How to Fix the 'Finfluencer' Problem (feat. @ThePlainBagel)

I'm a billionaire. I can explain this in a way I might sound crazy. This is going to be the easiest money you can make in crypto: $2.7 million in one account. These cryptos are going to explode over the next 90 days. $14.1 million in another account, 102th a date, that's like 12 mil a year. You do like a money calculator since it's like a hedge fund style thing and we're already in the hundreds of millions.

So, I've been making YouTube videos for over 7 years now, and even before that, I loved watching videos about investing, passive income, and side hustles. Back then, the content on social media was actually really, really good. I would learn heaps about new financial concepts. I would tune in and listen to how everyday people were growing their wealth, and honestly, I would be inspired.

These days, opinions are much more mixed. I think when people think about influencers now, they imagine something much more like the start of this video: flexing, egregious clickbait, wild stock or crypto predictions, an cesspool of scams, and conflicts of interest where the influencers make more money from duping their fans than they do from their actual wealth journeys.

So, in this video, we're going to do a deep dive on finfluencers: how humble beginnings turned into egregious profiteering and whether anything can be done to right the ship. To help me understand the world of influencers better, I enlisted the help of Richard Coffin, a registered portfolio manager by day but a finance content creator by night, to try and get my head around about how the hell we got here.

I think a lot of it has to do with the accessibility and the, quite frankly, bad PR of the typical finance industry, or what I'll call like traditional finance. On the other side, you know influencers have come as a sort of an answer to that issue.

You have these influencers coming with accessible content in that there's typically no cost for accessing YouTube videos or TikToks. It can be accessed anytime. It's often entertaining, which compares to a meeting with your financial adviser, probably not the most fun you'll have in the week. These people are relatable and intend to come across as honest.

So, in Richard's view, it's really about accessibility, and this has long been a problem with professional financial advice. The Australian Financial Review found last year that, on average, people in my home country are paying an upfront fee of $4,000 Australian, around $25,000 USD, just to access professional financial advice. This is obviously very prohibitive for most everyday people and it unfortunately means that professional financial advice itself is relatively inaccessible to those early on in their journeys or those that aren't already financially well off.

So, naturally, people seek free alternatives and try to educate themselves through social media. Accessibility is one factor, but there's no denying this type of content is actually really popular generally, and a lot of creators in the finance space do have real influence now over their communities, arguably even more so than financial advisors have with their clients.

Richard explained to me that there's two key reasons for this. We always hear the term parasocial relationship, but I do think that plays a role. So, for those unfamiliar, that refers to the one-sided relationship that influencers build with their audience, where obviously the influencer has this audience, where they don't really know any of the members personally. They don't really know who their viewers are, but the viewers are very intimately aware and feel like they have this connection with the influencer.

So that relationship can cause a sort of bond of trust with the viewer to the influencer, even though very clearly that bond doesn't really exist. The influencer has no idea who this person is, so I think that's one aspect of it.

Then the other aspect is likely the education side. I'm not sure what it would be like in Australia, but certainly here in Canada, there's a big gap with education as well in the United States, where personal finances just isn't really covered or done the justice that needs to be done in the schooling system. Because of that, you know, these people don't have a base level understanding, so you sort of have to trust people: whether they be professionals or someone online who says they know more than you or that you perceive as knowing more than you.

Richard explained to me that those two factors — the parasocial relationship as well as the lack of experience or knowledge of the end consumer — create this perfect storm where trust is created between the viewers and the influencers, which ultimately does give the content creator genuine influence. But that isn't necessarily a bad thing if the content is balanced and the influencer is honest about their content and its limitations.

And that's honestly how the finance space used to be before the flexers and the spookers. The finance space was filled with people like myself, Richard, HH, and others who were not trying to talk down to their audience from a position of authority, but rather share their learnings and their journeys. And that was really great content.

The FIRE movement was born, and people were getting on board. View numbers increased, advertisers were attracted to the space. Those sharing their personal finance journeys could now make a living off creating this content, allowing even more helpful content to be made and encouraging more creators and more viewpoints to join the space.

But this is where we started seeing the problems arise. Because this type of content was profitable to make, and the parasocial relationships and trust was surprisingly easy to build, it started to attract creators that looked to exploit the system and their followers for financial gain.

The harmful side of the space comes when the content that's being discussed isn't backed by the expertise, and when you have these conflicts of interest that come up. You'll never get rid of every conflict of interest that exists, but you have to be aware of them and you have to mitigate them, or else you end up with what we've seen, which is a lot of these issues, even to the point where you have blatant scams at times on some of these influencer pages.

Unfortunately, this behavior by a select few is really starting to ruin the social media finance space for everyone. Because this niche actually became popular, which is a good thing, and also very profitable, which is a good thing, it inadvertently sowed the seeds of its own destruction. Why? It all has to do with malicious behavior by a few bad apples.

As Richard says, the key words here are conflicts of interest. What are some of the common situations you see conflicts of interest occurring in this type of content? I think the most common one you see is just playing the algorithm, and that's a very understandable conflict.

At the end of the day, you can't harp on someone trying to get views on their channel from being a bit clickbaity or whatever. Like, I understand that to an extent, that's the name of the game. It's very hard for a video to get traction without playing into that to a degree.

I think it's an issue of moderation, though, where you have some people who, you know, might say these are the top five investments to hold and then give them more nuanced opinion in the video. But on the extreme end, you'll have people who use clickbait to say this position is going to make you rich or this position is going to pan out in the next two weeks or whatever. That conflict exists because it's that content that typically gets views.

What would the typical viewer rather watch? A video that says this investment is going to make you a bunch of money very quickly, or here is my risk-reward analysis or deep dive into a given publicly traded stock? Playing the algorithm is a conflict of interest that only gets worse as time goes on, as more creators enter the space and there's heightened competition for a given viewer's click.

The result is that a higher percentage of finance content is strategically constructed to tap into the biases of the human brain as opposed to being content that is genuinely helpful.

"How to get rich now? Best stocks to buy? This crypto will explode?" They're all much more clickable titles than, say, "How to invest for the long term," "How to open a brokerage account," or "How to reduce your risk of losses." In fact, I kid you not, these days it's common practice for finance creators to come up with the title and the thumbnail first before they decide what to write their video about.

In some instances, more time is spent on the packaging and the presentation than the actual video itself. But unbelievably, this is only a very low level of conflict of interest in this space.

I'm sure it's more common on the cryptocurrency side, but we've even seen some influencers take sponsorships to cover certain stocks in a positive manner, which is very clearly a conflict of interest when someone's watching you for objective information but you're paid to give a positive review.

It's kind of a funny parallel, but I like to think of it as the makeup industry. My wife used to follow a bunch of makeup YouTubers, and there was always this balance being done between being an objective reviewer and then doing brand deals and launching your own collaborations and stuff.

And then it's very easy to see when someone had crossed the line. You would just see their reputation fall apart, and I think you see to an extent the same thing with finance, but it's not as well recognized, especially when one of the highlights of the report is that a lot of the time those promotions aren't fully or even to an extent disclosed to the audience properly.

There's even been instances of full-on hidden marketing where someone reviews a stock, takes payment for reviewing that position, and then doesn't disclose that to the audience, which obviously is going to cause some problems. And this is the problem we now face: what's started as a genuinely helpful and positive niche of the internet is now essentially being ruined by its own success.

The space is rife with conflicts of interest, deceptive behavior, and straight-up scams. And while this is all just from the worst 1% of financial creators, it really does start to lower the reputation of the group. It's like the late Charlie Munger's quote: show me the incentive, I'll show you the outcome. And that's really what got us here today.

Today, the term influencer is generally a negative one, and with egregious behavior from a few bad apples, all creators, even the good ones, are feeling the effects. From a personal perspective, last year in response to all the scam online courses about investing, we actually decided to make our own course content to start to right the wrongs of the space.

Now these courses are fully licensed here in Australia and thoroughly reviewed by a licensed financial advisory firm, but our main issue is actually getting people in the door because most people immediately dismiss the content as just another scam. That's how bad the reputation of the industry has gotten, and something needs to be done because it's only getting worse.

Unfortunately, finance content has become a cesspool of cash grabbing and deceit, and it's harming consumers that are simply trying their best to learn about money. Well, interestingly, a few years ago, my home country, Australia, actually started doing something about it.

What the Australian Securities and Investments Commission did was they updated their interpretations of what constitutes financial advice online and who can give that advice. For example, I'm going to share with you five long-term stocks that will do well and which you should buy and hold. By ASX's own website, it intends to influence someone's decision to buy specific financial products.

It provides an opinion about these products. It is likely to be financial product advice. The short of the rule is that if you imply a buy, hold, or sell recommendation on a financial product in your content, it will be considered as financial advice, and thus you must be licensed to be able to talk about it.

Recently, I sat down with Vince Scully, the CEO and co-founder of Australian financial advisory firm Life Sherpa, to learn more. The big thing that differentiates Australia from most jurisdictions around the world is the way financial advice is defined and regulated.

Broadly, it catches anything that amounts to a recommendation or a statement of opinion that might influence someone's decision to buy or sell a financial product. So, that might catch a statement that, you know, a budget channel might say it's a good idea to have four bank accounts to control your spending. Most jurisdictions around the world, that's just good advice. In Australia, because that might influence your decision to open an extra bank account, that's financial advice that requires a license.

So, for financial influencers in Australia, it's not illegal to influence someone's opinion on whether they should buy, hold, or sell a financial product. It requires appropriate licensing if you wish to make this kind of content. And yes, before you ask, I do have that licensing; the information is always in the description of my videos.

But interestingly, beyond providing financial advice, another focus of their updated information sheet was the relationships that companies are allowed to have with influencers. ASIC noted that arranging for a person to deal in a financial product is a financial service.

For example, if you promote a link to your followers to access an AFS licensee's trading platform to trade financial products, it's a unique link that can't be accessed anywhere else. You receive a payment from the AFS licensee for each click-through resulting in use of the platform. People that access the link also receive a benefit when buying the products because of your unique link.

Well, you are actively involved in making the transaction happen. The unique link benefits you and adds value to your followers who access the link; this is likely to be dealing by arranging — again, a big no-no without a license.

In fact, this can be a big no-no even with a license due to Australia's overarching conflicted remuneration laws. The general rule is, if you're giving advice or arranging, and you're running a business, then you need a license.

That brings you into all sorts of rules that normal financial advisors would have to follow. The big one is what's called conflicted remuneration. So, in Australia, unlike in the US and other markets, commissions on investment products are banned.

So, financial advisers don't get commissions from fund managers, and so that's described as conflicted remuneration, which is broadly any payment that might influence the advice. From a content creator's perspective, where the payment starts to go beyond paying for a click or paying for a view and ends up being related to the volume of business transacted, that's starting to be difficult to support.

Ultimately, what that means is that a lot of the conflicts of interest are taken out of finance-related social media content. Here in Australia, a content creator cannot receive remuneration from a company that deals in financial products, and that includes brokers based on an affiliate system based on referral numbers.

They also can't be paid to convey a message that influences you to take action on a financial product. Accepting a predetermined payment to say broker X is an option here in Australia because it has these features and offers $3 brokerage, that's okay.

Being paid per sign-up and saying, "Hey guys, I recommend broker X because they're the best," probably not going to cut it. And while no legislation is usually perfect, this has done a few very helpful things in Australia to clean up the content made around the financial products you can buy here.

It's firstly stopped a lot of conflicts of interest occurring in finance content, and secondly, it's made a lot of finance creators upskill, myself included, and go through the necessary training and licensing requirements in order to discuss this stuff online.

But with that said, there are also a few issues with rules like this one: again, it reduces accessibility. That was the problem in the first place, right? At the end of the day, a lot of small creators that couldn't afford expensive legal fees, education, and licensing costs had to stop sharing their financial journeys online in fear of prosecution by Australia's financial regulator if they accidentally slipped up and said the wrong thing.

That reduces the pool of voices and limits the amount of viewpoints you can hear from online. But beyond that, the main and more obvious problem with these laws is that they just apply to Australian content creators. Australia obviously has no authority in telling content creators in other countries what they can and can't say.

I think it's been reasonably effective in terms of regulating Australian content, but obviously has no impact on offshore content. It certainly reduced the number of content creators, and so I think it's been good for the Australian consumer. Has it been perfect? Could it be better? Yes, of course it could be better.

Would you like to see other countries adopt a similar strategy to what's happened with our financial regulator in Australia? Yeah, I think that there is a role for the regulator to play here, and we're starting to see some moves offshore. In the UK, the Financial Conduct Authority, which is the body that regulates financial advisors, has been making a lot of noise around this, and I think we'll see similar regulations to what we have here.

The US market, you know, obviously given the constitutionally protected right to free speech, becomes a little harder to regulate, and the definitions that get you into the SEC's regulatory regime are much narrower, narrowly defined. So, it would take quite a bit of work in the US. I think there is a lot of appetite on the part of the government in the US to start looking at this, certainly post some of the high-profile crypto failures.

You know, some very high-profile personal finance content creators got caught up in some of those collapses, having taken significant amounts of sponsorship dollars. Now, this has been covered widely on other channels. I want to go into the specifics or naming names, but I think that's created an appetite to do something.

And that's really the situation we're in now, figuring out how to reign in the egregious behavior while also allowing those who spread valuable content, like Richard on his YouTube channel, an environment where they can do so reasonably freely.

You know, at the end of the day, more information is going to be helpful. There are issues with misinformation with that missing nuance around a lot of stuff. But one of the key points of the report is I think it was a quarter of Gen Z survey respondents indicated that they started investing primarily because of influencers.

So the only reason they got started was because of coming across's content online. So obviously, that's a tremendous benefit. You know, if you ignore for a second how they invest, which could play a role there, obviously if you just focus on the practice of investing, starting earlier, by all accounts, is one of the best things you can do.

And Richard's right, despite all the bad stuff out there, there is a lot of good. So as Richard puts it in his video on the topic, what to do about influencers? Well, I think it's a multifactorial approach. There's a strong case for more regulatory oversight and action to help eliminate harmful conflicts of interest and deceitful behavior, and Australia has been a pretty good example of how this could be implemented.

I think the social media platforms themselves could do a better job at making creators submit better disclosures and enact tougher penalties when these rules are broken. And I obviously think that creators themselves need to hold themselves to higher standards with their own content.

But let's be real, this may not happen. Laws are hard to change, there isn't enough funding dollars to adequately enforce every case, and bad apples tend to stay bad apples. So ultimately, at least for the time being, a lot of this scrutiny and filtering of content does fall to the end viewer.

So my last question to Richard was quite simply, if nothing changed from here, how can consumers better protect themselves against malicious finance content online? There were three points in the CFA Institute's report that they suggested be part of an educator's plan for tackling the situation.

So they were recommending that schools and different institutions try to instill these practices onto their students. The first is motivations. So what are the motivations of the creator? Are they financially incentivized, or do they receive financial compensation? What is the nature of that financial compensation? Because that will help you understand some of the conflicts of interest that exist.

That includes, as well, I think a big part with that is whether a creator owns a given stock that they're talking about. You know, it's very easy to talk positively about a position when you stand to benefit from other people buying it. So that's one aspect: motivations.

The second aspect is qualifications, and that's not again to gatekeep against say amateur content, but you know if someone goes online and says you should buy these stocks, you should know if they're qualified to be making those suggestions and what those qualifications are.

If they're easy to — another point that they highlight is if it's easy to verify this, especially when it comes to scams. And things like that, when someone says, "Well, I'm an ex-Wall Street hedge fund manager, and now I'm selling you this Bitcoin trading course," or Bitcoin trading Discord group or whatever it is, are the qualifications easy to verify? Because it's very easy to say you're whatever online.

So that's the second aspect: motivations, qualifications. And the third is consistency, which just refers to the idea of, is the information consistent across different sources? Which is basically just fact-checking.

None of those individually allow you to judge the merit of a video, and I think, you know, like when it comes to qualifications, I always like to highlight that amateur piece where just because someone isn't a registered advisor or even if they're an amateur doesn't mean there's not value in that video being posted.

But all these things considered together will give you the context you need to evaluate the video you're watching, which I think is the important part. If you're going to put the onus on viewers to evaluate the information they're coming across, you need to equip them with the right tools, and I think those are three great approaches for that.

So overall, that is where we currently stand with finance creators, influencers, as you like. I wanted to say firstly thanks very much to Richard and Vince for coming on the channel and helping me out with this video. I'd also like to hear from you: what do you think about influencers? Is there a solution to the problem?

I'd love to hear your opinion, so definitely drop that down in the comments section below. But if you did enjoy this video, please leave a like on it, subscribe to the channel if you have not done so already, and with that said, I'll see you guys in the next video. [Music] [Music]