The Truth About Finfluencers

One of the most common places people learn about investing today is social media. A FINRA survey found that 61% of adults between 18 and 34 have made an investment decision based on advice that they received from a social media post. With financial content continuing to grow online, many regulators are becoming concerned about how investments are being promoted. 

A rising concern deals with influencers being paid to promote publicly traded companies without properly explaining the risks. Many of these businesses generate little to no revenue but are advertised as promising investment opportunities. To put it into perspective, some companies have even put more money into marketing than into developing their actual business. 

Promotions themselves are not the problem, but it is an issue that many inexperienced investors cannot easily tell that these videos are advertisements. A recent investigation by the Wall Street Journal found that many creators promoting the prediction market “PolyMarket” were instructed not to disclose that they were being paid. Additionally, a 2024 study from the CFA Institute found that only half of financial influencer promotions included proper payment disclosures.

Researchers have discovered that these promotions can temporarily move stock prices. One study by Indiana University showed that stocks promoted by influencers gained, on average, 7.9% on the day the videos were released before returning to their original prices within a month. In other words, early investors could benefit while those who buy because of promotions often face a much greater risk. 

Regulators in the United States and Canada have been paying closer attention to these unethical practices, but enforcement is still limited. Most of these financial promotions operate in a legal gray area when companies, influencers, and investors are located in different countries.

Although social media has made financial education more accessible than ever before, it also opens the door to false advertising that appears as unbiased advice. As more and more people turn to YouTube, TikTok, and Instagram for investing advice, taking a closer look at who’s behind the content could help investors avoid costly mistakes.