Social Media Users, Finfluencers Face Higher Fraud Risk
Social media users and finfluencer followers were more likely to be victims of fraud, despite showing higher levels of due diligence when vetting financial professionals, according to a new study by the Financial Industry Regulatory Authority.
In a brief from the regulator’s Investor Education Foundation, researchers found that among those targeted for fraud, about 69% of social media users/finfluencer followers lost money, compared with around 29% of non-users/non-followers.
The study probed data from the FINRA Investor Education Foundation’s 2024 and 2021 National Financial Capability Study investor surveys, finding that social media users and finfluencer followers tended to be younger and male, with lower portfolio values, were more likely to be a person of color, and often reported not identifying as “typical investors.”
In the survey, FINRA analyzed the objective and subjective knowledge of social media users and non-users (how much they knew compared to their confidence in knowing it). Social media users and influencer followers had lower objective knowledge than non-users, but consistently reported higher subjective knowledge (compared to non-users and non-finfluencer followers, the users/followers reported higher confidence of 10 and 14 percentage points, respectively).
To identify fraud vulnerability, FINRA researchers asked whether they’d been targeted in the past years, whether they’d lost money, and asked respondents if they’d invest “in an offer that has the hallmarks of an investment fraud,” asking if they’d invest in an opportunity promising a guaranteed, risk-free 25% annual return every year for the next five years (50% said yes, 21% said no and 30% said they didn’t know).
Among social media users, 13% said they’d been targeted for fraud, and of those, 68% had lost money, compared to 3% and 29% among non-users. 69% of users couldn’t detect the red flags, compared to 42% of non-users.
Among influencer followers compared to non-followers, the answers were more dire; 16% of followers said they’d been targeted, and of those, 69% lost money, compared to 3% and 26% of non-followers. In total, 72% of followers couldn’t detect the red flags, compared to 42% of non-followers.
FINRA also probed which social media platforms and channels investors reported as most likely to be where they lost money to fraud, with YouTube, TikTok and Instagram coming out on top at 79%, 70% and 67%, respectively.
The fraud disparities are all the more striking, given FINRA’s research showing that social media users and influencer followers were more likely to conduct research and due diligence than their non-user counterparts, including for background checks of financial professionals.
According to the data, 36% of social media users and 41% of influencer followers reported checking the background, registration or license of a professional with a state or federal regulator, compared to 14% of non-users and 13% of non-followers.
“These platforms appear to be drawing in investors who might otherwise remain on the sidelines, providing educational content and fostering community,” the brief read. “However, the combination of low objective knowledge, high subjective confidence and demonstrated fraud vulnerability raises concerns that suggest the need for further research on these issues.”