Why it’s important to be cautious when reading free financial advice on social media
17/08/2021There’s been a big rise in the quantity of financial advice available on social media.
From investment tips to cryptocurrency opportunities, all the way to pension advice, more and more people are turning to their mobile social apps to find financial information.
The trouble is that this seemingly free financial advice is often provided by largely untrained, unqualified influencers. Some of these individuals are even sponsored to promote the products they’re selling, creating a serious conflict of interest.
The situation has become so severe that the Financial Conduct Authority (FCA) has issued a warning over “risky” trading tips on the social media app, TikTok.
In fact, even TikTok themselves have banned promotions for products such as investments and cryptocurrencies. However, as of August 2021, they’re yet to identify or regulate financial advice provided by influencers on the platform.
Realistically, there are no guarantees over the quality of advice you’ll find for free from untrustworthy sources such as influencers, and some of the tips available may even be unsuitable for you and your personal circumstances.
That’s why it’s important to be cautious when viewing free financial advice on social media.
Get-rich-quick schemes pose a risk to your money
It’s easy to spot the number of get-rich-quick schemes available on these platforms.
Unqualified influencers are now using Instagram, Facebook, and ads on YouTube to promote their dubious and potentially complex schemes.
Often, these schemes present unrealistic lifestyles, boasting multiple homes, luxury cars, and expensive jewellery.
They suggest that you invest your money in brand-new or undiscovered investment “opportunities”, offering absurd and impossible returns. Sometimes they’ll suggest that the chance will pass you by if you don’t invest straight away.
In among these schemes, some of these influencers also promote cryptocurrencies such as bitcoin or ethereum.
As it stands, cryptocurrency still presents an active danger to many investors. Cryptocurrencies are volatile, produce no value in and of themselves, and could easily lose their entire value overnight.
It’s also unregulated and offers no level of consumer protection, prompting the FCA to issue a warning.
An influencer claiming guaranteed returns on an investment in crypto, or any other one of these “opportunities”, is almost certainly lying or trying to scam you.
Millennials and Zoomers turn to TikTok for their financial education
On top of the various get-rich-quick schemes that have taken over social media, TikTok has become a popular place for younger people to find financial advice on everything from investments, savings, pensions and even mortgages.
Now, 1 in 10 under-35s say they’re now using online platforms to find investment information and advice.
Even more worryingly, this comes at a bad time for younger people; according to a study published in FT Adviser, half of all 18- to 24-year-olds said the pandemic has made them more risk-averse with their finances.
While greater risk aversion may prevent young people from falling victim to a scam, this has created a perfect storm where TikTok and other social platforms could be plugging the anxious hole left behind – and, concerningly, the advice on offer can be of a remarkably low quality.
Becoming a millionaire in 11 years
In one notable case in America, an influencer encouraged a woman to put a whole year’s worth of her $56,000 salary in a fixed-rate savings account, claiming it would make her a millionaire in just over a decade.
He argued that, by locking away her money in a fixed-rate savings account, compound interest would quickly turn her salary into $1 million in just 11 years.
However, the issue is that the influencer provided no calculations to back up the claim. More importantly, the influencer’s advice didn’t take the woman’s personal circumstances into account.
While she had mentioned her husband’s salary being larger, at $80,000, the influencer has no information about the family’s lifestyle, or indeed where they spend their money each month.
Without knowing more, there’s simply not enough information to recommend someone locking away that much money for 11 years, let alone if it were 100% of an annual salary.
If it sounds too good to be true, it probably is
Realistically, you should treat advice from social media platforms with the same attitude you treat scams – if it sounds too good be true, it almost certainly is.
Real investment experts don’t spend their time promising to make you a millionaire overnight.
They’re also fairly unlikely to be splashing images of themselves next to big, luxurious houses and sports cars, asking for your money – when was the last time you saw Warren Buffett boasting about his newest yacht, while begging you to invest in his latest investment scheme?
Always do your due diligence before taking on an investment like this. Make sure the opportunity you’re looking at is real, and that it’s backed by a regulatory body like the FCA. Otherwise, you may lose the entirety of your investment.
If you’re unsure, ask a financial adviser whether they think the opportunity is worth the potential risk.
Speak to a qualified adviser
There’s simply no substitute for paying for financial advice from a fully qualified financial planner. At Douglas White, we can provide comprehensive financial planning services that take your personal circumstances into account.
The advice we provide is entirely independent, so you can be confident that the advice you receive is impartial and right for you. We’re also regulated by the FCA, so you can be sure the information you receive is backed by a professional standards body.
Email info@douglaswhiteltd.com or call 0151 345 6828 to find out more about how we could help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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