Erik Finman was only 12 years old when he started investing in cryptocurrencies. In May 2011, his older brother told him that a promising new digital universe had emerged that would revolutionise finance, and he decided to invest the $1,000 his grandmother had given him. The end of the story is well known: Finman became a millionaire in only 6 years.
This genius or stroke of luck, however we want to see it, is present in the imagination of many Spaniards, especially the younger ones, as a role model. They are convinced that it is only a matter of time before Finman’s story repeats itself – with them, of course – and that only such investments, capable of multiplying a very small investment and obtaining stratospheric returns, are worthwhile.
In fact, most Spanish influencers only analyse equity products, especially those with very high risk, cryptocurrencies or technology stocks. This can be explained, in the first place, by the way they monetise their content. Financial content disseminators often benefit from paid promotions by investment platforms and financial products. Since high-risk products generally offer higher fees, there may be an economic incentive to promote such products. In addition, high-risk products and securities are often surrounded by an exciting and volatile narrative, which can potentially generate more interactions on social media and thus more revenue. Thirdly, the majority of the audience is young, not very knowledgeable, less experienced in investing and more susceptible to being attracted by aggressive strategies that promise quick and juicy returns.
Although this correlation between disclosure and high risk may be true, Celia Rubio, one of the most prominent investment influencers in the industry – he has more than one million followers on Instagram – he does not believe that this is a general behaviour of financial content disseminators and that many talk about other products and “the importance of creating an investment strategy and a diversified portfolio”. Héctor Chamizo, journalist and economic expert streamer, considers that although “the link between finfluencers and high-risk investment products is notable, it is important to consider that not all focus exclusively on high-risk products” and that some “take a more educational and diversified approach”.
Unfortunately, the culture of the buck, which has metamorphosed from bricks and mortar to cryptocurrencies and technology stocks, is still deeply rooted in Spain, one of the EU countries with the worst financial education along with Romania, Cyprus and Portugal, according to the European Commission. In 2021, the Bank of Spain conducted a survey with three basic questions on inflation, compound interest and risk diversification. The results were devastating: only 19% were able to answer three basic economic questions correctly.
The Internet and social media, the sieve of distorted information
Despite the bad data, Spaniards’ interest in the economy and wealth management increased markedly after the pandemic. The rise in inflation-CPI went from -0.3% in 2020 to 8.4% in 2022– , the historical increase in interest rates, which have so far remained at around 0%, and the loss of purchasing power-according to Addeco, the average Spanish wage has the same purchasing power as in 1996.– have aroused great interest in savings and investment among Spaniards.
This positive fact is diluted by this negative one: novice investors, especially young investors, seek information on these topics on the internet and social media rather than consult a financial advisor. In this context, finfluencers play an increasingly relevant role as sources of information. However, not all of them have the necessary training, knowledge and experience in economics and finance, and many of them suggest that through a few simple steps their followers can achieve what they supposedly already have: the desired financial freedom.
CFA Institute – one of the world’s foremost associations of investment professionals, known for its famous CFA (Chartered Financial Analyst) certification – published a study earlier this year on how financial communicators engage Generation Z investors in the investment decision-making process. According to Rhodri Preece, head of research at the CFA Institute, “our research shows that the content of the finfluencers often lacks the necessary risk disclosure, which may hinder consumers’ ability to assess the objectivity of the information, and some investors may not be aware of when and how the finfluencers to promote financial products.
Pablo Gil, an economist and one of Spain’s leading experts in stock market analysis, believes that “the problem we still have is that the Internet is completely flooded with bad advice, because there are many people who try to make a living by opening the eyes of the rest of the public, when in reality their knowledge leaves a lot to be desired. So there is more interest and more information, but unfortunately a lot of it is not accurate or not really good.
Are finfluencers the solution or part of the problem?
One of the questions being debated is whether finfluencers are helpful in improving financial education or whether, on the contrary, they are part of the problem. Chamizo believes that there is no clear answer: “Within the spectrum there are content creators who are not very well trained and who sell three-quarter-size motorbikes, but there are also profiles with a high added-value proposal”. Furthermore, he believes that there is no direct link between low financial literacy and the increase in finfluencers: “Not at all. The shortcomings come from behind. The creators are not part of the problem, even if some people put sticks in the wheel so that the problem is not solved”.
Celia Rubio is more optimistic and believes that financial communicators have managed to transform this knowledge that was not very accessible and that “used to be covered with a halo of complexity” to make it much simpler, so they play “an important role in this democratisation of financial education”. He also points out that as we move forward in financial education, the number of influencers, as people will be more aware of the need to keep learning and will consume even more of this type of content.
Gil, for his part, is highly critical of teachers and disseminators of financial content: “Unfortunately, there are few good teachers who really do a commendable job, and it would be as simple as looking at their curriculum vitae. If we were to make this filter, we would discover that probably nine out of ten teachers should not really be teaching this type of activity”.
Regulation follows in the footsteps of financial disclosures
On the other hand, one of the big problems is that some finfluencers, whether professional or not, are unaware that their activities are subject to regulation. Although a title is not required, the CNMV reminds that recommendations must be presented “in a clear, accurate and objective manner” and it is necessary to disclose “any conflicts of interest that the person issuing the recommendation has in the financial instruments to which it refers”. The firm conducted a review of these investment recommendations issued by influencers and “contacted those identified as ‘experts’ to request clarification on their activity and require them to comply with established obligations”.
“While the CNMV has issued warnings and some guidance to these content creators, clarity on how they should operate within the legal frameworks could be improved,” said Chamizo. He adds that “current regulation may seem insufficient in the face of the rapid growth in the number of finfluencers. Given that the impact of its recommendations can be substantial, it is essential that the CNMV establishes clear and precise rules. For example, finfluencers obtain a specific certification or adhere to clearly defined ethical standards to increase transparency and accountability,” he adds.
Celia Rubio believes that the CNMV is clear, but that “it is not adapting well to the times and the types of content” currently in existence. He adds the need to “penalise those who don’t do it right, who spread false information and talk about scams”. On the other hand, Gil believes that it is preferable for the CNMV’s stance to be more aggressive and recognises that it is better to “sanction or avoid misinformation in a generic way, even if it is to the detriment of those trainers who really have a curriculum that supports them”. The easiest job,” he says, “is to fine or ban everyone, but the reality is that you would have to do much more detailed work” to discern who really has the knowledge and experience.
Friend or foe of industry?
In the financial industry, some professionals view the role of influencers and publicly acknowledge that there is clear intrusiveness. However, not all industry agrees on this point. Chamizo believes that brokers and trading platforms see them “as a significant opportunity to increase their client base”. Their ability to reach a wide and diverse public, with a language that is close, simple and attractive, has been exploited – without being without risk – by these entities to increase their volume of transactions. Chamizo points out that the investment fund industry and other more traditional and regulated financial institutions tend to reject those who do not provide value-added content and welcome those who offer more analytical and educational work.
Celia Rubio is not so ambivalent and considers that the industry “sees it as an opportunity; an opportunity to convey messages in a simple way and to make financial products and services known in other ways”. In this sense,” he concludes, “there is a good alliance between the financial industry and financial content disseminators.
Social media are part of the debate
The aforementioned CFA Institute study outlines a series of recommendations for regulating the situation of influencers financial. One is for “social media to improve their controls and take additional responsibility to ensure that content creators are transparent and identify what is promotion or advertising”. But is this possible? Should they take responsibility?
The entry into force of the new General Law on Audiovisual Communication seeks to regulate the activity of content creators on social media by determining what they can advertise and how they must do so. However, it is not specified what social media should do with financial content that is sensational or misleading.
Chamizo considers that social media “have a crucial role to play in moderating the content that circulates in their spaces, especially when it comes to financial information. Currently, although these platforms have implemented certain measures to tackle content of dubious financial quality, there is a growing consensus that they should intensify their efforts.
Gil, for his part, doubts that social media “have the capacity to be able to analyse this in detail and know how to qualify which content is really good and which is misleading content”. Celia Rubio agrees on this point, but she does believe that there is something that all social media should do: “control scams, identity theft, pyramid schemes, aspects that are very obvious and that social media should tackle”.
Conclusion;
Finfluencers have emerged strongly in the financial industry. They have helped to democratise information and have identified a great need: the education of a generation increasingly interested in managing and investing their wealth. However, not all of them have the experience and expertise to perform this function and many of them promote products without adequately informing about the risks involved. The financial industry and the CNMV must continue to take steps to ensure that content disseminators comply with regulation and standards of transparency and objectivity, while social media take a more active role in identifying misleading content and protecting users.
