Australians are being warned not to succumb to dodgy financial advice on the internet, as new data shows many people are turning to “all the trends on social media” when deciding where to invest their savings.
As corporate regulator ASIC cracks down on so-called “finfluencers” on platforms like Instagram and TikTok, Global Prime research reveals men are four times more likely than women to take financial advice online.
This risky investment strategy is becoming popular, especially among young people, with ASIC data showing that 64% of 18-21 year olds have changed their financial behavior because of online influencers.
It comes after a review of some finfluencers and ‘pumping and dumping’ schemes last year, following revelations that Australians have lost over $35 million to cryptocurrency scams. on the Internet in just six months.
ASIC is now warning it will take action against influencers caught whipping up questionable products or advice, releasing advice earlier this week on how to discuss financial services on the internet.
“If we see damage occurring, we will take action to enforce the law,” said ASIC Commissioner Cathie Armor.
So how can you protect yourself from questionable financial advice online?
Risks of using social media for financial advice
University of Sydney scholar Andrew Grant said that while influencers may be sponsored to promote a product or service, that doesn’t necessarily mean the advice is bad or won’t benefit you.
But the advice you can get from social media won’t be tailored to your specific situation and needs, and the fact that many finfluencers don’t have a background or professional education in finance should also make you think twice. before blindly following their example.
Hard Line Wealth director and partner Cody Harmon said it’s best to get a good balance between sources of knowledge, rather than relying on just one.
If you can afford it, he recommended tapping into professional advice, tips from influencers, and your own research before making financial decisions.
Online financial advice to avoid
While financial experts agree that some social media tips can be helpful, there are signs of harmful or incorrect information to watch out for:
- Promote a single product: Dr. Grant said that if someone tells you to invest in a particular thing, like a stock or an option, take that as a sign that the product is probably quite risky.
- Find the value: If someone is promoting something that doesn’t add value, like a credit card, Harmon said you should stay away. “I would be very worried because a credit card, by definition, is a structure that makes you worse,” he said. “So that would be an example where you’re going to have alarm bells ringing.”
- Eyeing their own horn: If an influencer’s content is mostly about showing off their success, Dr. Grant said that could mean they just made a lucky trade and are using their platform to brag.
- If you don’t understand, don’t spend: If you don’t understand how something works, then how can you understand the risks? If there’s something you don’t understand, like cryptocurrency or how an investment will benefit you, Dr. Grant said you should probably stay away.
- Don’t be fooled by guaranteed winnings: Just like the saying “there is no free lunch,” Finder financial expert Angus Kidman says there is no foolproof investing strategy. He said if someone tells you something is a risk-free investment, don’t trust them.
ASIC ‘scares off’ legitimate influencers
On Monday, ASIC’s Executive Director of Market Surveillance, Greg Yanco, pointed out to the Australian Financial Review that unlicensed financial advisers can face up to five years in prison or fines of more than $1 million.
But Mr Harmon said it could increase the risk of people getting bad financial advice online, as legitimately helpful influencers could be scared off.
He said regulated financial advisers in Australia have to go through so much red tape that they have no choice but to charge clients thousands of dollars to offset the costs.
If you make $60,000 and are billed $6,600 for advice, that would eat up more than 10% of your salary, he said.
“How affordable is it for someone trying to make smart decisions with their money and getting started? This is not the case,” Mr. Harmon said.
“So they need to be able to turn to podcasts and educational tools that help them, at a lower cost, to get to a better place.”