Long Take: What TikTok's GenZ financial influencers mean for RIAs, wealthtech, and financial advice

Hi Fintech futurists --

This week, we look at:

  • TikTok has become a platform with billions of views for investing and stock recommendations to teens. This emotional and persuasive labor can be traced from Jim Cramer to Roaring Kitty.

  • 78% of Millennials (vs. 31% of Boomers) plan to use more digital tools in wealth management and 81% of them think that technology has made investing more efficient (vs. 61% Boomers)

  • This generational change has implications for investing technology, digital wallets, and the role of people in the financial advice process

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Long Take

This is Jim Cramer, in the early days.

This is his performance relative to the S&P 500. It is not higher than the index.

Lots of people have villainized Mad Money, the show on which Jim talks about stocks and markets, and makes investment recommendations. It is easy to pick on the style, substance, and investment returns of the show. But in the end Jim is right, and you are wrong, because he is not providing investment advice. He is providing edu-tainment. He is providing financial literacy. Cramer is a fantastic, intuitive performer, and the $150 million net worth that he has earned is related to the ability to read an audience and press their buttons — not to quietly outperform numbers in a PDF.

Now, Mad Money and its angry charismatic host are part of a legacy media industry structure; one which has been melted down by technology. Old media requires intermediation by human curators. You’ve got talent on one side, looking to get access to an audience. You’ve got the channels, stations, and websites on the other side, looking for talent. Some well-paid people select the talent and plug them into a large distribution machine, and take a cut.

If you’ve been paying attention, that stuff in the middle has been — structurally — getting cut out for a while now. Creators are much, much closer to their audience than ever before.

We can use the simple example of YouTube.

There are about 2 billion YouTube users and 40 million channels. While most of those channels have very little engagement, you are still looking at hundreds or thousands of channels with more than a million subscribers. Creators are intermediated by YouTube and its algorithm, sure, but there is no barrier to getting started and no credential or prestige signaling required to do so. You don’t need a resume or a recommendation. Just upload.

For comparison, Mad Money has a Nielsen rating / audience measure of about 200,000 people per day.

So that’s like a YouTube channel with 1 million subscribers. YouTube is not all about money and financial literacy, and Cramer still has a good grip on the financial imagination of Gen X and Baby Boomers. But he can be roughly compared to a crypto influencer like BitBoy, a YouTuber with 850,000 subscribers and 150,000 views per video. The below video gives you a flavor.

If BitBoy comes in a too hot for your finance take, take a look at Roaring Kitty. This is the soft-spoken destroyer of Melvin Capital’s short position in GameStop. If you are trying to understand who the next Jim Cramer is, how they behave, and what messages are being put out, look no further.

But all this is Gen X and Millennial stuff. We barely got our head around the idea that video creators are our generation’s financial advisors, and that you can get more financial literacy education of out Roaring Kitty and the long tail of free finance videos than you could out of your Goldman Sachs wealth manager. We barely figured out that distribution links are now direct between one person and another person, and the emotional labor is no longer work for hire but done for passion.

And yet, we have to contend with more. Because the amount of content on tech platforms trends towards infinity, curation is still needed, but it must be super-human. Things are super-human through algorithms and automation. You take your rubric and judgment to achieve some particular goal (e.g., clicks, scrolling, existential anxiety), put it into code, and run it at scale. After a while, you tweak your robot with machine learning, so it can mass-personalize that judgment for each and every one of the 2 billion people consuming content. Before you know it, the entire feed of information and education is put together by our artificial intelligence overlords.

Welcome to TikTok, says Gen Z.

This next generation has abandoned Facebook (usage of 32% for Gen Z vs. 84% Millennials) and adopted TikTok (35% vs 19%).

You don’t have to be a teenager to appreciate that teenagers determine youth culture and the direction of technology, which then boils up to the rest of the economic fashions. Bill Gates co-founded Microsoft when he was 19 years old. Steve Jobs was 20 for Apple. Zuckerberg was 19 for Facebook. Vitalik was 21 during the launch of Ethereum.

Let that stand as a reality check about the value of experience.

The Rise of FinTok and StockTok

Being interested in financial marketing, we have to follow these demographic changes, and the twisting nature of financial advice. And in particular, the trend of financial product recommenders on TikTok.

First, there is an important distinction to make between (1) new media and platforms and (2) recurring human nature. Cramer and BitBoy represent human nature — their catchy, interesting content will grab emotions and attention no matter if it is packaged like a TV show or an API into our cranial neurolink implants. There will always be people selling financial hope wrapped in the language of expertise.

As TikTok becomes the medium of choice, however, that content makes its way to new form factors. The new form factors define how the content is presented, and how it impacts those that are consuming the content. Specifically, how it warps your brains into some particular financial action.

Videos range from 15 to 60 seconds, and are built for virality as determined by our artificial intelligence overlords. The machine filters content in front of its audience, and uses magical engagement voodoo to surface the interesting stuff over and over again. As a creator, you are no longer doing stuff to please a media studio that controls a generic channel. And you are not even doing it to optimize for YouTube search discovery. Rather, you are working on behalf of the all-mighty algorithm, which is trained by its constituent audience to deliver the juice.

Not surprisingly, some old people (sort of like us and also the regulators) and young people with old souls (those that invest in index funds) find a bunch of this stuff objectionable. Here is a flavor:

Each of the articles is fascinating for different reasons. We can ponder how regulators are trying to stop teenagers from talking about stock trading by law, while fintech founders get excited for the Robinhood IPO on which those teenagers are levering up their savings. Or we can finger-wag about all this dangerous financial misinformation, in a world where a reasonable portion of the American population believes in the QAnon conspiracy, with those believers elected into Congress. Or structurally, the zombie interest-rate economy that pushes risk-seeking into penny stocks and crypto under the threat of never-ending hundred-thousand-dollar student debt.

What perhaps jumps out the most is that many different TikTok personalities have followings of 100,000+ and videos that routinely hit visibility on par with Roaring Kitty’s YouTube presence, and yes, Jim Cramer’s CNBC presence. Some of those audiences were built up during the pandemic merely in the last 12 months.

It has never been easier to grab financial attention. For creators, this is a profound responsibility in a country and economy where profound responsibility has become a sin, and not a virtue. It is *lame* to be risk-averse and focused on the long term. Instead, lever up and double down.

The Way Forward and Out

This analysis is really written for financial advisors. They are the people whose professional intent is to help individuals have better financial lives through good decision making. Instead, and often, they are focused on custody, compliance infrastructure, and performance reporting software — things that do not matter or differentiate the service for normal people.

Since the 2000s, technology steadily marched to automate away the unimportant parts of the advisory practice. Roboadvisors and neobanks and now digital wallets have chipped away at investing workflow and asset allocation; the marginal price of those processes should be "free”. Check out the fantastic EY Global Wealth Research Report on the topic here. We are going to pull a couple of key charts below.

The key highlight is that 78% of Millennials (vs. 31% of Boomers) plan to use more digital tools in wealth management and 81% of them think that technology has made investing more efficient (vs. 61% Boomers). Only 24% of Millennials would like to engage primarily through a human relationship manager, while for Boomers that number stands at 47%. Notably, this is a research report of 2,500 affluent and HNW segments, meaning that simple net worth (i.e., richer people want more human support) skew is unlikely to explain this result.

If these are the numbers for Millennials, imagine the numbers of Gen Z. The net implication of this is that younger generations *obviously* expect to use more new technology than traditional channels. Fintechs are going to grow by 74% in the next three years, while RIAs grow by 14%, and retail banks shrink 10%. The winners on the fintech side are going to be companies like Square’s Cash App and Step bank, because they tap into culture. They know where attention lives today.

The machine work is going to digital machines. The emotional work remains, for now, with people. To that end, advisors effectively have to compete with TikTok fin-influencers, YouTubers like Roaring Kitty, and the ghost of Jim Cramer.

We are left with the core question. How can financial literacy and helpful investing guidance live on growing social networks? Who will be the responsible influencer that battles misinformation and short-termism on TikTok? How can the hundreds of thousands of financial advisors convince their compliance departments that this is the frontier that matters?

And if they can’t, will we be any worse for it?

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