Will Twitter’s latest push for financial education drive more finfluencing?

eToro has announced a new partnership with Twitter that will allow the latter’s users to access real-time prices for stocks, crypto, and other financial assets when using the social network’s new $Cashtags feature. 

Under the partnership, Twitter users who search using the $Cashtag symbol will be able to view more information on assets, including a range of stocks, ETFs, crypto and commodities, and even invest in them directly through the eToro platform.

Last week, in an announcement, the two entities positioned their partnership as an effort to advance financial education.

“Financial content on social media has provided education to many who have felt excluded by more traditional channels. Twitter has become a crucial part of the retail investing community — it’s where millions of ordinary investors go every day to access financial news, share knowledge and converse,” said Yoni Assia, chief executive officer and co-founder of eToro.

“There is power in shared knowledge and by transforming investing into a group endeavour, we can yield better results and become more successful, together.”

However, speaking to ifa, Angel Zhong, associate professor of finance at RMIT, cautioned that Twitter’s latest move to further financial education could enhance the appeal of finfluencers, and poses its own set of risks.

“One danger is that some finfluencers may promote risky or unproven investment strategies or products without fully disclosing the risks involved. This can lead to traders making poor investment decisions or taking on too much risk in pursuit of higher returns,” Ms Zhong said. 

“Another danger is that some finfluencers may have conflicts of interest that could impact their recommendations. For example, they may receive compensation from companies they promote, or they may have invested interests in the products or strategies they recommend.”

Additionally, she cautioned, finfluencers often don’t have the necessary credentials or experience to provide reliable financial advice. 

Just last week, the Federal Court made permanent injunctions against finfluencer Tyson Robert Scholz for carrying on a financial service business without an Australian Financial Services Licence.

“Anyone who recommends financial products or provides financial advice on social media must ensure they are complying with the law and may face ASIC enforcement action when they are not,” Australian Securities and Investments Commission (ASIC) deputy chair Sarah Court said at the time.

Finfluencers’ involvement in financial advice has been a topic of ongoing debate. In March last year, ASIC released new guidance which outlined activities where influencers may contravene the law, considerations they should take, and provided guidance for licensees engaging with influencers.

A few months later, speaking before the House of Representatives standing committee on economics, ASIC chair Joe Longo said finfluencers are often “extravagant, misleading and unlicensed”.

While the corporate regulator is continuing its strong engagement in this area, Mr Longo explained at the time that determining where to draw the line regarding the need for regulation is an ongoing process — one that ASIC is engaging on with the financial advice sector.

The idea of social trading

The partnership between eToro and Twitter is expected to foster social trading — a form of investing where traders use social media platforms and other online tools to share information, strategies, and insights.

But while social trading allows traders to connect with each other to share their knowledge, discuss trading strategies, and make investment decisions based on the insights of others, Ms Zhong warned that it too carries risks. 

“Social trading is particularly popular among novice traders, as they don’t have experience and knowledge in investing. One of the main risks of social trading is that traders may follow the wrong traders or use unreliable strategies,” she said.

Another risk of social trading is that traders may become over-reliant on the platform and fail to diversify their investments. 

“It is important to maintain a balanced and diversified portfolio to minimise the impact of any single trade or market event.”

To mitigate these risks, Dr Zhong emphasised the importance of thorough research and a comprehensive understanding of the strategies being copied.

eToro was one of the pioneers of social trading and has been in operation since 2007. The platform enables traders to follow and copy the trades of other traders, as well as engage in discussions with other traders in its community.