As social media became widespread, some users have gained a large following, sometimes in the millions. As they often appear accessible, such as broadcasting from their homes and personally responding to their audience’s comments, people tend to trust them relatively easily. Consequently, companies have started to see these influencers as a valuable channel through which to promote their products.
I used to watch videos on men’s style regularly on Youtube when I was learning about classic clothing like suits. Unlike programs on television that appear over-produced, those on YouTube appeared more genuine and personable. Naively, I believed YouTube personalities were creating videos solely for the benefit of viewers. One such influencer recommended a belt with micro adjustments on its reverse side, promising the perfect fit at all times. After learning useful men’s style rules and tips from him, I didn’t hesitate to purchase this belt, thinking, “If this influencer is recommending it, it must be a great product.”
My perception of social media influencers changed after handling the belt for the first time. What I noticed immediately was the poor quality of the materials. The leather felt cheap, and synthetic on the front side. Additionally, the metal buckle was inelegantly large, and coated with a material with a cheap sheen. Moreover, the micro adjustments turned out to be merely a gimmick. I realized it would be better to purchase a conventional belt made with quality material, the right production process, and the correct size. To be fare to this manufacturer, it was several years ago that I purchased this belt, and since then, they have made available a higher-end line which uses better quality leather and respectably made in USA.
Nevertheless, this influencer was undoubtedly discerning enough to know that he was promoting a poorly made product at that time, and I was disillusioned to realize that these influencers’ primary motive was to endorse products for financial gain, even when they contradict what they advise. While they provide helpful content most of the time, they do so to build an audience to which they can sell products and develop other income sources, such as advertisement revenues. Although my financial loss from the purchase of the belt was small, others buy products influencers create or promote, costing them significantly more.
For instance, one of the most well-known financial influencers uses his popularity to engage in various affiliate marketing schemes, including financial advisor referral services. He often promotes it after mentioning that his own advisor earns him a 12% annual return, which many in the audience may find intriguing, leading them to find an advisor through him. However, no major asset classes or fund categories can consistently deliver such a high return. Studies on actively managed funds indicate that over 90% of active fund managers underperform the market in the course of 20 years.
Further investigation into this financial advisor referral program revealed that the affiliated advisors can be brokers who charge high management fees and commissions. It is highly likely that viewers who engage these advisors after watching the influencer’s show will find that they cannot deliver a 12% annual return. While the amount of fees and commissions vary depending on the size of the client’s assets and transaction frequency, it could be in tens of thousands of dollars or more in the long-run. Even though the majority of his advice is sound, including living within one’s means and paying down debts, trusting his recommendations blindly can potentially do more harm than good.
We live in an era in which information is abundant and access is quick and easy. While this convenience can be advantageous for many tasks including simple fact-checking to more involved research, passively absorbing information can lead people astray. Just as I believed I was purchasing a quality belt when it was the opposite, investors who rely on online sources especially social media may think they’re making well-informed financial decisions when, in reality, they’re manipulated by influencers who use the devil’s tactic: they tell the truth 90% of the time but deceive with the remaining 10%.
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