PAUL MCBETH: Where money and social media meet

Paul McBeth is the editor of The Bottom Line and Curious News, and previously worked at BusinessDesk for 15 years.

If global financial market regulators were a little preoccupied on their social media feeds last week, that’s because they’ve been thinking a lot about the growing influence of, well, influencers.

It was easy to miss the Financial Markets Authority’s laudable aim to help investors think a little more critically about those entertaining TikToks promising quick riches, and for influencers to temper their enthusiasm for particular products for fear of crossing over into providing personalised financial advice.

And before your eyes glaze over at the prospect of another worthy initiative that might struggle to achieve any tangible gains, the rise of the finfluencer – see what they did there? – is a meaningful shift in the distribution of financial products and advice.

The FMA’s recent work on financial advice access found 28% of New Zealanders used an adviser in the past 12 months, with usage unsurprisingly tending to track higher with people’s incomes.

In the survey of 1,000 people, when asked where they’d sought advice on their financial situation, 10% of respondents turned to their socials, whereas 16% had asked a financial adviser and another 8% turned to a mortgage broker – which the FMA suggested might account for the discrepancy with the 28% use of another question – and another 9% asked their accountant.

There really is no difference

And websites like the Retirement Commission’s sorted.org.nz accounted for 19%.

When it came to what sources of information people used to make a financial decision, social media was used by 18% of those respondents, with 59% of them saying it influenced their decision, while 14% relied on product providers, with the influence level also at 59%.

And for those people using socials as their financial adviser, about a third were struggling to meet their weekly bills.

As I said – a laudable goal and one shared by 16 other regulatory authorities in what they catchily dubbed a Global Week of Action Against Unlawful Finfluencers.

The reason everyone’s getting a bit iffy about the growing role of those glamorous social media influencers pitching investments that have worked for them is that young people buy into them.

You will find out in the end

Across the Tasman, the ASIC Moneysmart Gen Z survey last year found about 63% of them used socials to source financial information, and more than half at least somewhat trusted what they found.

Meanwhile, Ontario Securities Commission research into Canadian retail investors found about 91% were active social media users, with about a third of 655 respondents surveyed saying they’d made a financial decision based on the advice of a finfluencer.

That’s the kind of conversion rate people pay big bucks for, hence the nervousness among the perennially twitchy regulators.

What that’s meant in practice was something of a concerted crackdown on influencers across those jurisdictions with the UK’s Financial Conduct Authority getting a guilty plea for illegal promotions on social media from reality TV star Aaron Chalmers of Geordie Shore fame and starting criminal proceedings against two other people for similar offences.

The Australian Securities and Investments Commission issued warnings to four finfluencers it reckons gave unlicensed financial advice and is reviewing practices by three firms using social stars.

It’ll soon be over

Locally, the FMA told 14 finfluencers about various concerns it had over their content, leading to what it called misleading or harmful content being pulled down.

What was probably more helpful in the battle to trump rubbish information with useful stuff was the FMA’s checklist for influencers of what might make the regulator uncomfortable (hint: it’s most things) and a reminder for would-be investors to be a little more sceptical – especially when someone’s spruiking guaranteed super-returns.

If something sounds too good to be true, it usually is, and as NZ Shareholders’ Association chief Oliver Mander recently pointed out, there aren’t any shortcuts to building up your investment capability.

And if you were a little surprised that the US wasn’t part of the latest push, cast your mind back a few years and the Securities and Exchange Commission came down heavily on a handful of celebrities, from Jake Paul and Lindsay Lohan all the way to Kim Kardashian, for touting crypto assets without saying they were getting paid for it.

That’s one of the risks, and opportunities, of the influencer community.

Got a hold on you

They have tight relationships with their audiences, with a stream of consciousness flow and the ability for meaningful interaction with their legions of followers, which amplifies their words when they say something is a sure bet.

While the principle of tapping into the personal brand of a celeb for their endorsement is the same as the mid-to-late-2000s when we had the likes of TV One newsreader Richard Long in Hanover Finance ads and bona fide All Black legend Colin Meads as the face of Provincial finance, the difference lies in the two-way nature of the audience relationship.

That builds a different level of trust with the audience as traditional media channels wrap their heads around the shift, with socials increasingly gaining the trust of their audiences in the likes of the Edelman Trust Barometer and AUT’s annual trust in news survey.

And while that’s a risk that regulators will want to mitigate, it’s also a huge opportunity for the likes of the FMA to show its appreciation for the new media types actually providing helpful information to people struggling to sort their way through the minefield of making financial decisions.

The FMA might like to hold back its increasingly irrelevant name-and-shame routine for those in the naughty corner, but it wouldn’t go amiss to namecheck the likes of Frances Cook’s Making Cents podcast, Luke Kemeys’ Keep the Change podcast, The Happy Saver site and podcast and the Moneyhub site as places that are doing it right.

It’s hard to foster a fair, efficient and transparent market if you spend all your time jumping at shadows and not applauding those making it a better place.

Image from Detail .co on Unsplash.

This column has been updated to correct a typo.