Laura Suter, director of personal finance at AJ Bell, comments on the dangers of ‘finfluencers’ and explains why consumers should tread carefully when researching financial products and investments online, following the FCA’s announcement 20 finfluencers are being interviewed under caution (embargoed until 00:01 Tuesday 22 October):
“Too many people blindly trust anything they see on social media, but throw in a well-known celeb or a reality TV star endorsing a product and people are even more likely to trust a post. This isn’t a huge problem if you buy some dodgy beauty products or sign up to a duff subscription, but if you put your life savings into an investment because someone from the TV said they made impressive returns, that could be life changing.
“This is not the first time the regulator has raised concerns about so-called finfluencers pushing dubious financial products to their followers. Today it has announced another crackdown, with 20 influencers questioned and warnings issued around others who may be unlawfully promoting financial products. The regulator is sending a clear message that finfluencers are responsible for ensuring any financial product they endorse is legitimate and that they will be held personally accountable for breaking the rules.
“The regulator fired a warning shot to finfluencers earlier this year, telling them that they were cracking down on misleading social media posts. While the FCA didn’t introduce any new rules or penalties for those who post misleading content, it tweaked the guidance to give more examples of when social media posts will be compliant or not.
“Following that it then announced high profile action against a series of social media and reality TV personalities its says have been wrongly promoting high risk financial products. Nine individuals were named, with trial dates set for February and March 2027 at Southwark Crown Court.
“Today’s announcement is another step in the crackdown on financial influencers the FCA believes are acting illegally.
“We know that social media plays a huge part in people’s research of investment products, particularly among younger, newer investors. One in six investors used social media to either research investment, find new opportunities or get updates on existing investments – but this rises to half of all investors aged 18 to 24, according to the FCA’s Financial Lives survey.
“Research by AJ Bell’s Dodl investing app* backs this up, with almost a third of novice investors saying they use social media platforms to research investment decisions, with Instagram and TikTok being the most popular. And the celebrity lure is clear, with more than two-fifths saying that a celebrity endorsement could influence them to buy a financial product and 17% already having done so.
“Not all financial content on social media is bad. The wealth of support and information available online can be a valuable resource for new investors. Finfluencers can make complex aspects of saving or investing accessible and engaging, helping people make better-informed financial decisions. However, there’s a darker side, with significant risks of finfluencers spreading misinformation or promoting high-risk behaviours, such as day trading individual stocks without adequately explaining the risks involved.”
Four rules for investors to follow to avoid being scammed
Anyone researching investing should stick to four clear rules to avoid being scammed:
- If you don’t understand the investment or how it works, don’t buy it. This is often the case when people get caught up in scams – they involve complicated ‘contracts for difference’ or foreign-exchange trading schemes that most investors wouldn’t be able to understand.
- Do your own research. Make sure you get information from different sources and don’t just rely on social media or one recommendation – this also applies if family or friends introduce you to a financial product: do your own digging.
- Don’t be pressured into anything. Often scammers will put a time pressure on a purchase, so you don’t have time to consider it. They’ll say the opportunity is only around for a few hours or that you need to sign up immediately – if that’s the case it’s very likely a scam. Equally they may say the offer is exclusive to you – that’s another big warning sign.
- Be wary of anything where they have approached you. Often scammers will slide into your DMs on social media with a “great” offer that you can’t refuse. No legitimate investment company would contact you out of the blue on social media with an investment. Delete the message and block the contact. The same is true of texts, emails and phone calls out of the blue.
*Research conducted by AJ Bell’s Dodl investing app in March/April 2024. Conducted via Opinium with 2000 UK adults, including 1,000 ‘novice investors’ who held investments and have less than three years’ experience, and 1,000 ‘prospective investors’ with cash savings of £10,000 or more but no investments.
