“We had an insane day in the stock market and lives were changed” runs the title of a video posted to social media platforms TikTok and Instagram, followed by a rocket ship emoji and an eye-popping profit: +$97,000.
The viral popularity of investing during the pandemic has focused a spotlight on the social media influencers who broadcast videos like these to vast online followings on platforms including TikTok, Instagram and YouTube. They have become a key source of information for the legions of young people investing during Covid-19 lockdowns.
But cautionary tales about the perils of social media-fuelled trading are easy to find. Followers of the TikTok hashtag #investing, which has racked up 3.3bn views, recently saw one anonymous creator sobbing while filming their plunging investments on a trading screen, under the caption: “I lost all my college savings.”
Around one in six British 18-23 year olds invested for the first time in the 12 months to May 2021, and more than half of these Gen Z investors directly follow investment advice from social media, according to research from F & C Investment Trust.
Almost half of 18-26-year-olds chose cryptocurrencies as their first investment, a poll by Interactive Investor found, while F & C research discovered that six in 10 Gen Z investors had bought a meme stock earlier this year.
The power of this social media-driven trading has rattled financial markets in recent months. Meme stocks such as GameStop surged this year due to their cult followings online, and cryptocurrencies gyrated wildly in response to tweets from influential figures such as billionaire Elon Musk.
Some critics blame influencers for helping to fuel this wild ride. In a recent speech, Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), said the rise of crypto investments and the GameStop episode suggest that “more people see investment as entertainment — behaving less rationally and more emotionally, egged on by anonymous and unaccountable social media influencers”.
Regulators and industry bodies also worry that unscrupulous advertising and bad advice on social media may lead novice investors astray. Some influencers encourage riskier trading, such as using options or leverage. Half of Gen Z crypto traders used debt to fund their purchases, Interactive Investor found.
But alongside the deluge of social media posts inciting short-term speculation, there are also countless new accounts dedicated to making sound personal financial advice. One such TikTok video explains how “the power of compound interest” can help grow £80 of monthly savings into a million pound nest-egg.
Some financial influencers advocate the benefits of tax-efficient Isas and alert their followers to scams. And many have become sought-after partners for financial companies trying to break down the stuffy image of the investment industry and reach new groups of customers.
The anonymous discussion boards Reddit and Discord have gained notoriety as nerve centres for day traders. But influencers thrive on social platforms where they can build a high-profile personal brand, often through videos.
YouTube, the Google-owned video site, is where many young people turn first for advice. But even more significant is TikTok, owned by China’s ByteDance. It makes it particularly easy for fledgling influencers to go viral, because viewers don’t need to follow a video creator in order to be shown their output by the app’s algorithm.
FT Money examines the risks to investors in the Wild West of social media as well as the positive effects of starting conversations about finance with young people whom the mainstream industry has long struggled to reach.
‘It all happened so fast’
Like many financial influencers, Timothy Paul, 21, was surprised by his sudden rise to social media fame.
A recent graduate in economics and finance from the University of Sussex, Paul struggled during a demoralising seven-month job search at the height of the pandemic. He filled some of the lockdown hours by learning to invest (his portfolio is mainly US tech stocks and index funds) and sharing job-hunting tips and investing experiences on his TikTok account.
“I felt I had a connection with people because I was young as well. I didn’t know that much about investing and finance. I was learning on the job, and sharing what I was learning,” says Paul, who has since landed a trainee position at a Big Four accountancy firm.
That connection paid off. Paul gained 200,000 TikTok followers in five months, and his audience has doubled again since January. “It all happened so fast. I wasn’t expecting all of that,” he says.
Paul’s videos typically feature accessible breakdowns of personal finance tips like the 50-30-20 rule for household budgeting (50 per cent “needs”, 30 per cent “wants”, 20 per cent savings). His videos are usually structured as a conversation, with Paul voicing both himself as the dispenser of wisdom and a confused interlocutor, who butts in with questions.
The call-and-response format is a staple of financial TikTok, or fintok for short. The influencer is cast in the role of a knowledgeable friend, handing out advice to peers.
While critics point out that social media figures often have next to no formal financial qualifications, influencers see being close to their audience as key to success.
“People feel more comfortable asking you questions, because you are the same age. They feel they can relate to you,” says Elvire Matu, from east London, who runs TikTok and Instagram accounts focused on savings. She started her account sharing money-saving tips learned while living on a budget as a university student.
This have-a-go spirit has also shown up in markets, where the number of amateur traders has jumped. Under lockdown, four in 10 under-25 investors said trading helped combat boredom, in a survey by InvestEngine.
Financial influencers are not necessarily young. Mark Tilbury, a 53-year old entrepreneur turned influencer, who has built a following of more than 6.5m on TikTok and YouTube, says influencers have stepped into a gap created by the lack of financial education.
“The thing that really shocked me is that they are still not teaching this stuff at schools. You are taught to go get a 9-5 job. You aren’t taught what to do with your finances,” says Tilbury.
The social media culture around investing also frequently reflects young people’s sense of economic disillusionment. Some videos tout the benefits of making money by investing or through “side-hustle” business ventures, rather than taking on student debt and following a traditional path through higher education to regular employment.
Power of sponsorship
Sponsorship, particularly from youth-focused fintechs, has helped to make a “side hustle” out of content creation for influencers. Paul, for example, was recently paid £800 for a single video in a deal with Mastercard.
Tom McGillycuddy, co-founder of Tickr, says the impact investing app started to use TikTok influencers for marketing in April and has been “astonished at the response in terms of the reach and the quality of the customers”.
He says: “We felt like the industry was designed to exclude. We can use influencer networks to get more women to invest and get more minorities to invest. I see this as a tectonic shift in how people learn about finance and wealth creation.”
Although TikTok is often associated with a teenage audience, companies have found it useful for recruiting millennials, aged roughly 25-40.
“When we started using TikTok, some people criticised it. They said it was for teenagers and very young people. But the reach of TikTok today is very large,” says Paulo Pachi, head of marketing at savings and investment app Plum.
The trading platform Freetrade has also increased its spending on influencers this year, making social media one of its largest marketing expenses. Viktor Nebehaj, chief marketing officer and co-founder, says that for younger customers the legacy of the global financial crisis still looms large.
“Before 2008, people wearing suits and working at investment banks were trusted. Now they are thought of more like crooks. The whole culture changed,” he says.
However, social media advertising is fraught with peril for brands given the associations with riskier forms of trading such as crypto and meme stocks. Companies say they vet influencers’ background for any questionable content and put their paid videos through compliance checks.
What are the risks?
Working with more established financial companies has helped open the eyes of some influencers to the regulations governing promoting financial products.
Mark Ross, 23, a content creator from Glasgow, says that when he started posting financial TikToks and was approached by sponsors, he had little sense of the rules. “Before brands started coming in, it was more the wild west. Now it is becoming more commercial and a bit more regulated.”
But there are still plenty of opportunities for less scrupulous influencers to make money by promoting questionable products. “If you have influencers out there who are slightly less ethical, there’s a definite risk,” Ross says.
Influencers also say that the combination of the “fear of missing out” and the prospect of making easy money can be a dangerous cocktail, which is dispensed liberally by some content creators. “I think a lot of people have a get rich quick mentality,” says Matu. “It’s easy to get scammed.”
One post, from the reality TV star Lauren Goodger, advertised “£1,730 profits in the last two days”, pointing her followers to a foreign exchange trading account, which Goodger said: “sends out trades every day which take under 5 minutes to place . . . [and] has been consistently profitable”.
But the post prompted a rebuke from the Advertising Standards Authority (ASA) for Goodger, who is known for her role in The Only Way Is Essex.
The regulator said the prospect of swift and consistent profits was misleading, and that the reality star failed to make clear that she had been paid for the endorsement.
Goodger, who declined to comment, told the ASA she had been sent a script by the trading account’s owners, whom the ASA did not identify.
Creators say that videos promoting “quick wins” are often popular, increasing online reach and potential sponsorship. Some accounts are also linked to subscription services that promise to provide trading tips for a regular fee.
“Our industry is very shady. It’s 95 per cent bad groups practising get-rich-quick schemes, promoting shitcoins or just milking their members for as much as they can get out of them,” says Arshia Sarkhani, co-founder of Asset Entities, a US-based trading group.
But he defends marketing that is based on the thrill of trading. “With a lot of these younger guys, they are money motivated,” he says. “The people who are upset about it are probably people who can’t reel those people in themselves.”
Other influencers disagree. “If I see anyone flashing money in the first five seconds of the video I know that the intention is not what it should be,” says Paul. “That’s not how you should be attracting young people.”
But promises of easy riches can be seductive. Harrison Chapman, 17, a student from Kent., says: “That idea of investing a small amount and making X in a week, that is appealing. I think that can pull a lot of younger people into a trap.”
Regulators take note
Evidence that the growing social media popularity of investing has gone along with increased risk taking, especially by younger investors, has put influencers under the microscope from regulators. But it has also highlighted how difficult it is for watchdogs to police social media, especially as accounts based abroad easily find a UK following.
The FCA in March warned that new investors may be taking on too much risk, via products such as cryptocurrencies and foreign exchange, and that many were motivated by the “thrill of investing” or “social factors” such as status among peers.
While the FCA chief executive Rathi partly blamed influencers for encouraging risk-taking, he also admitted that under-30s are “a category of consumer that we are not used to engaging”. The agency has launched an £11m digital marketing campaign to boost its messaging.
Regulators are also concerned that influencers don’t make it clear when they are paid for endorsements. An ASA study this year found that only 35 per cent of Instagram posts it examined complied with the legal requirement that content creators, in all industries, make clear when they are paid to promote something.
“Over the years we have seen a rise in complaints about social influencers,” says Louise Maroney, who leads financial complaints for the ASA. “Some influencers are naive to the rules.”
Reining in social media excesses is a daunting task. “I’d suggest the regulator will inevitably be 10 steps behind,” says Holly Mackay, chief executive of Boring Money. “Even if it can shut down a rogue influencer then several more will have popped up in their place.”
Jonathan Lipkin, director of policy, strategy and research at the Investment Association, says the industry is “working hard to improve its own communications”.
“Social media offers great opportunities to create a more vibrant, inclusive investment culture, particularly for younger generations. But this must not come at the cost of lower standards of consumer protection,” he says.
Social media companies have also started to tighten their rules. TikTok is rolling out new “branded content” policies that aim to ensure creators disclose commercial links. The policy, introduced in May, also bans content creators from posting sponsored videos for “all financial services and products”, although companies can still pay influencers to appear in ads.
The gathering crackdown on financial influencers has led some to worry that the regulatory rush will stamp out a budding conversation about finance.
“What I don’t want to see happen is that all the great stuff that’s out there is pulled from the platforms to eliminate the bad stuff,” says Myron Jobson, personal finance campaigner at Interactive Investor.
Darren Collins, a personal finance teacher from Canterbury, says students come to him with questions about the financial posts they have seen on social media since the pandemic.
Collins adds: “It is crazy how it has changed. In this country, you don’t talk about money. But they do now. What we have got to do is teach young people more.”