It’s easier than ever before to get investment advice—and it’s often free, or at least the cost isn’t always clear. While some advice is better than others, how can you tell the difference?
For example, TikTok videos with the tag #personalfinance have over 5.9 billion views as of May 2022 from 1 billion monthly active users. However, a high number of views doesn’t mean that the influencer is qualified to share financial advice, nor that the advice applies to everyone’s goals and needs. Finance influencers—or “finfluencers” —are showing that it’s possible for anyone on social media to give advice. But, who can you trust?
Five questions to ask before taking investment advice from an influencer.
1. What is the influencer’s qualifications and experience?
Following advice on social media without vetting qualifications could be a costly mistake. Always take the time to review the professional background of anyone giving investment advice.
During your research, consider:
- Education. Have they received a degree? From where? When? Is it relevant to giving investment advice?
- Professional experience. How long has the individual been giving financial advice? What types of investment experience does the person have?
- Licenses and certifications. Does the person have any licenses or certifications? A securities license allows financial professionals to sell and/or offer financial advice.
- Other training or experience.
If the influencer lacks credentials, what makes them an authority on the topic? Do they interview or collaborate with people who have experience and expertise? Or are their opinions based on little training or experience? If there is no qualified source for the advice, beware. They may make money on endorsements or parrot trendy topics to grow a following.
2. Does the influencer offer more than one approach to investing?
No piece of financial advice works for everyone. Each person has their own financial situation and goals.
It should be a red flag if the influencer’s solution is one-size-fits-all. Financial strategies that can achieve personal goals include an understanding of individual situations. Even if the advice follows a sound investment principle, it may not be in your best interest. There is no magic pill to achieve lasting wealth or financial security.
3. Does the influencer rely on more than personal experience?
An influencer can have great personal experience with a particular financial strategy, but that doesn’t mean everyone can or should take a similar path.
An isolated example of a good personal experience does not create expertise. The financial success could be the norm or an outlier. It could be because of luck rather than skill or knowledge, and may not be repeatable. Take the time to determine if an investment has more to it than personal experience alone.
4. Is the influencer leaving out critical information?
On social media, it’s common to share successes over failures. It’s possible that what you hear online is a best-case scenario, and not a typical experience. Or you may be getting cherry-picked or otherwise incomplete information. Attention span on social media is low and much of the content is short by design.
That means that influencers may ignore or disregard key details to keep content short. In some cases, these omissions are deliberate.
Following trends about new investment options on social media can be helpful. But, keep in mind that you may not be getting the whole story.
5. How has the influencer gained their popularity?
Thousands—or even millions—of followers does not equal sound advice. Social media influencers are in the business of growing their personal brand. They often enhance their personal brand and gain popularity through:
- Giving good information
- Telling people what they want to hear
- Entertaining their audience
- Triggering strong emotions
- Simplifying complex issues (for better or worse)
- Being controversial or edgy
You may notice that helping you reach your goals is not on this list. It’s critical to understand that your goals may not align with an influencer’s motivation and goals. It’s not that they want you to fail; it’s that they’re not vested in your success.
Investing advice on social media is big business.
Investment advice can lead to big profits on social media. Finfluencers can earn money through advertising and by pushing investments products and services.
One such finfluencer, Austin Hankwitz, charges $4,500 to $8,000 per post on his TikTok. He is also paid by Fundrise and Blockfi when people use their investing platforms. Hankwitz states that he makes over $500,000 a year.
Make sure to consider the incentives involved when evaluating financial advice. Is an influencer a paid spokesperson? Or are they offering a qualified recommendation that fits your goals? It can be hard (or sometimes impossible) to tell the difference.
Social media investment advice is gaining in popularity.
Social media makes it incredibly simple to access free resources. It’s easy to see why “self-taught” investors are using social media to get information and guidance—or give it.
Additionally, social media is growing as a “go-to” source for financial advice. More than half of people under 25 use TikTok for financial advice, and over half of people 25-40 use Facebook.
Investors under 25 are often interested in quick returns, which means they might take more risks by trying to “take advantage of” or “playing” the market. “Get rich quick” tactics are nothing new. As a result, more people turn to social media “influencers” who offer the next best—or at least simplest and quickest—solution.
When to get advice from a licensed financial advisor.
Remember that popular influencers feed into excitement, so before taking their financial advice, verify facts and review credentials. Make these two actions a habit when considering any money moves pushed on social media by “gurus.”
For even more peace of mind, consider seeking guidance from a licensed Financial Advisor. Discussing opportunities with a qualified advisor bound to a fiduciary duty will help you get financially sound advice. They are familiar with trends and can help you evaluate new options before you put your money, your goals—and your future—on the line.