If the US bans TikTok, where will Gen Z go for financial advice?

OBSERVATIONS FROM THE FINTECH SNARK TANK

Should TikTok be banned in the US because it is a national security risk? Or should it be banned in retaliation for Chinese actions against American companies?

That is up to someone else to decide. If TikTok is banned — for whatever reason — it will leave many Gen Zers wondering, “Now, where do we go for financial advice?”

Gen Zers and Millennials Get financial advice on TikTok

How many young consumers turn to “finfluencers” on TikTok for financial advice? The answer depends on which survey you look at.

A Vericast survey found that 34% of Gen Zers get financial advice from TikTok (as opposed to 24% who seek advice from financial advisors), while another survey from Current Account Switch Service found that among 14- to 18-year-olds, 58% follow TikTok – fine influencers.

Who are the best TikTok influencers?

The best TikTok influencers have amassed millions of followers. Who are they?

Among the most popular are Erika Kullberg, a corporate attorney with 9 million followers, entrepreneurs Mark Tilbury and Brandon Schlichter with 7.2 million and 3.4 million followers, respectively, and certified tax advisor Duke Alexander Moore with 3.4 million followers. Others are self-taught investors such as nursing school graduate Jessica Ghaney and ex-pharmacist Alex Saunders.

What are TikTok fan influencers talking about? According to a study titled How to make $1 million in thirty seconds or less: the need for finnfluencer regulations:

“Generally, fininfluencers discuss educational information on topics including investments, personal finance, credit card debt, 401(k)s, real estate and negotiations. Some fininfluencers have increasingly told viewers that the artificial intelligence software ChatGPT can help them become millionaires by to do free work for them, such as writing books and making YouTube videos.”

Is TikTok financial advice any good?

CNBC evaluated the financial advice of some of the financial influencers on TikTok and concluded that it was hit or miss:

“Some of the TikToks offered factual advice in less than 30 seconds, while others essentially offered get-rich-quick proposals without going into any detail.”

Writing in Vox, Rebecca Jennings and Emily Stewart warned:

“At its worst, Finance TikTok perpetuates financial myths, scams and dangerously misleading information. What users end up seeing is often not sound advice from trusted sources, it’s just the experience of a random person making thousands of dollars buying and selling Tesla -conversations.”

Why TikTok financial advice resonates

Critics — especially bankers and registered financial advisors — who bash TikTok-provided financial advice often fail to understand what motivates TikTok users to view financially-related content on the social media challenge.

While banks and investment advisors often focus on providing educational content designed to improve financial literacy, TikTok fin influencers entertain audiences. And why not? The Current Account Switch Service study found that 40% of respondents are more likely to trust the influencers they find entertaining.

Should financial advice on TikTok be regulated?

Ironically – but not surprisingly – critics cite TikTok influencers’ “prioritization of entertainment over reliability and trustworthiness” and making videos that “encourage risky, simplistic and impulsive financial decisions”.

But is it really any different from what some old brokerages do?

Fidelity Investments launched a metaverse presence called Fidelity Stack that includes a dance floor, rooftop sky garden and a game called Invest Quest that “provides a gamified financial education experience in Decentraland” where “users traverse the building and learn the fundamentals of ETF investing as they collect” bullets”.

Entertainment? Yep. Oversimplified? I would say yes.

Tamra Manfredo, the author of How to Make $1 Million in Thirty Seconds or Less One study suggests that “finfluencers are also dangerous because of the structure of social media platforms themselves,” arguing that “misinformation usually travels faster than true information.”

Nonsense. There is no truth to Manfredo’s statement since no one can accurately: 1) measure the speed at which information moves, and/or 2) determine the difference between “information” and “misinformation.”

The crux of the regulatory question comes down to this: What is the difference between financial education and financial advice?

Many of the best influencers claim that they provide education – not advice. Is there really a clear distinction between the two?

Take Fidelity’s metaverse entry, Fidelity Stack, for example. Doesn’t Fidelity provide ETF investing “education” to promote investing in ETFs?

Tamra Manfredo, the author of How to Make $1 Million in Thirty Seconds or Less One study suggests that “current SEC, FINRA, and CFPB regulations may be too strict for non-professional influencers since these regulations are for professionals whose careers involve providing financial advice.”

However, she goes on to say that “these regulations can be adapted and relaxed to work in a practical way to regulate the unregulated fin influencers” and suggests regulatory language defining what a fin influencer is and recommends that disclaimers be included in FinToks.

The economic impact of a TikTok ban

Lost in the political battle over a TikTok ban is the financial impact a ban would have on fin influencers – and all TikTok influencers, for that matter.

A study conducted by CMC Markets in the fall of 2022 suggested that the top five fin influencers earned between $275,000 and $750,000 per year. When I published it in September 2022, I got notes from a couple of them assuring me that they were making a lot more than that (so nice of them to rub my face in the dirt).

ZipRecruiter reports that brand-sponsored TikTok influencers’ average salary is about $55,000, with some earning more than $100,000. The company doesn’t say how many brand-sponsored influencers there are in the U.S., although Statista reports that there are more than 100,000 worldwide.

Regardless of the number, a TikTok ban in the US will certainly put a dent in many finnfluencers’ wallets.

Where will Gen Z go for financial advice if the US bans TikTok?

Perhaps the better questions are, where will fin influencers go – and will they be able to take their followers with them?

Instagram seems like a logical place for fin influencers to migrate to. But let me run this idea by you (them and Elon Musk): What about Twitter?

With Musk’s intention to turn Twitter into a superapp — or if not a superapp, at least a hub for financial services — having a host of fin influencers on the platform could help jump-start Musk’s strategy.

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