Self-proclaimed finance experts, also known as financial influencers or finfluencers, are becoming increasingly influential among large groups of the population. This is despite the fact that their questionable recommendations should be treated with the utmost caution.
It took a few years for financial influencers to conquer social media platforms in large numbers. However, it is now hard to imagine these channels without these «specialists», as Martin Schwarz, business IT specialist and publisher of online publication «coincierge.de», points out. The Covid pandemic provided a major boost, with 52% of Instagram finfluencers only having registered since 2020 or later. This is the most important platform for creators.
Not a Good Idea
These influencers obviously have a huge influence on their followers. Almost one in two finfluencer followers say that they have already made an investment based on one of these recommendations. As various data shows, this is often not a good idea, emphasizes Schwarz.
Only 28 percent of finfluencers are considered qualified, in the sense that they would achieve above-average returns with their recommendations over a longer period of time. 16 percent delivered returns in line with the market, while no less than 56% of the supposed experts significantly underperformed. To make matters worse, Schwarz also notes that inexperienced finfluencers have more followers and influence.
Crypto Investments Particularly Risky
Single stock analysis is the most popular category among finfluencers, with 25 percent making this their main topic, while targeted and long-term asset accumulation and pension plans are the focus in just 10 percent of all cases. The crux of the matter is this: «Investments in individual stocks are considered particularly risky and inexperienced investors in particular make serious mistakes and take unnecessary risks,» says Schwarz.
The crypto market is considered particularly risky. One in three crypto influencers on controversial Chinese social media platform «TikTok» has already posted deliberately or unknowingly misleading videos about Bitcoin, Ethereum & Co. However, only around one in 10 warns of the risks of this kind of investment.
Asset Managers at a Disadvantage
There are many reasons why this trend can be seen as worrying, explains Schwarz. Although there are also financial influencers who upload valuable content and are committed to financial education, young people and new investors in particular are usually unable to distinguish between serious suggestions and dubious ones.
Given that professional investment specialists and asset managers now have to deal with a mountain of regulations and weigh their words carefully, it is even more astonishing that finfluencers can spread their half-knowledge universally in such an uncontrolled way. The question arises as to where the often-cited investor protection can still be found.
