Therefore, it is essential for consumers to exercise caution when encountering content produced by finfluencers.
What is a Finfluencer?
Finfluencers (short for Financial influencers) are persons who would typically have an active presence on social media platforms and who engage with their audience by providing financial tips and sharing their own experience with managing their personal finances. These finfluencers in general create content on social media in the form of videos, short reels, stories and uploads of photos of products or services offered by regulated or unregulated entities.
One can find a range of finance related content available on social media platforms, such as Youtube, Instagram and TikTok, these being the most popular with the younger generation. The most common content includes either advertisements about financial products or services by licensed entities, or the sharing of personalised content created by the fininfluencers, supposedly, on the basis of their experience with financial management or investments.
The information that is being shared online typically focuses on the financial markets and investment strategies being employed by the respective finfluencer, with the aim of exercising their influence on the purchasing decisions of their audience.
The Risks
Finfluencers may get compensated in the form of sponsorship or monetary payments by persons appointing them for attracting clients. Their main objective is to create content that attracts a large audience. Overall, the information being provided by finfluencers seems to be rather easy to understand, accessible and generally free when compared to the financial advice being provided by a licensed investment firm. Oftentimes however, the content does not appropriately include the risks of the products or services being promoted and more emphasis is placed on exaggerating potential gains. Information relating to the characteristics of financial products, such as the complexity and the risks involved, especially that of losing the money invested, are not always mentioned.
Complex financial products such as: Contract for Difference (CFDs), Foreign Exchange trading (FOREX), Cryptos and Structured Products, amongst others, pose several risks to retail clients and the absence of clear disclosure may result in the viewer receiving unclear or misleading information. The content shared by finfluencers may also lead to investors buying or selling products, including highly complex ones, without taking the necessary precautions or without ascertaining whether such products are appropriate or suitable for them. Most often, such finfluencers are not authorised and licensed to carry out these activities and thus it is very likely that their activities would result in unauthorised business being undertaken by the finfluencer.
What to Look Out For
With such a phenomenon being on the rise, one must stay vigilant when coming across these finfluencers. A number of measures can be taken to assess the credibility of what is being watched and read. The Malta Financial Services Authority has an online Financial Services Register on its website, which can be used to determine whether the firm being promoted by the finfluencer is indeed licensed to provide its services in Malta. Generally, finfluencers may not be licensed as financial advisors, which means that they would not have undergone a fitness and properness assessment by a competent regulatory authority. As a result, these finfluencers may be illegally providing financial advice since they would not have the necessary licence. It is imperative that the necessary research is undertaken to determine whether such individuals are duly authorised by the MFSA or an EU regulator to provide services in Malta.
Another aspect to keep in mind is that finfluencers may use deceptive marketing techniques to selectively advertise the benefits of the financial instruments without delving into the corresponding risks and complexities. Organising seminars is one hard selling technique that they use to attract individuals to buy specific financial products. These events would also include testimonials from other people who share their success stories in making quick profits, in order to make trading in high-risk financial products look more appealing.
Social media is rife with so-called financial 'experts' targeting people with promises of easy money, often without disclosing the associated risks. Individuals must exercise extreme caution when viewing financial content online, also in view of the surge in scams, which can be difficult to recognize, and often appear genuine. Before engaging with any firms promoted on social media or making investment decisions, it is crucial to obtain comprehensive information. Remember the simple rule: if something seems too good to be true, it usually is!
