Pitfalls of heeding financial advice from unqualified sources

It should be noted upfront that we believe social media is an outstanding medium for promoting the importance of financial advice and getting people to talk about their money, but only in an appropriate context whereby the necessary disclosures and disclaimers are stressed throughout. 

We further add that any mode of delivery for financial advice should be supervised by those individuals that are appropriately qualified to do so. 

There has been a recent trend among (but not limited to) younger individuals, whereby they flock to social media platforms to obtain advice from so-called “Finfluencers”. Finfluencers are defined as a specific type of social media influencer that focusses on money-related topics. 

The said trend has unfortunately left investors vulnerable to scam artists taking advantage of those looking for advice via online mediums, by making reckless promises and endorsing dangerous agendas. 

Using the most prominent social media sites, you do not have to scroll for long before you came across users posting pictures and videos alluding to an extravagant lifestyle that seems too good to be true – and it usually is. These posts are often accompanied by lucrative stock tips and financial insights, that seemingly lead to vast riches. Those who are unfortunate enough to subscribe to this kind of conjecture, often fall prey to devastating consequences. 

Young investors have fallen victim to this trend during the last two years. Since the advent of the pandemic, we have seen drastic market fluctuations and causal impacts on the financial circumstances of many. This has led to emotional decision-making across the investment landscape, which has only exacerbated the appeal of get-rich-quick schemes and easily digestible financial guidance. 

This is often why those who seek financial advice online, will find that they relate to users portraying luxurious lifestyles, because there is usually a component which taps into one of the many biases, that we are subject to. 

Fraudsters are very aware of the fads that interest us, and they often market misinformation to those among us that have a so-called “fear of missing out”. This is often done by creating a sense of urgency, and alarming potential investors to the dangers of missing a golden opportunity. 

Luckily, most of these posts become very transparent once you conduct your own research into the information offered. For instance, reputable providers will always have a proven track record to support future return estimates, and will also be regulated entities; pyramid schemes, and related scams will often lack these components. 

As a rule, one should always remember the age-old phrase, “There is no such thing as a free lunch”, coined by Milton Friedman. This simply means that you cannot get something for nothing, and investors should always play devil’s advocate when 

presented with prospects that seem suspicious. It is unlikely that substantial wealth can be generated without due effort, diligence, patience, and discipline. 

Even when these posts are not malicious and aim to address legitimate financial topics, more-often-than-not the content is of a complicated nature, and then over-simplified to accommodate short videos/quotes that will attract the most traffic in the least amount of time. The misinformation is often perpetuated when the subject-matter is based on surface-level knowledge and sold as “financial advice”. 

It is important to note that the field of financial planning is heavily regulated for good reason. One of the key provisions contained in the prevailing legislation, is that no recommendation may be given to a client, without a comprehensive analysis being conducted first, as there is no such thing as a universal approach to individual financial planning. 

Should you be wary of any scheme/opportunity presented to you, please be sure to contact your financial advisor before making any potentially uninformed decisions. Should you not have an advisor, Morebo can put you in contact with an accredited and qualified financial advisor.