- The FCA has announced that nine individuals, including several celebrity influencers that have appeared on reality TV, have been charged in relation to an unauthorised foreign exchange trading scheme promoted on social media
- This isn’t the first sign of a crackdown by the regulator, with the FCA previously warning ‘finfluencers’ about misleading social media posts
- Almost a third (31%) of novice investors say they use social media platforms to research investment decisions, according to research carried out by AJ Bell Dodl*
- Over two-fifths (24%) say that they’d consider buying a celebrity endorsed product while 17% said they’ve already done so
- Four rules for investors to follow to avoid being scammed
Laura Suter, director of personal finance at AJ Bell, comments on the dangers of ‘finfluencers’ and why consumers should tread carefully when researching financial products and investments online:
“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.
“The regulator had already fired the warning shot to so-called ‘finfluencers’, 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. But now it’s clearly ramping up its campaign to keep finfluencers in line – this high-profile case no doubt intended to send a message to other influencers. With a maximum penalty of up to two years in prison and an unlimited fine for breaking the rules, there’s no doubt it will make people sit up and listen.
“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 rose 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.
“As with all social media, not all of the financial content on it is bad. The surge in support and information online when it comes to finances and investing can provide a real helping hand for newcomer investors. These finfluencers can help to explain tricky, technical parts of saving or investing in an engaging way that could in turn enable people to make better-informed financial decisions. But there is a darker side to many of these posts, and a significant risk of finfluencers spreading misinformation or encouraging high-risk behaviour, such as day trading in individual stocks without properly 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.
