Authored by Katie Mannion
As social media platforms continue to grow and evolve, the way we utilize these platforms have shifted. Social media sites such as LinkedIn, Twitter, and Facebook, were once for keeping up with friends and family but are now being applied as a primary source of news and information for a disquieting amount of people. One of the more salient types of information being shared on social media is financial-related news and advice. This topic is important to most and its popularity on social media platforms has grown steadily over the years. But unlike other uses such as connecting with friends or family, the dissemination of financial advice could cause real financial harm.
“In an average week, 43% of Americans spend four hours or more on social media, while 50% spend less than an hour a week on their personal finances.”1
Any of the social media platforms can, and are, used to discuss or educate others on a variety of topics. Finance as an industry and as a trending topic has kept up with the popularity on the platforms. A feature of social media is that anyone can discuss any topic, allowing anyone to provide their thoughts, opinions, and experiences on any topic to a potentially wide audience, regardless of their qualifications. A look under trending finance hashtags on the platforms (#investing, #fintwit, etc.) shows that anyone and everyone from various backgrounds and industries are sharing their opinions on topics and happenings in the markets at any given moment. This can be problematic when it comes to finance, in that it would be difficult for an investor to discern useful information and insights versus general noise or even harmful and misleading content.
The Bad: User Influence
One prominent example of harmful and misleading content is when in 2018, Elon Musk, the infamous CEO of Tesla, signed a settlement with the Securities and Exchange Commission (SEC) over tweets he published about Tesla and funding he had secured to take the company private2. The agreement stipulated that Musk would have to have his tweets pre-approved, in addition to a financial settlement. This year Musk attempted to dispute the settlement, stating that it was unworkable, and disputed the SEC’s statements that he had defrauded investors.2 (Musk is positioning his lawsuit as a free-speech issue.) While this is ongoing, there is a separate SEC investigation into Musk’s tweets about whether he should sell a percentage of his stock in Tesla, as his brother, Kimbal, sold over a $100 million worth of Tesla stock the day before – spurring an insider trading discussion.3 These cases bring into focus that social media is an arena that regulators are not only paying attention to, but are actively enforcing.
The Good: Social Media as a Tool for Financial Advisors
However, when properly harnessed and utilized, social media has become a useful tool in finance. The most popular platforms with financial advisors are LinkedIn, Facebook, and Twitter, all of which allow for private communication.4 This can be used as the first touchpoint with potential clients, or as an additional line of communication with current clients. It’s important to note that 74% of advisors reported using social media platforms to directly communicate with clients and 94% said that it resulted in gaining assets.4 While institutional investors have been leveraging social media as well, with almost 80% adding social media to their workflows.5 As with financial advisors, those at the institutional level are also most likely to use LinkedIn for their outreach. In addition, 48% of these investors also indicated that information from social media caused them to do additional research, and 37% said that it also had them share information with a decision-maker.5 There is a big difference between financial advisors posting online while adhering to regulatory compliance guidelines versus influencers that have large followings but may not necessarily have the financial background nor regulatory knowledge required to protect investors.
Whether being used for communication or for information and education, social media has become a standard tool in the finance industry. While having a new form of information sharing can bring positive benefits to investors, there are risks associated when it comes to consuming financial information on social media platforms. Social media is ever-evolving, and new platforms are emerging. While these shifts continue, we believe that it is important for both the private and public sector to work together to ensure that information, especially financial information, is being published in a manner that is not harmful to investors.
1 2021 TIAA Digital Engagement Survey. TIAA. https://www.tiaa.org/public/pdf/digital_engagement_survey.pdf
2 Michaels, Dave. Elliot, Rebecca. (2022, March 8). Elon Musk Seeks to Terminate 2018 Fraud Settlement With SEC. The Wall Street Journal https://www.wsj.com/articles/elon-musk-seeks-to-terminate-2018-fraud-settlement-with-sec-11646753976
3 (2022, February 25). Frank, Robert. Elon Musk and Kimbal Musk insider-trading investigation may be tough to pursue. CNBC https://www.cnbc.com/2022/02/25/elon-kimbal-musk-insider-trading-investigation-may-be-tough-to-pursue.html
4 Putnam Study Finds Social Media Vital to Advisors’ Work During the Pandemic. Putnam Investments. https://www.putnam.com/individual/content/advisorTechTips/3334-putnam-study-finds-social-media-vital-to-advisors-work-during-pandemic
5 Social Media Influencing Investment Decisions at Global Institutions. Coalition Greenwich. https://www.greenwich.com/press-release/social-media-influencing-investment-decisions-global-institutions#:~:text=A%20new%20study%20from%20Greenwich,an%20investment%20recommendation%20or%20decision
THE INFORMATION CONTAINED HEREIN REPRESENTS THE AUTHOR’S SUBJECTIVE BELIEF AND IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN DECISIONS AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN. NEITHER THE AUTHOR NOR ANY OF HIS AFFILIATES ACCEPT ANY LIABILITY WHATSOEVER FOR ANY DIRECT OR CONSEQUENTIAL LOSS HOWSOEVER ARISING, DIRECTLY OR INDIRECTLY, FROM ANY USE OF THE INFORMATION CONTAINED HEREIN. THIS INFORMATION IS BASED ON DATA FOUND IN INDEPENDENT INDUSTRY PUBLICATIONS. ALTHOUGH WE BELIEVE THE DATA TO BE RELIABLE, WE HAVE NOT SOUGHT, NOR HAVE WE RECEIVED, PERMISSION FROM ANY THIRD-PARTY TO INCLUDE THEIR INFORMATION IN THIS ARTICLE. MANY OF THE STATEMENTS CONTAINED HEREIN REFLECT OUR SUBJECTIVE BELIEF.