The ad began with a dark screen and a voiceover pitching a new “once-in-a-lifetime opportunity to make some serious money” with an undervalued stock, before revealing the promotion comes from an anonymous tipster posting in an online forum. The commercial ends with the tagline “Don’t get played. Invest smart.” The ad is part of the UK financial regulator’s InvestSmart campaign, which is aimed at cracking down on “finfluencers” — content creators who feed an insatiable desire for content on spending, saving and investing – and dissuading young investors from following dubious investment advice from strangers online. Earlier this year, the FCA linked up with the UK’s advertising regulator to warn finfluencers (a portmanteau of ‘finance’ and ‘influencers’) to stop promoting illegal “get rich quick” schemes or face law enforcement. Peter Brown, managing director of brokerage Baggot Investment Partners, which guides high-net worth individuals in their investment decisions and runs stock investing courses, says: “The market produces a lot of hype, which is easily done with social media – bitcoin was like that from the start – and makes people think they’ve got to be involved. If you make an early entry and an early exit, you can make money, but the majority of people get hammered.” The subreddit R/wallstreetbets, populated by retail investors (dubbed ‘dumb money’ by Wall Street), was instrumental in organising the speculative frenzy behind GameStop during the pandemic. Using the Robinhood trading app, these Reddit users took on the Wall Street hedge funds betting on the imminent failure of the bricks-and-mortar video games retailer by buying the stock. When the stock rocketed within days, ordinary investors followed suit. This gave the hedge funds valuable time to recover, but novice investors who’d purchased at the peak were left nursing losses. Dumb Money features Paul Dano as Roaring Kitty, a headband-wearing YouTube financial analyst who shares stock tips from his basement and begins talking up how shares in GameStop are undervalued. About 15pc of Irish adults invest in shares – a figure that climbs to 19pc for men – while 7.3pc invest in crypto assets, according to a July survey carried out for the Competition and Consumer Protection Commission. The isolation and boredom ushered in by Covid-19 lockdowns accelerated the influx of young Irish retail investors to the markets, and many relied on guidance from finfluencers. Indeed, 23pc of the under-35s use social media when looking for information about making investments, compared with 5pc of the over-55s, research by the Banking and Payments Federation Ireland found in May. But can you really trust the investing tips divvied out by finfluencers and what steps should you take if you do follow their financial guidance? 1 Question why you’re turning to social media for advice A lack of independent financial education in Irish schools means young people feel compelled to learn about money on their own. Finfluencers are seen as a way to bridge that gap in knowledge. We are susceptible to dubious online advice because we have a poor level of financial literacy. A new financial literacy index commissioned by Bank of Ireland found in March that we have an average financial literacy score of 54pc, lagging behind peers such as Australia, at 64pc, the UK at 67pc, and Germany at 66pc, when compared to the 2015 Global S&P Financial Literacy survey. Irish people aged 18 to 34 scored lowest in the financial literacy index. Dr Olive McCarthy, a University College Cork business lecturer and director of the university’s Centre for Co-operative Studies, says poor financial literacy is becoming increasingly evident among some of her undergraduate students. “In a class recently, one student asked what a direct debit was and one asked what an APR was,” she says. “I had never noticed that issue before.” Unlike the marketing from staid pensions and investment companies, the bite-sized content of finfluencers is easily digestible, relatable and freely available, McCarthy says. These influencers are stepping into the vacuum created by the financial advisory and investments providers, with their jargon-filled lexicon and opaque fees. 2 Examine their returns Little was known about the quality of social media financial advice until a popular Swiss Financial Institute research paper earlier this year crunched the data on 29,000 finfluencers. The researchers found that just a quarter of them generated excess returns for their followers but 56pc of finfluencers active in US stock-related social media were “anti-skilled” (negatively skilled) and their stock recommendations resulted in an average monthly return decline of 2.3pc. Indeed, doing the opposite of the “anti-skilled” finfluencers – who had more followers than the skilled — led to better returns. Brown points to finfluencers on the Israeli ‘social trading’ platform eToro, which enables users to automatically copy its most successful traders and to invest in volatile products such as contracts-for-difference (CFDs) and crypto. The most-copied traders receive a percentage of high-value copy trades. “What eToro preaches is that you go on there and follow someone else,” he says. “Naturally, everyone will follow the person who made 100pc last week but that’s the person who will lose 100pc next week. People follow the biggest gambler. “You can’t beat the market. You can’t make 20pc to 30pc returns. When we’re teaching trading with €2,000, we’ll say the best return you can expect is 2pc to 3pc a month.” 3 Scrutinise their credentials If, for instance, you’re watching a TikTok investing post, check out any qualifications the influencer claims to have before risking your money. Check their LinkedIn profile and look out for professional designations such as Certified Financial Planner (CFP), Qualified Financial Adviser (QFA), Retirement Planning Adviser (RPA), and Specialist Investment Adviser (SIA). “If you’re taking advice from a young person with no qualifications on TikTok, it’s buyer beware,” says John O’Driscoll, the financial adviser behind Blueprint Financial Planning and The Blueprint podcast. “Anyone with the QFA, RFA, CFP, SIA designations has to be regulated with Central Bank or work for a Central Bank-regulated company, do regular CPD (continuous professional development) hours, and be actively involved in giving clients a full array of the types of products available for investment.” 4 Check with the Central Bank If you make financial or investment decisions on the back of an unregulated and unauthorised person on social media, you’ll have no comeback if things go pear-shaped. “If you take advice from a regulated adviser, there’s lots of protection there for you, but not if you take it from an unregulated entity,” McCarthy says. If the finfluencer claims to work for a regulated company, check the Central Bank register of financial service providers to ensure they are registered. 5 Be sceptical Use a healthy dose of scepticism to prevent finfluencers from preying on you with “get rich quick” schemes. “There’s always going to be an appetite to get rich quick, whether it’s through cryptocurrency or buying penny stocks,” O’Driscoll says. For Brown, it comes down to an old adage. “If it sounds too good to be true, it is too good to be true,” he says. “Good investing is very simple – it’s about purchasing assets that have value, no debt and holding onto them for long periods of time.”
Dumb money: How to avoid falling for those ‘finfluencers’ when it comes to investing your savings
