FINRA Education Foundation Finds Social Media Investors Face High Fraud Risks

FINRA researchers warned retail investors that they significantly increase their exposure to fraud if they base their financial decisions on social media and "finfluencers."  

In a new report issued by the FINRA Investor Education Foundation, researchers found that among those targeted by scams, almost 70 percent of social media users and finfluencer followers lost money, compared to almost 30 percent of non- social media investors. FINRA also found that these investors were dangerously overconfident in their investment knowledge, rating their own subjective investment knowledge highly, while simultaneously scoring lower on objective financial knowledge tests. FINRA concluded that such overconfidence was a key factor contributing to their inability to detect investment fraud red flags.

FINRA's researchers also explored the unique demographics and motivations of this growing investor segment. FINRA found that finfluencer followers were predominantly younger, male, and had lower portfolio values. FINRA emphasized that these investors were often driven by non-monetary motives, such as entertainment and social activity, with nearly half noting they did not identify as typical investors.