Nowadays, social media has become a go-to source for financial advice, with one-third of U.S. adults turning to social media platforms for financial direction according to a 2023 Bankrate Financial Security Survey.
A growing number of traditional investors, such as those with financial advisors have been making more use of social media for financial planning. Around 45.2% of U.S. consumers who have a financial advisor use social media to learn more about financial planning compared to 26.9% of consumers without an advisor.
In total, 54% of men with a financial advisor make up the majority of consumers who use social media for financial advice, planning, and resources, compared to 28.3% of men without an advisor, and 26.9% of women.
The popularity of social media financial influencers has gained tremendous momentum among most consumer demographics, with more adults and younger users leveraging these channels when making financial decisions.
However, industry experts are beginning to sound the alarm around so-called “finfluencers” calling for users to be more suspicious of who they trust online, and what type of advice they obtain from these social media personalities.
Finfluencer Red Flags to Watch Out For
A plethora of social media accounts provide users with all sorts of new-age financial advice. However, despite the widespread availability, users must use discretion when taking up online money advice to distinguish between sound financial information and potential scams.
Here are some red flags to look out for when taking financial advice online:
Limited Professional Credentials
Any person who provides financial advice as a service to the public should be in possession of the necessary licenses. Most financial professionals are governed by a regulatory body, which is designed to protect consumers and professionals from scams or malicious activity.
Take this into account when engaging with financial influencers or accounts that openly share financial advice. Practice due diligence by researching the person or company by checking their registration through one of the following regulatory agencies:
SEC Investment Adviser Public Disclosure (IAPD)
Furthermore, you can research a person or company online by searching their name or business registration. Additionally, it’s advised to contact state-level agencies for further guidance or assistance with verifying the credentials of a financial professional or institution.
Promotional Sales Tactics
There are plenty of online financial “gurus” that will push affiliate links and promotional content due to their connection to these collaborations. For instance, a financial influencer might promote a specific service, but at the same time pressure users into signing up for suspicious-looking subscriptions to obtain further access to the services.
This isn’t to say that all affiliated links or promotional sales shared by influencers on social media are illegitimate. Instead, it’s important to consider whether an influencer is providing you with sound financial advice, or perhaps coming across more like a salesman.
Look at the type of content that the person is sharing with their audience, and whether the content is geared towards an informational or educational point of view, or perhaps coming across more as an infomercial. Real professionals will promote transparency while fostering a relationship of trust and authority.
Promotes “Get Rich Quick” Strategies
Nothing comes quick in personal finance. Investing takes time and requires people to have a clear understanding of market conditions, asset delivery, and what steps to follow when building a sound financial portfolio.
Always verify the legitimacy of any strategies by doing additional homework, or by talking to a professional. Never believe when a finfluencer promises higher-than-average returns on your investment or pushes the narrative that you could easily double your investment in a short couple of weeks.
Building wealth takes time, and requires an adequate level of investment, and a lot of hands-on experience or engagement with particular market strategies. Potential scammers will promote “get rich quick” schemes that may put you and your money at risk of being exposed to dangerous investment tactics.
Secondhand Investment Advice
Any professional would agree that there are certain methods that can be used in specific scenarios to deliver a desired outcome. For instance, a particular investment strategy to help balance portfolio holdings, or reducing exposure to certain securities to minimize risks.
However, even these trusted methods are not always the solution a person may be looking for and often require you to take on a different approach to still obtain a similar outcome. By these measures, you might come across social media influencers that promote secondhand investment advice that’s either not well-supported or seems too good to be true.
Inexperienced finfluencers may promote advice that is not designed to resolve all of your financial challenges or answer all of your financial questions. One thing alone won’t solve all of your problems, and you need to consider how tailored this advice is to your situation, and whether there are alternatives that might suit your needs.
Illegitimate Tax Strategies
Understanding your tax liability is an important part of financial planning, and setting up your investment strategy. Knowing how much taxes you will be required to pay will help you plan for long-term expenses, and make more strategic decisions that can help to reduce your tax liabilities.
Yes, there are legal ways to reduce your tax liability, and these should be discussed with your financial advisor or a tax professional. There are financial influencers that may promote shady or illegitimate tax strategies, requiring you to jump through multiple hoops and engage in seemingly questionable activities.
Finfluencers have blurred the line between legal and illegal tax-reduction strategies. Avoid cutting corners, and remember that state and federal agencies are constantly monitoring your accounts for suspicious activities related to tax avoidance.
Pushes Urgency or Fear of Missing Out (FOMO)
Market conditions are constantly changing. No two days will deliver the same returns. Because of the pace at which markets evolve, financial influencers will use these developments as a way to pressure users into paying for services that have not been rendered.
For example, a new trend might be making waves in the market, which could lead a finfluencer to consider ways on how they can capitalize on these developments. This could mean that they will make lofty promises by pressuring you and other users to buy in on a product or service which have not been clearly analyzed.
Financial professionals will never pressure you or any client into investing or buying a specific product without clearly communicating the risks. Investing due to the “fear of missing out” is common among novice investors, and finfluencers are well versed in using FOMO as a way to generate more traction for a specific product or service.
Unconventional Financial Advice
Despite the large quantities of financial information one can find on the internet, there are several tried and trusted methods that are shared among many professionals. Sure, not all of these methods will deliver the same or desired results and often require an advisor to make some adjustments to help drive portfolio performance.
Many of the methods used today have been around for many years, and as the markets develop, so have professionals adjusted their approach to using these strategies. However, there are financial gurus who will push unconventional advice simply for the practice of gaining more exposure.
Not all financial advice needs to be outlandish and requires you to make risky bets on financial instruments you are not comfortable or familiar with. Keep in mind that the financial advice you take from a professional should help you feel more confident in your decisions. Always take online financial advice with a grain of salt before taking any advice to heart.
Superficial Account Activity
Besides the advice offered by these influencers, you should take a moment to review their account activity, such as the type of accounts that follow them or engage with their content, and how frequently they publish content.
Furthermore, consider the quality of content they publish, as this will tell you a lot about their level of professionalism, and how well they are versed in a specific subject. You can learn a lot from simply looking at their social media accounts, or doing a bit of research online by searching for their business or name on Google.
Free Or Promotional Offers
Always think twice before accepting a free or promotional offer from a finfluencer, or any business. Despite the allure of obtaining something for free or at a cheaper price, there are always hidden costs involved.
These services are immensely valuable, and while there may be some individuals who do provide their services at a much lower price compared to the industry average, always practice due diligence, and refrain from signing up for subscriptions or programs which you are not familiar with.
Key takeaways
Now that you have an idea of what to look out for when taking advice from a financial influencer on social media, take a second to consider how risky these accounts can be to your personal finances or investment portfolio.
Always practice caution when taking financial advice from strangers online. For added benefit, make an effort to research a person or company, and follow the appropriate channels to uncover whether a person has the necessary credentials to be providing financial advice.
Social media can be a valuable tool to help improve your financial confidence, however, it shouldn’t be a replacement for trained and experienced professionals who can provide you with tailored advice suited to help you reach your financial goals.
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This Post is republished on Medium.
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Photo credit: iStock
