Beware of Finance influencers! They can mess up your portfolio!

Published: March 23, 2022 at 6:00 am

Last Updated on March 23, 2022 at 9:10 am

A finance influencer or finfluencer is someone capable of influencing investment or insurance or money management decisions based on the content they create (articles, video, tweets, Instagram posts etc.). Sadly, many of them are capable of harming our portfolios. A discussion.

Note: We are acutely aware that the opinions presented below also applies to freefincal content. The cautionary message applies to freefincal readers as well. It is narcissistic and unsavoury to assume our content influences others. However, it is best that we point out first that the following applies to all content out there (including ours).

Caveat Emptor (buyer beware); Caveat Lector (reader beware); Caveat qui Influere (beware of people who influence);

Always ask, cui bono? Who or How does one benefit from a recommendation (in this context). Never follow any celebrity or content creator (especially us) blindly.

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Btw, how much ever they deny it, players like Google or YouTube have a conflict of interest on what they choose to “recommend” or serve up as search results.

Asking a celebrity to endorse a product is hardly new. It has been going on for centuries. Famous Roman gladiators did it! Today we would call this a form of growth hacking. That is, it represents a quick way to reach a lot of people. Of course, the bigger the celebrity, the bigger the expense.

Social media and content creation platforms offer the opportunity for anyone with patience, persistence and hopefully a semblance of talent to become popular today. So product manufacturers or “brands” as the influencer would call it don’t need to hire an A-list actor or sportsperson to push their product.

More importantly, an influencer specialising in one particular area (aka niche) has a specialised audience. All a product manufacturer has to do is to entice the influencer with a large enough sum and they have access to that audience.

Celebrity endorsement or influencer endorsement is merely a more expensive form of affiliate marketing.  There is of course nothing wrong with this. Just that at freefincal, we find it distasteful and a means to betray reader/viewer trust and would never engage in it (every day we get 2-3 requests for such “brand collabs”. All of them are redirected to the junk box).

So what is the issue here? Why should I be wary of influencers?

The biggest problem is, most readers or viewers are lazy. They want quick-fix solutions. They want to know which is the “best demat account” or the “best way to get better returns than a fixed deposit”. When such people meet influencer content (thanks to social media machine learning) it is a match made in hell.

We need to be cautious of anyone who recommends a product or pushes their own products (again, especially us). Both involve a conflict of interest. The biggest red flag is when a finfluencer recommends a new product or a new type of product. With no history of performance, they would be clueless about where the product fits in the risk vs reward map.

Yet they are happy to recommend it for no reason other than the hefty paycheck received from the product manufacturer. Depending on the following a single such deal can easily be 2-3 times more than a monthly ad revenue from YouTube or Adsense.

Buying such products can be extremely harmful to our portfolios.  Sure there are disclaimers and warnings in place. But if people took disclaimers/warnings seriously, tobacco companies would be out of business today.

There are some differences wrt recommending a product and pushing a self-made product but we shall not get into the niceties here. The content consumer must be wary of both equally.

We sometimes get messages to review a new product. Sometimes these messages occur within a short span of time. We realised this was because some influencer had just released a promotion and readers wanted an unbiased view. I think the only unbiased view one can offer is: Stay away from all new products. You can make all the wealth you want with existing ones as long as you know how to choose! 

Regulation is catching up with this trend: Influencers in Australia risk jail for breaking finance tips rules. Of course, this may or may not happen in India. At least not until there is a big scam!

It is childish to blame influencers or product manufacturers. Most content consumers have a product-centric approach. They are not interested in the process of portfolio management. So as mentioned before, it is a match destined to .. er grow our economy! We need to take responsibility for our decisions without blaming others.

Another danger of following influencers blindly warrants a mention. Even if there is no conflict of interest, the “subscriber” must question every statement made and opinion expressed. Is it based on some evidence or are they speaking through their hat? Many finfluencers do little or no research while expressing opinions on stocks, mutual funds etc.  Online popularity or verified profiles are not indicative of unbiased expertise!

In summary, buying financial products from finfluencers or based on finfluencer recommendations alone can be extremely harmful to personal portfolios. We recommend not to be influenced by anyone; not to “follow” anyone or call anyone a “guru”.

For what it is worth, we have always suggested that readers unfollow freefincal as soon as their money management system is in auto-pilot. If they found our site useful, they can pay it forward but recommend us to friends and move on.

When it comes to personal finance, nothing beats rigorous DIY research of our personal requirements (yes, we need to look within) and then selecting suitable products for these requirements. Content creators are merely sources of information in our research. Nothing more. Nothing less. Caveat qui Influere.

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About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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