In today’s Exponential Investor:

  • The rise of the fin-fluencer
  • People want more than just standard advice
  • Likes and follows equal social proof
  • A bull market brings you in, a bear market gives you knowledge

Today we hit pause on the commodities chatter. Don’t worry, I’ll come back to it later in the week. Rocks are my second love, after all.

By the way, if you have something about commodities you’d like to know, drop me a line here, with ‘Ask Shae’ in the subject line. I’ll see if I can get to answering those questions next week.

Now let’s get back to it.

What would cause me to ditch my favourite topic?

The rise and regulation of the fin-fluencer. 

Australia’s regulatory body laid out some new ground rules last year around the type of advice people could or couldn’t give in the social media space. The rules were vague and spooked a bunch of people into giving it up entirely.

In the UK, your regulatory body, the Financial Conduct Authority, isn’t far behind. It has been actively monitoring the financial advice dished out over social media in the past 12 months. It hasn’t clamped down as hard as Australia yet, though it has started to throw its weight around on paid promotions for financial products.

Given the similarity between our two financial overlords, I wouldn’t be surprised to see the FCA take similar steps to those taken Down Under.

In the past, I’ve been critical of Australia’s regulator having a heavy-handed approach with the little guys, whilst ignoring the misdeeds of our banking sector. In general, however, the guidelines set up by both countries have been beneficial for the public overall.

The financial rules we have governing financial products today are due to of all the scams and dodgy dealings that have entrapped vulnerable people.

But fin-fluencers are an entirely new form of advice altogether, and they are both good and bad for the public…

Democratizing the market 

As an analyst and investment writer who makes a crust selling newsletters, you’d think anyone in my profession would automatically be critical of some kid with a mobile phone talking up investments on Instagram.

On the contrary, I’m mostly supportive of them.

First and foremost, these people are relatable, accessible and capture one of the greatest features of the internet – the democratisation of information. 

Too much of the financial industry is wrapped up in elitist jargon that does nothing to help you develop your own financial literacy.

That jargon, by the way, is used to make you feel stupid and intimidate you from tackling investing on your own.

There are simple ways to explain complex subjects. Most in the business can’t explain a topic simply because they don’t thoroughly understand the concept themselves either, or enjoy feeling superior when they leave you in a mental whirl.

This alone is another reason why people are increasingly moving to fin-fluencers.

The general delivery of information on socials must be done in 60 seconds or less. Content creators know a person scrolling by needs to be able to grasp a concept quickly to ‘connect’ with them.

The short version is that fin-fluencers have worked out how to talk to their peers in a non-condescending manner, and the broader financial sector has spent years refusing to acknowledge the benefits of this.   

Consider this, too. Only 6% of people in the UK can afford financial advice.

Social media is free to anyone with a phone and a Wi-Fi connection. People to develop their financial literacy gradually, at no expense, and in private. 

To boot, the information from a financial adviser is very rarely unique and is tailored just for you.

Most advisors have a model they follow. It goes like this: stocks include those that pay a dividend, consumer staples, utilities, banks, telcos and some big-tech names. And, in a commodities bull market, advisors will jump on the band wagon late and suggest a couple of mature miners whose capital growth is all but over.

These same people will round it out with some interest-paying vehicle, and, voila, you have received the exact same information as everyone else.

It’s highly unlikely they’d suggest investing in cryptos or precious metals. That kind of information is saved for the family wealth planning offices where the regulations around ‘advice’ become a little more hazy…

These points are why fin-fluencers have been able to command attention. Plus, the rise of fin-fluencers is encouraging more women to develop their financial literacy and start investing.

Over two-thirds of young people say they follower a fin-fluencer. The information received from them has caused 9 out of 10 people to change their financial behaviour.

My problem with fin-fluencers isn’t the genre or the delivery of information. Infotainment and accessible aren’t negative in themselves. Particularly when so few of us have access to this information growing up.

A sticking point, however, is the fact that most of the people handing out investment tips haven’t even been adults for a full business cycle…

The only credential is trust

Anyone can call themselves a fin-fluencer. You simply set up a social media account and start talking stocks and financial stuff.

There’s no vetting process, no proof of knowledge, no body of work.

The only credential here is trust, built up through being likeable and gaining followers. Which, rightly or wrongly, becomes social proof.

And social proof then becomes the only evidence a new follower has.

The fact that a whole bunch of Australian fin-fluencers chucked in the fin-fluencer game when the rules changed locally tells me they didn’t fully understand the information they were giving out.

Australia’s financial advice-giving exams are challenging, and very clearly explain what is considered to be financial advice.

This tells me that those who gave up the ghost probably haven’t got a background in financially regulated products. If they did, they would have had to jump through numerous hoops to pass the accreditation exams.  

Pieces of paper and digital trust aside, the average age of a fin-fluencer is 25-34. Anecdotally, my social media feed suggests a skew towards the younger end of that bracket.  

And herein lies the problem. They only know one type of market.

The one that goes up, and up and up…

The type of market that even after a systemic failure such as the subprime crisis caused global markets to crash, this generation of new investors only saw governments coming to its rescue.

They’ve witnessed and been investing a market that started out in a natural business cycle but has been propped up with both government and central-bank invention for over a decade.

What they are providing is information, yes, but not analysis…

Adopt a Gen Z today

When you’re on the wrong side of 40 it’s easy to sound grumbly about the youth of today and their high-tech ways.

The thing is, this form of receiving information isn’t going away. This is how Gen Z wants to learn and it’s exactly how the gurus of tomorrow will be born. Us oldies have to accept it.

The most important takeaway isn’t generally light on substance advice. The good will stand out from the bad over time (though that won’t stop a bunch of kids losing money).

The key thing to note here is how investing has morphed into infotainment. Gen Z have begun their investing journey much earlier than other generations.

They live in a world where investments are more accessible than ever before and this starry-eyed batch of investors are willing to take risks in the market to grow their wealth.

Think of it like this. The bull market gave rise to information, but a bear market will be the catalyst for analysis.

What young investors need is guidance from investors who are many bull and bear markets old, not scorn.

Sure, what we know won’t fit in a 60-second video. But maybe we can teach all the investing tips and tricks we wished we had learned from our parents.

Until next time,

Shae Russell
Co-Editor, Exponential Investor

PS In my time working in finance, I’ve had the pleasure of working with a number of very smart people. But Charlie Morris, former head of absolute return for HSBC, may well be the sharpest financial mind I’ve ever encountered. And until Thursday, he’s spilling the beans on the investment strategy he used for more than a decade in the City. If you’re interested in knowing more – and given Charlie’s results, you definitely should be, you can click the link below to find out more.

Click here to learn more about Charlie Morris’s’ “Money Map”.