It’s Been One Week
For Spring Break 2024, we decided to cruise the largest cruise ship in the world, The Icon of the Seas.
We had a wonderful time exploring the new ship, seeing all of the shows, and eating ice cream all day (literally…I think Ethan counted 7 cones before lunch one day…gross!).
While Icon is the largest cruise ship in the world, the stateroom was snug for a family of five…which inevitably led to brothers wrestling in the small floor space available:
With all the up-close family time, we had a good look at what our kids are watching and listening to on their phones—so much You Tube and Instagram!! They watch social media influencers give advice on everything from skin care to summer job hacks. According to my kids, you should start your day with ice cold shower so that your pores are closed and won’t allow dirt in, you should only pop your knuckles by pulling (not pushing) the joint, and anything less than a 10 step nighttime facial care system is a disaster. My kids have lots of advice, all learned online in 60 second video clips. 😊
And my kids are not alone—according to a 2019 study, over 71% of millennials and Gen Z follow an influencer, and in a 2023 update to that study, over 60% of those that follow an influence believe that the influencer is trustworthy.
In the financial advice space, advice communities are springing up on Twitter (FinTwit) and Tik Tok (FinTok), with influencers hawking new budget trends, general financial advice, or stock tips. According to a recent CreditCards.com survey, while 37% of U.S. adults cited friends and family as their go-to resources for financial advice, Gen Zers were nearly five times as likely (28%) as adults ages 41 and over to say they got financial counsel from social media.
The problem with this is the same as all media sources—it is hard to get good advice, and sometimes the advice is just wrong. A recent study on financial influencer advice was a bit shocking…
In the Swiss Finance Institute Research Paper 23-30, researchers studied 72 million financial tweets and tracked the results of following that advice. Here were the results (emphasis mine):
This paper assesses the quality of investment advice provided by different finfluencers. Using tweet-level data from StockTwits on over 29,000 finfluencers, we classify each finfluencer into three major groups: Skilled, unskilled, and antiskilled, defined as those with negative skill. We find that 28% of finfluencers provide valuable investment advice that leads to monthly abnormal returns of 2.6% on average, while 16% of them are unskilled. The majority of finfluencers, 56%, are antiskilled and following their investment advice yields monthly abnormal returns of -2.3%. Surprisingly, unskilled and antiskilled finfluencers have more followers, more activity, and more influence on retail trading than skilled finfluencers.
The paper goes on to conclude:
The advice by antiskilled finfluencers creates overly optimistic beliefs most times and persistent swings in followers’ belief bias. Consequently, finfluencers cause excessive trading and inefficient prices such that a contrarian strategy yields 1.2% monthly out-of-sample performance.
In other words—in this study, if you had invested in the opposite of what financial influencers recommended, you would have made an average of 1.2% per month. 😊
With our kids this week, we had a lot of conversations around critical consumption of social media (i.e. if a influencer is telling you that you need a ten step nighttime skin care routine—and then conveniently putting the links to the products they recommend in the video description—what might be an ulterior motive for their advice…).
The same goes for financial influencers. They are not regulated, and the advice standard that they are held to is “Caveat Emptor”, or “Let the Buyer Beware”. Following financial influencer advice requires the buyer/consumer to verify the information and assess whether it is good, true, and right for their circumstances. That can be a tall order!
That is why Meridian operates under the fiduciary advice standard, which is the highest level of legal care a financial advisor can have in giving advice. A fiduciary standard means that our advice not only has to be accurate, but also has to be in your best interests at all times. Which is how we think financial advice should be!