Warnings amid rise of financial advice appearing on social media
Nearly half of 16-34 year olds have been influenced by social media to make an investment decision. But with industry regulators struggling to crackdown on malpractice, could these opportunities be too good to be true? To help you sort the good from the bad, here's London Academy of Trading's Academic Dean.
Transcript
00:00 Only 8% of people use financial advisors. So 92% look at other things. Nearly, I think
00:09 49%, nearly 50% of 16 to 34 year olds use social media for their investment decisions.
00:15 What is that all about? Because most of those people giving the advice don't know what they're
00:20 talking about. These are life changing situations that could occur from someone making money
00:26 from other people's needs and desires, which is, I think, ethically wrong.
00:31 We'd all like to have a little bit more money in our pockets. Who wouldn't? Especially with
00:35 cost of living pressures, meaning every penny needs to go further than ever. But we're being
00:41 warned to have our wits about us when it comes to financial advice offered online, amid a
00:45 rise of social media personalities being dubbed "fimfluencers".
00:50 Influencer is a person who, by virtue of their popular status, can influence the financial
00:54 decision making process of others through promotions or recommendations on social media.
01:00 The thing here is that people are using their celebrity status and their audience to promote
01:05 things that they possibly don't know much about. The problem here is there's a fundamental
01:12 conflict of interest in the fact that they're getting paid to deliver this recommendation.
01:19 The end client effectively is not having to pay any fees, but is probably getting some
01:26 poor advice.
01:27 While an increase in money management content online seems to suggest a rising interest
01:32 in financial education amongst everyday people, not all advice is created equal. With this
01:37 in mind, here's what you need to look out for to avoid falling victim to scams.
01:41 If it sounds too good to be true, it probably is. So that's the first thing. Avoid it like
01:45 a plague. Don't be too greedy. People are greedy and lazy. It's not a very nice thing
01:52 to say, but generally a lot of people are. If they can make lots of money very quickly
01:56 without too much effort, then they will. Of course, everyone will, but it's a false promise
02:00 and it's not something that's really going to come to fruition in most cases.
02:05 Many of the influencers, some are knowledgeable, but many are not. They don't have the expertise.
02:11 They're certainly not regulated. There's no comeback on them if they make a bad recommendation.
02:16 But what is being done to stop these influencers in their tracks? Regulators are attempting
02:21 to crack down on those who recklessly promote investment or trading opportunities on social
02:26 media platforms. But experts like Paddy believe regulators need to be given more power.
02:31 The regulators globally are pushing harder to try to control this sort of new industry
02:38 that's there. It's very difficult because they're all over the world. They might not
02:42 be in the country. It's difficult for a UK regulator to regulate someone who might be
02:47 in another country, etc. So it is a very tough job. But I think the regulators need to take
02:53 this by the scruff of the neck and be very strong. Start fining people serious amounts
02:57 of money for poor behaviour, and that will hopefully start to discourage others.