Are You Being Finfluenced?

Although some may hate to admit it, social media influencers focused on financial topics—or “finfluencers”—have become a popular source of investment advice. Finfluencers are now playing a role in a wide array of financial decisions, the results of which could have a drastic impact on a person’s financial well-being.

Many investors may brush off this concern as something limited to Generation Z investors, but I would argue that this nonchalance is misguided. Yes, research has found that, more than other generations, Gen Z investors use social media to learn about investing and personal finance.

But does that mean that older generations are less susceptible to financial influencers, whether they are on a social media site or cable television? Do we really think that the GameStop meme-stock phenomenon only involved Gen Z investors? Did we forget that Jim Cramer’s Mad Money first aired on CNBC in 2005?

In fact, finfluencers existed long before social media, and investors have always been tasked with sorting through noise and deciding whom to trust. However, because of social media and its proliferation of finfluencers, that task may be more difficult than ever.

Sorting Good Finfluencers From Questionable Ones

To be sure, many finfluencers do a great and essential job of translating financial information into digestible and understandable content for investors. In many ways, they are filling a gap in the financial industry and opening investing to a wide array of investors. Research from Finra and the CFA Institute finds that 37% of Gen Z investors cited social media influencers as a major factor in their decision to start investing.

However, there’s also a more questionable side of finfluencing. Many people remember the GameStop meme-stock phenomenon of 2021 and its unprecedented impact. And that was not the only time investors lost money by following finfluencers’ investment advice.

All investors hope to profit from their investments, whether with a commodity like gold or a newer investment such as cryptocurrency. However, that can lead both novice and veteran investors to follow investment advice that could be incorrect or even manipulative.

How to Identify Questionable Financial Advice

One key tactic for identifying potentially biased information is to verify whether the finfluencer receives commissions or payment for recommending certain products. Unfortunately, according to research from the CFA Institute, only about half of content that contained such promotions makes any form of disclosure. In other words, relying on this tactic alone is not enough.

To identify questionable content, it can help to understand the persuasion techniques that may be at play. Persuasion techniques are communication styles that could sway your opinion of the content, convincing you to follow the action that the content suggests. These techniques are focused specifically on aspects outside the expertise of the content.

Not all finfluencers who use these techniques are trying to mislead you—they could just be trying to get your attention and still have your best interest at heart. However, for investors who are trying to be mindful of their information diet, understanding these techniques can be another useful tool.

When you notice an influencer using these techniques, it’s a reminder to be aware that these could sway your opinion and to pay more attention to the expertise behind the content than to the communication style.

Here are a few persuasion techniques to watch for:

• Content with a low construal level

“Construal” is how you interpret something. Research finds that when influencers post content that is conveyed at a low level of construal, people view them as more credible and believe they can predict the person’s intention to act. To identify a low-construal message, look for content that sounds concrete, detailed, and specific. It also tends to use words like “never,” “always,” “every,” “must,” and “certain.”For example, a low-construal level post hammers on specific details like: “Just bought 10 shares of XYZ Corp at $50 each. Planning to hold for the next quarter. What are your thoughts on XYZ’s latest earnings report?” A high-construal level post allows room for the uncertainty and personalization needs inherent in investing, like: “Investing is not just about making money; it’s about building a future. Diversify your portfolio, think long-term, and stay informed about market trends.”

• Content that plays on emotions

We know emotions can affect our decisions. We also know that emotions are contagious. When a finfluencer oozes excitement, enthusiasm, and passion, this can subconsciously affect your emotions and your resulting decisions. There’s nothing wrong with a finfluencer being passionate about their message, but investors should still be aware of the potential impact of that excitement.

• Content that makes you feel closer to them

Certain communication techniques can make the viewer feel closer to the speaker. For example, inserting interactivity into content—such as asking questions of the audience (even though they can’t respond) or asking for feedback—can make the viewer feel “heard.” Finfluencers may also nurture feelings of psychological closeness by sharing vulnerabilities and putting the focus on the speaker. Finfluencers who constantly use words like “I” or “me” may be using this approach. These techniques can make the speaker appear to be unbiased and help garner trust, which may in turn nudge the viewer into focusing less on the expertise of the content.

Be Aware of Persuasion Tactics to Help Stay Focused on Facts

Nowadays, finfluencers play an essential role in communicating investment advice, but, as in everything, there are instances of bad actors.

One way investors can navigate the plethora of finfluencers is to understand the persuasion techniques in their messaging. Content that plays on emotions, makes you feel closer to the speaker, or conveys a low construal level may, inadvertently or not, sway your opinion about its content.

Not everyone who uses these techniques is a bad actor. Some are just well-meaning experts trying to help you make better financial decisions. However, spotting these techniques can be the cue that you, as an informed investor, need to refocus your attention on the expertise of the content.