Canadian investors don’t trust finfluencers, until they find one they really like #CanadaFinance

We tell ourselves we’d never trust a finfluencer. But it turns out that we just have to wait until the right one pops up in our feed. Then we slip on the rose-coloured glasses.

I’ve always despised being associated with the term “finfluencer” (aka financial influencer), but reluctantly acknowledge that I fall into this group. My general disdain may be somewhat galvanized by new research from the Ontario Securities Commission that shows Canadians are increasingly making investment decisions based on what they see on their social feeds. They’re trusting the specific personalities they follow despite a dislike of finfluencers in general, and paying for that faith through higher scam rates and deeper losses.

The takeaway? While Canadian investors are distrustful of finfluencers in general, when they find one they like, they like them a lot. And that can cost them dearly.

In its new report on social media and retail investing, the OSC describes finfluencers as online personalities who typically fall into one of three categories: unregistered individuals, unregistered individuals hired by financial firms, and registered investment advice professionals. But no matter the type, their ultimate aim is the same: capturing your attention and influencing your next financial move.

It’s worth emphasizing that there are financial content creators who offer solid financial guidance. But part of the problem is that being able to judge whether or not the guidance is good is a separate matter from liking a creator.

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According to the Canadian Securities Administrators, more than half of Canadian investors (53 per cent) use social platforms for information about money, up from 35 per cent in 2020. Among 18- to 24-year-olds that figure jumps to 82 per cent.

YouTube, Instagram and TikTok dominate their screens, and 46 per cent of investors say they stumble on an “investment opportunity” while scrolling, a leap from 29 per cent in four years.

The OSC research shows that we recognize that self-interest drives finfluencers: 83 per cent of respondents said finfluencers are in it for themselves. But if we do decide to take action based on a specific finfluencer’s content, we seem to disregard their perceived self-interest too much.

Investors who ended up following advice were more than seven times more likely to say the finfluencers they follow are trustworthy and they were more than 12 times more likely to report being scammed on social media than investors who did not act on a finfluencer’s advice.

Heavy followers also trade more often and are far less likely to use a professional adviser, magnifying the cost when things go wrong.

Researchers analyzed thousands of finfluencer posts and found they repeatedly use the same six persuasion tactics to get investors clicking.

They establish “authority” with screenshots of big profits or impressive credentials, and create “scarcity” with urgent countdowns. They “social-proof” their advice by filling comment sections with testimonials and thanks. Offers of free downloads or tips trigger “reciprocity,” in which a feeling of obligation is created which can increase the likelihood of following the finfluencer’s advice, while casual, relatable stories build “liking.” Finally, they encourage “commitment” through daily challenges – such as challenging you to share your financial goals – or regularly providing their own portfolio updates.

Wrap these tactics in clear, actionable language (“click buy,” “set your limit order”) and an emotional appeal, and it’s no wonder they bypass our natural skepticism.

These techniques of persuasion are great when the content is solid as it can lead to positive impact on people’s lives, but how are people to know what content is good?

Last week the Alberta Securities Commission ruled that James Domenic Floreani, a finfluencer better known as Jayconomics, breached provincial securities law. The panel found he promoted four stocks while pocketing cash and shares and hiding most disclosures behind a “Show More” click.

Mr. Floreani’s activity spanned YouTube, X, and Patreon, and commenters reported acting on his calls. Sanctions will be decided in a second hearing.

Social media investing advice isn’t disappearing, so investors need smarter ways to navigate it. Before acting on advice from your feed, pay close attention to language: if a post relies heavily on urgency, promises extraordinary gains, or flatters your intelligence, it’s cause for skepticism. Don’t rush to click. Stepping back, even overnight, can clarify whether excitement is clouding your judgment.

The easiest way to protect your wallet is remembering that liking someone doesn’t mean they’re right. Dig deeper.

Preet Banerjee is a consultant to the wealth management industry with a focus on commercial applications of behavioural finance research.