Advisors face new challenges as clients increasingly follow unregulated online financial advice
The Ontario Securities Commission (OSC) has highlighted the growing influence of financial influencers, or 'finfluencers', on retail investors, cautioning that their advice often leads to significant financial losses.
According to the OSC's report, ‘Social Media and Retail Investing: The Rise of Finfluencers,’ 35 percent of surveyed Canadian retail investors acted on finfluencer advice, with those individuals being 12 times more likely to fall victim to social media scams.
Leslie Byberg, executive vice president of Strategic Regulation at the OSC, stated, "Finfluencers have a clear capacity to affect their audience's behaviour, and this influence could diminish retail investor well-being – especially if the advice is poor quality."
The OSC's findings align with global concerns.
The Times reported that the Financial Conduct Authority (FCA) in the UK charged nine reality TV personalities.
Scott Timlin and Lauren Goodger were among those accused of promoting unauthorized high-risk investment schemes on Instagram. These promotions may have led to significant investor losses.
In the US, YouTuber Kevin Paffrath, known as "Meet Kevin," faced a class-action lawsuit for promoting the now-defunct cryptocurrency exchange FTX without proper disclosures.
Paffrath admitted to receiving payments for endorsements and expressed regret over his involvement.
Similarly, Logan Paul's CryptoZoo project, heavily promoted on social media, resulted in substantial investor losses when the promised NFT game failed to materialize, leading to a lawsuit alleging fraud and negligence.
The OSC's online experiment further revealed that nearly 40 percent of participants exposed to finance-related social media posts purchased promoted assets, compared to about 10 percent of those not exposed. Non-investors were particularly susceptible to such influence.
Advisors are encouraged to guide clients towards verifying the registration of any individuals or firms offering investment opportunities and to utilize resources available at osc.ca.
