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The Ontario Securities Commission’s (OSC) latest research report, Social Media and Retail Investing: The Rise of Finfluencers, found social media finfluencers have considerable influence on retail investors’ decision making.
Financial influencers (“finfluencers”) use their social media platforms to share finance and investing insights. Some finfluencer messaging includes sharing posts about their recent successful stock picks, making claims about their own financial successes and emphasizing the limited availability of an investment opportunity.
An OSC survey of 655 Canadian retail investors found that about 35% of respondents reported making a financial decision based on advice from a finfluencer. Financial advice on social media is appealing because retail investors perceive it to be accessible, free, and informative.
While retail investors believe finfluencers are generally motivated by self-interest, about 40% of investors believe that the finfluencers they follow are trustworthy. Those who have made a financial decision based on finfluencer advice were seven times more likely to trust finfluencers they follow.
Relatedly, those who have made a financial decision based on finfluencer advice were also 12 times more likely to have been scammed on social media. The results suggest that those who trust and follow the advice of finfluencers may be more vulnerable to social media scams.
“Finfluencers have a clear capacity to affect their audience’s behaviour, and this influence could diminish retail investor well-being – especially if the advice is poor quality,” said Leslie Byberg, Executive Vice President, Strategic Regulation at the OSC. “Our findings reaffirm the importance of understanding how finfluencer content affects retail investor behaviours.”
The report also details an online experiment with 1,465 Canadian social media users (both investors and non-investors), which assessed the impact of finfluencers and strategies to combat misinformation. Participants were exposed to social media posts promoting a particular asset during an online trading simulation. The posts resembled the type of content found on Reddit, X and YouTube.
Nearly 40% of participants exposed to finance-related social media posts purchased the promoted assets, compared to about 10% of those not exposed. Non-investors were more likely to be influenced by social media posts compared to those already in the market.
Several interventions used to reduce the persuasiveness of social media content were effective — however, they did not eliminate the impact of social media messaging entirely.
The OSC collaborated with The Decision Lab to explore the relationship between Canadian retail investors and non-investors and the financial information they encounter on social media.
For more information about finfluencers, investor protection and behavioural science, visit GetSmarterAboutMoney.ca and sign up for the OSC e-newsletter, Investor News
The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair, efficient and competitive capital markets and confidence in the capital markets, to foster capital formation, and to contribute to the stability of the financial system and the reduction of systemic risk. Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at http://www.osc.ca.
