Investors shift back to traditional advice as finfluencers’ popularity falls

As the regulator takes action against social media posts from so-called finfluencers Sahar Nazir finds their popularity was already on the decline…

Social media influencers specialising in finance, known as ‘finfluencers’, have seen a significant decline in popularity among younger generations since the end of 2021, despite ‘finfluencers’ becoming a buzzword in the financial advice landscape.

Charles Schwab UK research, released earlier this month (2 May), reveals clients are moving away from advice provided by finfluencers, and instead are moving back towards more traditional channels such as financial advisers and investment publications.

Finfluencers also appear to be on the Financial Conduct Authority’s (FCA) radar after nine people were recently involved in an unauthorised foreign exchange trading scheme propagated on social media platforms.

The regulator accused Emmanuel Nwanze of orchestrating an unapproved investment scheme and disseminating unauthorised financial promotions. He allegedly compensated Biggs Chris, Jamie Clayton, Lauren Goodger, Rebecca Gormley, Yazmin Oukhellou, Scott Timlin, and Eva Zapico to endorse the @holly_fxtrends Instagram account to their substantial combined following of 4.5 million individuals.

They each face charges of issuing unauthorised financial promotions and are scheduled to appear before Westminster Magistrates’ Court on 13 June.

Despite finfluencers being in the regulator’s sights, experts have outlined other reasons as to why the demand for finfluencers has declined, and many do not pertain to fraud.

Speaking to Professional Adviser, Charles Schwab UK managing director Richard Flynn says demand for finfluencers has dropped by 13% among Generation Z and by 10% among Millennials since the end of 2021.

“This shift is primarily driven by increasingly challenging economic conditions and the complexity of financial products available to clients,” he notes.

Flynn explains that 87% of clients acknowledge the need to improve their financial knowledge, and 81% now see the importance of obtaining expert advice on investment strategies.

Multiply AI chief product officer Tim Elder says: “In 2021 the world was looking very different to anything we’d seen before; lockdowns, a furlough scheme, and a crypto memecoin bull run. TikTok saw huge growth as people were stuck at home. Social media usage was up, and so was the motivation to engage with finances — crypto FOMO [fear of missing out] and income anxiety had people talking.”

He continues: “The algorithms on these platforms distribute engaging content, and finfluencers were producing exactly that. Whether users took action or changed behaviour based on this content is another question.

“These algorithms are responsive and dynamic — trends come and go, and most aren’t about your finances. Cut to today and the world is different again; trending topics include mortgage rates and job security. Arguably, the decline in finfluencer content consumption could be attributed to the natural ebb and flow of what’s trending.”

Elder believes that advisers should consider the social media usage of prospective clients. “Is there an opportunity to reach them with engaging and valuable content? This might help increase awareness and consideration of their professional advice services,” he says.

Professional advice vs. social media advice

Economic instability, the Covid-19 pandemic, and geopolitical tensions may have heightened the demand for personalised, professional financial advice. Model Office founder and managing director Chris Davies highlights that crises and uncertainties drive individuals back to traditional financial advice channels for reassurance and security.

Additionally, the retirement of Baby Boomers, increased awareness of cyber risks, and the prevalence of financial scams have reinforced the need for expert guidance, he says.

These factors contribute to a decline in reliance on finfluencers and a resurgence in professional financial advice.

Flynn says that with the volatile markets and fluctuating interest rates in the past few years, he expects there will be growing demand for professional advice to help people navigate these challenges.

“Given the complex range of products available to clients, professional financial advice can be incredibly valuable in ensuring people have the right products to meet their financial goals and as a sounding board for investment decisions,” he comments.

Will there be a resurgence for finfluencers?

Despite the current downturn, the future of finfluencers remains uncertain. Flynn suggests that if economic conditions improve, with reduced cost of living pressures and lower interest rates, younger people might have more disposable income to invest. In such a scenario, he believes that finfluencers could regain popularity due to their ability to communicate effectively with novice clients on social media platforms.

However, Flynn also highlights the concern that finfluencer-provided information often lacks the regulatory oversight and professional rigor necessary to ensure client protection.

Multiply AI head of advice Peter Fairweather also expresses uncertainty about the future of finfluencers but says if traditional advisers pivot their businesses into the digital arena, he can see an argument where the demand for finfluencers will decrease. However, he warns that if traditional methods of advice either do not move forward or there continues to be an advice gap, finfluencers will no doubt try and fill the gap.

“With the introduction of generative AI, there is a chance that finfluencers may come across as more knowledgeable, and consumers may return to this as a method of consuming financial information,” Fairweather warns.

“Everything is cyclical, and one thing is for sure with the fourth industrial revolution well and truly upon us, there will always be a demand for finfluencers (particularly for the younger generation) with high reach across social media platforms and providing ‘peer to peer’ financial guidance,” says Davies.

“They are now finding a place in an ever-uncertain world of war economies, cybercrime and investors changing needs and requirements where an expert / professional approach tends to be favoured,” he adds.

Moran Wealth Management director Nicola Crosbie argues that the media attention on finfluencers casts doubt on their credibility.

“The regulator is putting them under more pressure, as we saw recently with the headline that ‘UK crackdown on finfluencers’ which could lead to prosecution,” she tells PA. “Economic conditions were challenging in 2022 and that would drive more people to have information verified or take advice from more experience or regulated advisers.”

Furthermore, Crosbie believes that anyone who educates on finance and builds awareness has a place in advice. “There is a fine line between what is credible and sensible, and what sounds too good to be true generally is,” she says.

“Social media will always have a big influence, and this is generally where they target. As people age, and wealth rises, the case for regulated and qualified advice becomes more and more.”

How does the decline of finfluencers affect professional financial advisers?

Davies tells PA that the decline in demand for finfluencers is an “opportunity” for advisers to land more influence across existing and prospect clients, particularly the younger generation.

“This is important where the Great Wealth Transfer comes into play as with £4trn to £5trn of assets to be passed down the generations over the next 20 to 30 years, firms who adopt a hybrid approach across marketing activities and advice strategies can ‘hedge their bets’ and reach an audience who want a tech approach but blended in with the re-assurance face-to-face services offer,” he argues.

Meanwhile, Fairweather says there will always be a demand for ‘bite-size’ easily digestible, financial advice aimed at younger people. “For some, finfluencers give ‘perceived’ independent and free-of-charge financial advice, that is away from an adviser who ultimately has been traditionally paid, directly, or indirectly, out of the products they recommend and oversee,” he says.

“Currently, most advisers are looking at a different market, so initially, the impact may be small or take time to realise. However, given time, technology will drive the way consumers access both advice and financial information.

“This will result in a gradual reduction in the level of fees paid by the consumer due to the low- or no-cost services that will become available. Advisers will find that social media will become part of the standard service they offer.”

Furthermore, Fairweather says the effect on the majority of the advice market will be limited in the very short term, but there will be a continual shift in the way that advisers operate and communicate with their clients.

Crosbie believes finfluencers will always have a place. “I don’t see that ending, nor do I think it needs too,” she notes. “Regulation will likely play a larger role in dictating what they can do or say. The deterrent of criminal prosecution is now real.”

She tells PA that finfluencers “complement” professional financial advice and is “a great way to lead people into financial advice and understand the breadth of finance”.

While the popularity of finfluencers has waned, their role in the financial advisory landscape is arguably far from over. The current decline reflects broader economic uncertainties and a growing preference for professional advice. However, as technological advancements such as artificial intelligence continue and economic conditions evolve, finfluencers may adapt and find new ways to engage with younger clients.

For now, the opportunity for professional financial advisers to expand their reach and influence has never been greater, provided they embrace the digital transformation and maintain their commitment to ethical, reliable advice.