In April, the Ontario Securities Commission (OSC) released its latest research report entitledSocial Media and Retail Investing: The Rise of Finfluencers. In collaboration with The Decision Lab, the OSC reviewed how Canadian retail investors interact with the financial information they encounter on social media and discussed mitigation strategies where finfluencer advice may cause investor protection issues.
Based on a survey of 655 Canadian retail investors, the study made a number of interesting findings, including that 35 per cent of respondents reported making a financial decision based on advice from a finfluencer, those investors were 12.2 times more likely to have been scammed on social media and 3.1 times less likely to work with a financial advisor or portfolio manager.
The study also involved an experiment where 1,465 Canadian social media users completed a trading simulation to trade various assets, with a fictional starting balance of $10,000. Participants were shown a range of social media posts between rounds of trading. Experimental findings included that social media did impact trading behaviour. In fact, 38 per cent of people exposed to finance-related social media posts purchased the promoted assets, as compared to 8 per cent of those who did not see these posts.
Mitigation strategies were also discussed in the research and applied in the experimental study. These included(i)disclosure, i.e. providing information that may impact the recipient's understanding of a message,(ii)prebunking, which pre-emptively exposes and counteracts misinformation or biased perspectives before the viewer encounters them, and(iii)inoculationwhich presents a weak version of the persuasive message but then refutes it. Each of these strategies reduced participants purchasing finfluencer-promoted assets, but not fully.
The study concluded that finfluencer – investor relationships may potentially have a negative impact on investor well-being if the finfluencer is "providing low quality advice, due to a lack of expertise on their part or ulterior motives to generate commissions, followers, or other incentives". This research could lead to further study and additional regulatory measures in future.
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