Frequent flyers on Twitter are the most likely to provide bad financial advice

It's an old story with a new twist for the age of social media: Often the loudest advisor voices on Twitter and similar sites are the least worth listening to.

So concludes a recent report entitled "Finfluencers" from researchers affiliated with the Swiss Finance Institute, which studies the banking and finance industries. Looking at tweets from 29,000 "finfluencers" — people who use their sizable social media followings to broadcast financial advice — the report found that investors would usually be better off doing the opposite of what the majority online gurus tell them to do. Meanwhile, academics from Indiana University and Harvard used a report released this May to take a similar look at "crypto-influencers" and reached the same cautionary conclusions. 

The report on finfluencers found that 56% of the tweeters it looked at fell into a category the researchers deemed "anti-skilled" — meaning that their recommendations on Twitter tended to result in losses rather than gains. From mid-2013 to the start of 2017, the researchers found that following the advice of unskilled finfluencers resulted in a 2.3% decline in average monthly returns. By contrast, heeding the recommendations of skilled advisors — who made up 28% of the total in the study — led to a 2.6% gain in average monthly returns. 

The report also found that unskilled finfluencers tend to be overly optimistic about investments that have recently risen in value. Their tendency to "return chase" and "herd" their followers into the market at such times can help drive values up further in the short term. But over the long haul, according to the report, investors would often be better off taking these advisors' advice and doing the exact opposite.

The report on crypto-influencers likewise found that tweeters who enjoy large followings and post frequent recommendations about cryptocurrency purchases tend to do all right over short periods.

"However, these tweets are followed by significant negative longer-horizon returns, suggesting that such recommendations generate minimal long-term investment value," the researchers wrote.

Looking at 36,000 tweets posted by 180 of the most prominent crypto social media influencers in 2021 and 2022, the crypto-influencers report found that the average return due to following such advice was 1.57% within two days. That rise in value, according to the report, was no doubt owing in part to the influencers' ability to persuade large numbers of their followers to buy a particular digital asset. Within 30 days, the average return had turned into a loss of 6.53%.

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The researchers concluded that their findings lend support to the Securities and Exchange Commission's push to further regulate cryptocurrencies. The SEC, which seeks to protect investors and ensure markets operate in a fair and orderly manner, filed lawsuits against the crypto exchanges Binance and Coinbase last week in part over allegations that they were enabling trades in unregistered securities.

How advisors can tweet
To Rachael Camp, a certified financial planner and the wner of Camp Wealth in Kokomo, Indiana, the two reports' findings are dismaying but not surprising. Camp said she has made it a point for the past year to build a large presence on Twitter. She now has roughly 14,600 followers and gets all of her new clients through the social media site.

Camp said she posts around three tweets a day using a scheduling application called Hypefury. Her goal is not only to reach out to potential clients but also to dispense sound financial advice in a public forum where almost anyone can see it.

Camp said that part of the key to combating  bad advice online is to counter with well-thought out and informed posts. She estimated she spends five hours a week on average working on her tweets.

"It takes less time than you think," Camp said. "You can set boundaries. It's so easy to spend hours on social media but it's not necessary at all. You don't have to be scrolling every day on Twitter."

Camp said she prefers Twitter to other social media sites in part because Twitter makes it easy to archive posts for regulatory compliance purposes. She also finds that Twitter has far fewer sketchy influencers than, say, TikTok, where videos on investment schemes are rampant.

Camp said that if she sees something questionable on Twitter, she from time to time responds with a countervailing opinion or other information providing more context.

"There are still some accounts out there that I would say are misleading at best," Camp said. "But at least real advisors have a chance to be part of the conversation."

The Kardashian effect
Finfluencers have become a target for federal regulators recently. In October, for instance, the reality TV star and fashion designer Kim Kardashian was fined $1.26 million by the SEC for failing to disclose she had been paid $250,000 to promote digital tokens sold by the crypto company EthereumMax. And in February, NBA Hall of Fame player Paul Pierce agreed to pay just over $1.4 million to settle similar SEC charges over his online promotion of the digital token EMAX. 

But finfluencers don't necessarily have to be stars to attract regulators' notice. In December, the SEC brought charges against eight men with prominent Twitter profiles over accusations that they had used their online presence to encourage their followers to buy lots of shares of cheap stock and then dumped their holdings shortly afterward.

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In September 2021, the Financial Industry Regulatory Authority — the broker-dealer industry's self-regulator — began conducting targeted exams in part to give a close look at firm's social media policies. Its results, released in February, suggested brokers could be doing more to train finfluencers who are going to speak on their behalf, vet their backgrounds and previous online statements and keep extensive records of how they're being paid and what they're saying.

'Bad content creators'
Thomas Kopelman, a financial planner and the founder of AllStreet Wealth in Indianapolis, said he's talked to many advisors who say they're reluctant to post on Twitter because of compliance concerns. Kopelman, who has roughly 15,300 followers and gets almost all of his new clients from Twitter, said one of the keys to staying on regulators' good side is to avoid specific recommendations of stock purchases or other investments.

It's also never good to imply that returns are guaranteed, he said. Some of the worst instances of finfluencers abusing their privilege, Kopelman said, involve people pushing  "fail-safe" real estate schemes.

"And they don't share the other side of the story, that people can be harmed by these things," Kopelman said. "Part of my business is to share that information so my followers can see the whole story."

The Swiss Finance Institute's Finfluencers report found that skilled advisors are more likely than those without professional skills to tweet contrarian opinions — to point out, say, why a bull market might be headed for a crash, or why a particular investment's surging returns are unlikely to last for the long term. It also concludes that unskilled and anti-skilled finfluencers are more likely to Tweet than their skilled counterparts.

Brian Wesbury, the chief economist at First Trust Portfolios, which manages investment funds for financial advisors, said he's not averse to correcting the record when he sees someone tweeting something misguided or flat-out wrong. With his roughly 52,100 followers, he's invariably going to strike a nerve almost anytime he posts on inflation or the other macroeconomic subjects he tends to favor.

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"A lot of times, I'm just saying: Be careful. Don't believe the latest craze," Wesbury said.

Kopelman agreed with Camp that advisors could be doing more to push back against the flow of misleading information. One misstep Kopelman said he sees many financial planners making on Twitter is to write their posts almost as if they were directed to other wealth managers rather than to general investors.

"People are just bad content creators, the spacing between their posts is terrible and there's no hook," he said. "A lot of financial advisors fail because they think, 'Hey, I'm putting out good informational content.' But nobody is reading it because they aren't doing that step two and making it enjoyable.'"