What Financial Service Professionals Need To Know About Finfluencers.

The landscape of financial advice is evolving, encompassing a spectrum of roles from traditional financial advisers to the burgeoning phenomenon of ‘Finfluencers.’ Understanding the distinctions between these terms is crucial in the financial services industry, especially given their implications in regulatory contexts. Here’s an overview:

1. Financial Advice Financial advice involves a professional providing personalised recommendations to individuals about specific financial products and investment decisions. This advice is tailored to the individual’s circumstances and typically requires a thorough assessment of their financial situation, goals, and risk tolerance. In the UK, financial advisers must be authorised by the Financial Conduct Authority (FCA) and adhere to specific regulatory standards.
2. Financial Guidance Financial guidance refers to more general information about financial matters. It provides broad advice about financial products and services without being specific to an individual’s circumstances. Guidance can help individuals understand their options but stops short of recommending particular products or investments. It’s often offered by organisations like the Money Advice Service in the UK.
3. Financial Recommendation A financial recommendation is a specific suggestion about a financial product or course of action, such as buying or selling a particular investment. Unlike general advice, a recommendation is more targeted and usually pertains to a specific investment decision. Financial professionals making recommendations are usually subject to regulatory requirements.
4. Financial Opinion A financial opinion is a less formal assessment or viewpoint regarding financial matters. It may involve subjective judgments or interpretations of financial information and does not constitute formal advice or a recommendation. Opinions are often shared in media, blogs, or informal discussions, and do not carry the same regulatory weight as advice or recommendations.
5. Financial Planning Financial planning is a comprehensive process of managing one’s financial affairs to meet life goals. It involves analysing an individual’s current financial position, identifying short and long-term goals, and developing a strategy to achieve these goals. This process includes elements like budgeting, savings, investments, insurance, retirement planning, and estate planning. Financial planning can be done independently or with the help of a professional financial planner.

Each of these terms plays a distinct role in the financial services industry, catering to different needs and levels of engagement with clients’ financial matters.

What is a Finfluencer?

A “Finfluencer” is a portmanteau of “financial” and “influencer.” It refers to an individual who uses social media and online platforms to influence others in financial matters. Here’s a detailed definition:

A Finfluencer typically shares content related to personal finance, investment strategies, savings, budgeting, and sometimes specific financial products or services. They might use platforms like Instagram, YouTube, Twitter, or blogs to reach their audience. The key characteristics of a Finfluencer include:

• Social Media Presence: They have a significant following or audience on one or more social media platforms.
• Content Creation: Finfluencers produce content that is often engaging, accessible, and designed to resonate with a non-professional audience. This content can range from general financial tips to discussions about specific investment trends.
• Influence: Their opinions and advice can shape the financial decisions of their followers, especially among younger audiences like Millennials and Gen-Z.
• Variety in Qualifications: Unlike regulated financial advisers, Finfluencers’ expertise and qualifications can vary widely. Some may have formal financial education or experience, while others may be self-taught or share insights based on personal experiences.
• Regulatory Considerations: In the UK, as in many jurisdictions, financial advice is regulated. Finfluencers who offer specific investment advice or product endorsements may fall under regulatory scrutiny, especially if they are not authorised by the Financial Conduct Authority (FCA). They must be cautious to avoid providing what could be construed as regulated financial advice unless they are appropriately qualified and authorised.

Finfluencers represent a modern, digital approach to financial information sharing, making financial knowledge more accessible but also raising concerns about the accuracy, reliability, and regulatory aspects of the advice shared.

As the founder of the Academy of Life Planning, I feel it’s crucial to outline the distinct roles and responsibilities of key players in the financial advisory field, such as generic financial planning advisers, Finfluencers, and regulated financial advisers.

Generic Financial Planning Advisers: The Professional Ally

Generic financial planning advisers are professionals who provide broad-based advice on financial planning. They do not engage in sharing opinions on or recommending specific investment products. Instead, they:

• Educate and provide financial information.
• Guide clients towards understanding their overall financial situation.
• Direct clients to regulated financial advisers for specific investment advice.
• Act as a professional ally on the client’s side as they engage other financial services suppliers, such as regulated advisers and Finfluencers.
• Emphasise holistic financial strategies aligning with clients’ life goals.

Regulated Financial Advisers: The Gold Standard of Specific Financial Advice

Regulated financial advisers are professionals, in the UK authorised by the Financial Conduct Authority (FCA), to provide specific investment advice. They adhere to stringent regulatory standards and are equipped to offer:

• Tailored investment recommendations.
• Expertise in complex financial products and market dynamics.
• Protection for clients through regulatory oversight.

Finfluencers: Treading Carefully in a Regulatory Grey Zone

Finfluencers, a blend of ‘finance’ and ‘influencers’, primarily engage with audiences through social media and digital platforms, often swaying their followers’ investment decisions. They play a role in democratising financial information but operate in a regulatory grey area. Key risks for Finfluencers include:

• The risk of unknowingly conducting regulated activities without authorisation from the Financial Conduct Authority (FCA), which could lead to serious legal repercussions, including imprisonment and hefty fines.
• The crucial need for transparency in disclosing any financial motivations or potential conflicts of interest.
• The imperative to ensure that their content is accurate, factual, and up-to-date.

Understanding the Legal Landscape for Financial Influencing

It’s vital for all financial advisory roles – generic financial planning advisers, Finfluencers, and regulated advisers – to be well-versed in the UK’s legal framework governing financial advice. Key points from the FCA include:

• Unauthorised regulated activities can result in criminal charges, with penalties ranging up to two years in prison and unlimited fines.
• The FCA possesses broad enforcement powers, from revoking authorisation to initiating criminal proceedings against financial offences.

For Generic Financial Planning Advisers Concerning Finfluencers:

• Elevate Financial Literacy Initiatives: Improving financial literacy is crucial in helping investors identify misleading or inappropriate online information. Educators should stress that advice from unregulated sources might lack consumer protection safeguards. This includes guiding users to resources for verifying the regulation status of financial advice providers and reporting financial misconduct.
• Strengthen Gen-Z’s Ability to Critically Assess Information: The value of online investment content lies in its adherence to high standards of accuracy and engagement. It’s essential to equip consumers, particularly Gen-Z, with skills to critically analyse online information. Suggested evaluation criteria for Finfluencer content include:
  • Motivations: Are there any undisclosed financial incentives behind the content? Is there clear disclosure of such incentives?
  • Qualifications: What expertise does the content creator hold in the subject? Is this expertise verifiable?
  • Consistency: Does the information align with the latest, verified data from reliable sources?

Read the full report here: “The Finfluencer Appeal: Investing in the Age of Social Media” by the CFA Institute.

A Plea for Ethical Compliance and Legal Acumen

Recognising the distinct roles in financial advisory is key to maintaining the sector’s integrity and legality. I urge those engaged in Finfluencing to acquaint themselves thoroughly with FCA regulations and the insights of the CFA Institute report. Adhering to these guidelines is not merely a best practice but a necessity for operating within the UK’s financial advisory legal framework.