Amy Ryan was panicking about her savings when she went online for advice. It was April 2020, and the stock market crashed, draining her of the nest egg she had built over the years.
Ryan, a 43-year-old sales engineer from Wales, abandoned his portfolio in the crash and feared he would lose out even more. Looking for guidance, she found Kevin Paffrath, a prolific financial influencer who discussed and invested in the economy and investing on his YouTube channel.
“At the time, I wasn't very educated about buying and selling stocks,” she said, adding that she was reassured that Mr. Paffras had about 1 million followers. “I trusted this man.”
Social media is an attractive way for inexperienced people like Ryan to learn how to manage their investments. Content creators brand themselves as money experts, endorsing financial products ranging from credit cards to cryptocurrencies, earning them the sophisticated moniker Fin-Fluencers.
However, many of them have faced accusations of promoting risky assets, promoting “pump-and-dump” schemes, or simply sharing unqualified advice. Regulations may be unclear or difficult to enforce, especially across borders.
Ryan considered himself a savvy saver. She feared she was in a rush to sell her portfolio as the market began to recover from the covid crash. She paid $532 for Mr. Paffras' “Stocks and Psychology” course, mirroring his lead in buying stocks in companies that he believed were lucrative. She moved her cryptocurrency to Blockfi, a cryptocurrency lender promoted by Paffrath.
“It all went very well,” she said. “Until it isn't.”
Over several months, she poured around £32,000, or $39,000, into the stocks he mentioned. She was making some gains at first, but then her portfolio started dipping. In 2022, Blockfi filed for bankruptcy, locking up about $10,000 worth of cryptocurrency at the time, Ryan said. All in all, she lost about 20,000 pounds, or about $24,000. She blamed the losses, but added that she wished Paffrath had been more transparent about Blockfi's risks.
Mr. Paffrath is one of many influencers who share investment opinions online, and a disclaimer on his YouTube channel warns his subscribers (who currently have 2 million followers) that his advice is not personalized. ). He apologized for promoting Blockfi and said he lost about $433,000 of his own money to lenders. “My true fans understand my ethics and who I am,” he said in a text message, but he declined to comment further.
For everyday investors, “in the extreme, they could lose everything,” said Sue S. Guan, a law professor at Santa Clara University. “I'm concerned that not much is being done to help them understand that.”
Among the advice, it's a scam market. Fake investment opportunities on social media accounted for nearly $350 million in reported fraud in the first half of 2023 alone, the Federal Trade Commission said.
Certified financial advisors are also subject to complaints. Although research links using advisors to better financial outcomes, there is no clear consensus on their value.
In the UK and US, most people dispensing financial advice or selling investment products professionally must be licensed. Mr Guan said regulators could draw a clearer line on what financial advice requires a license.
However, regulating influencers is a challenge. The internet's global reach can raise jurisdictional questions, and analysts say the rules are hardly aimed at the age of influencers. While authorities may choose to go after the biggest offenders, it can be difficult to determine whether influencers are in any way responsible for their claims.
Regulators in the UK and US are warning consumers that financial advice on social media often has ulterior motives. The Securities and Exchange Commission goes after celebrities like Kim Kardashian and the companies that hire them for failing to properly disclose compensation. (Kardashian paid $1.26 million to settle the case in 2022, but denied any wrongdoing.)
“Making investment decisions based solely on information from Finfluencers, social media, and celebrities may not be a great idea,” SEC officials wrote simply.
The U.S. financial industry regulator fined a brokerage firm $850,000 last March after it said the influencer made social media posts on behalf of the company that violated rules.
And in the UK, the Financial Conduct Authority last May charged a group of reality TV stars with promoting what it called fraudulent and risky investment schemes to their millions of followers.
Kevin Convention's Paffras was named in a class action lawsuit filed in Florida, accusing him and other YouTubers who promoted FTX, the bankrupt cryptocurrency exchange, of misleading their followers. “People have to put on their big boy pants and realize that if you make a decision because of something you hear online, it's your responsibility,” he says in response to the lawsuit. I said it in the video.
In 2023, Pakhrus, who is currently registered as an investment advisor and still offers courses on his site, reached a settlement with the plaintiffs, according to court filings.
Felix Puchflucke, a law lecturer at the University of Oxford and the University of Luxembourg, said brands should be responsible for the influencers they hire and should also be provided with legal advice. Liability could also apply to tech platforms, which could remove misleading financial information from their sites, he added.
YouTube, Tiktok, and Meta say they prohibit content that contains harmful misinformation, deceptive practices, or fraud. Meta, which owns Instagram, said influencers are prohibited from promoting high-risk products and YouTube is warning viewers about “rich” schemes.
There's also a lot of good financial advice online, and experts said there are benefits to sharing financial literacy resources to a wider audience.
Joseph Parsley, an associate professor at Harvard Business School, said:
Many creators who work or have a background in finance say they, too, are tired of misinformation.
“There are people who don't have a financial history. They're good at marketing,” says Vivian Tu, who started Your Rich BFF, which shares personal financial tips to more than 2 million followers on Tiktok. Said. She still encourages people looking for tailored advice to hire a certified financial planner.
FTX's backing from celebrities and venture capital firms convinced Sunil Kavli to put his life savings into the exchange in late 2021. ” said Kavli, 44, who is also a former trader.
When FTX collapsed overnight, Kavuri said he lost $2 million. “I felt sick,” he said. He believes that celebrities should not promote financial products that they do not understand.
He joined a class action lawsuit against several public figures who supported the exchange, including Tom Brady, Gisele Bundchen, Larry David, and Shaquille O'Neal. Some of the defendants named in the lawsuit have settled their cases, while others are claiming it will be dismissed.
Lawyers for Mr. Brady, Mr. Bündchen, Mr. David and Mr. O'Neal did not respond to requests for comment.
Landon Tan, a Brooklyn financial planner, sees rules for certified financial advisors that don't necessarily apply to content creators. “Making false or misleading claims can end our careers,” he said.
Authorities are trying to help consumers refuse their feed. Some aimed to campaign with Gen Z Investors, while many added influencer education to their events.
Ryan, a sales engineer from Wales, eventually hired a certified financial planner and took an investment course. Many were provided free of charge by financial institutions. “I play it very safe right now,” she said.
She has shared her experience more widely to warn others and combat the stigma of making financial mistakes. “Be careful who you listen to.”
Kitty Bennett contributed to the research.
