A GameStop sign displayed above a store in Chicago, on June 10. The rise of GameStop shares in 2021 is an example of social media driving investing trends.Nam Y. Huh/The Associated Press
Wherever social media affects our lives, there is concern about the harm it does.
The latest example is investing and managing your finances. Securities regulators are worried that the growing popularity of do-it-yourself investing exposes people to questionable information found on social media and online.
A survey commissioned by the B.C. Securities Commission shows the extent to which investors consult or use social media to get advice for investments. The data are eye-opening, but not exactly in the way regulators might expect. We have more to worry about in the influence of banks than we do social media.
In no way should the impact of social media be minimized. Ten per cent of the 4,272 participants in the March survey purchased an investment they first learned about on social media in the past 12 months, a number that jumps to 24 per cent for DIY investors alone. Comparable numbers from a 2022 survey were 9 per cent for all investors and 20 per cent for DIYers.
Young investors, particularly young men, were most likely to buy investments they learned about on social media. Look to the rise of GameStop GME-N shares in 2021 as an example of the power of social media in driving investing trends.
Regulators worry about worse outcomes than GameStop now trading at roughly one-quarter its peak 2021 price. For example, people using social media to flog worthless trading or investing schemes, or commit fraud. I’ll participate in a panel discussion on how regulators can address social-media risk at a meeting of the North American Securities Administrators Association in Vancouver next month.
The challenge with social media is that it’s still evolving and has not been around long enough to establish long-term benefits and harm. Banks, on the other hand, have an established track record of dominating financial life in Canada both for good and bad. This dominance is documented in the BCSC survey to an extent that is almost shocking.
Fifty-seven per cent of people in the survey said they either completely or mostly trust banks and credit unions, compared with 52 per cent for investment advisers, 32 per cent for government and 28 per cent for TV and print news media. Just 8 per cent said they did not trust banks at all, compared with 9 per cent for advisers, 25 per cent for media and 29 per cent for government.
But wait, there’s more. When asked to indicate which sources of information and advice they used, 48 per cent of survey participants picked their bank or credit union. An investment adviser or financial planner was next at 37 per cent, followed by parents at 26 per cent, friends at 25 per cent, news on the internet at 19 per cent and both siblings and social media at 13 per cent. YouTube was the most used social media, followed by Reddit, Facebook and Instagram.
Canada’s banks are its most enduringly successful line of business, meeting the needs of both customers and shareholders. Banks are essential in the economy, easy to find in most communities and staffed by many good people. But they are primarily sales outlets, not advice providers.
We would not have megabillions sitting in bank mutual funds if bank staff put the interests of investors first. We would not have people investing in equity-linked guaranteed investment certificates or settling for conventional GICs at uncompetitive interest rates.
Nor would we see the words “adviser” and “advice” thrown around so copiously in bank branches and marketing. Those words imply something beyond salesmanship and should be reserved for experts whose pay is not linked to the amount of product sold.
Securities regulators are right to investigate the role of social media in influencing investors, and to crack down hard on fraud and predatory sellers of junk strategies, courses and systems. But the role of banks in the investing universe deserves attention as well.
If we’re looking at who has influence over investors, it’s banks. Social media is a lesser player by comparison.
As for who to trust as an investor, try this. Focus on sources that don’t benefit from selling you things, who have experience or accreditation, who explain clearly without resorting to jargon and who understand what everyday investors are up against.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.