4 reasons your clients shouldn’t take financial advice from social media

Woman looking at mobile phone and laptop

Whatever your client’s age, there’s a good chance that they’re exposed to social media in their daily lives.

The rise in popularity of “influencers” in recent years has led to an increasing reliance on social media for financial advice. Research published by Actuarial Post found that more than double the number of people take advice from social media than a regulated financial planner.

And yet worryingly, anyone can declare themselves a financial expert and start giving out “advice” on social media.

So, your clients might be wise to proceed with caution when turning to platforms such as TikTok and YouTube for information and guidance to help them make important financial decisions.

Read on to learn four important reasons why your clients should think twice before taking financial advice from social media.

1. There is no one-size-fits-all approach to financial planning

Much of the language used to talk about personal finance on social media suggests that there is a “right” and “wrong” way to do things. Ads often make promises and guarantees that imply, “If you do X, you will achieve Y”.

However, such generic advice is unlikely to fit your client’s unique circumstances, needs, and goals.

So, if your client relies on this information, they could potentially waste time, energy, and money on strategies and products that do not serve them.

In contrast, effective financial planning involves assessing an individual’s unique financial situation and creating a personalised plan that takes into account their financial and broader life goals.

This bespoke approach can help your client create a financial plan that is meaningful, realistic, and motivating.

Furthermore, by working with a financial professional, your client can receive ongoing support in monitoring and working toward their goals.

2. “Finfluencers” are often unqualified and unregulated

Anybody can create an online profile and set themselves up as a financial influencer – often called a “finfluencer” – who offers advice and information on financial topics.

The Financial Conduct Authority (FCA) has made moves to clamp down on unqualified and unregulated individuals giving financial advice online, but your clients still need to remain vigilant.

According to FTAdviser the FCA saw a 172% increase in the number of social media ads it had to amend or withdraw in 2021, compared to the previous year.

So, if your client relies on social media for financial advice, they may be acting on inaccurate or misleading information.

Also, finfluencers are unlikely to carry the necessary disclaimers, which means that they might make promises without outlining the potential risks.

In comparison, a regulated financial planner is overseen by the FCA.

As such, regulated financial professionals must have certain credentials, accreditations, and qualifications in place. They are also required to comply with rules of ethical practice, such as the Consumer Duty, which sets a high standard of consumer protection.

Additionally, if your client seeks advice from a regulated firm and is unhappy with the service they receive, they have recourse to action through the FCAs complaints procedure. This is unlikely to happen if they lose money as a result of taking advice online.

3. Your client could be encouraged to put their money in investment bubbles

Many finfluencers are charismatic and persuasive, leading their followers to build trust in them over time.

So, if your client relies on social media for financial advice, they could be encouraged to chase trends that may not deliver the investment returns they hope for.

The GameStop phenomenon offers a salutary lesson for investors regarding speculative bubbles.

In January 2021, a group of investors used the Reddit platform to encourage users to buy stocks in the video game retailer, GameStop. As a result, the value of the company soared.

While GameStop did earn some investors high and rapid returns, others who jumped on the bandwagon too late were left out of pocket as the price of their stocks fell.

Your client could avoid such losses by focusing on their financial goals and adopting a long-term approach to investing. This could help them avoid making investment decisions based on emotions, such as a “fear-of-missing-out” which could potentially jeopardise their plans.

Read more: Tulips, GameStop, and AI: why following the herd can leave you out of pocket

4. Social media is filled with financial scams

Financial scams have become increasingly sophisticated in recent years, so it’s no surprise that the number of people falling victim to fraudsters is on the rise.

According to figures published by Which? UK consumers lost £75 million to investment fraud on social media in 2022, compared to £13 million in 2019.

Scammers often entice people with promises of guaranteed investment returns or claims that they can use a legal loophole to help you access your pension earlier than the normal minimum age of 55 (rising to 57 in April 2028).

If it sounds too good to be true, it often is. However, it’s not always easy to distinguish between a legitimate opportunity and a fraudulent one.

Furthermore, the volume of fraudulent adverts your client may see on social media each day could put them at risk of being scammed.

To reduce this risk, your client might be wise to speak to a financial planner for advice instead of relying on social media. This could provide valuable peace of mind, not only that a regulated professional will do due diligence on an investment before recommending it, but that they are overseen by the FCA.

Get in touch

If your client would like to learn more about the benefits of working with a regulated financial planner, we’d love to hear from them.

To find out more, please get in touch. Email or call us on 01454 416653.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

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