Can you trust financial advice on social media?

Social media scam

In today’s online world, many people turn to social media for information and insights. But can you trust financial advice on social media? Relying on what’s being said in a social post by unscrupulous companies and individuals could cost you your savings. This is a growing concern that has recently led to prosecutions by the Financial Conduct Authority (FCA).

“74% of those who followed financial guidance from social media lost money or experienced an undesired outcome”

Capital One

The problem with using social media for financial guidance

Social media posts by influencers and unregulated companies publish misleading content to entice engagement. A report from Capital One showed some worrying findings from a study they carried out. They surveyed 2,000 people and found that 13.7% of people turn to social media for financial guidance. With an estimated 4.5 billion social media users globally, 5.4 million people are seeking financial advice from social posts.

The majority of financial guidance published on social channels like YouTube is posted by someone without any financial qualifications. The Capital One study found that men were “more than twice as likely to take guidance from social media compared to women”. The study also reported that only 50% of finance videos contained a financial disclaimer.
Disclaimers are important because they warn the viewer that financial guidance given in the content they are watching has risks. More importantly is the fact that without the necessary qualifications and training, those offering financial guidance are putting people at significant risk.

Understanding the difference between ‘financial advice’ and ‘financial guidance’ is essential. Financial advice usually relates to a particular product, such as an investment, and can only be given by a regulated, qualified person.

On the other hand, financial guidance is less regulated and relates to sharing financial information and available options. However, when social posts promote an unauthorised investment, the Financial Conduct Authority (FCA) will take action.

“80% of financial content on YouTube is made by someone with no qualifications”

Capital One

Influencer prosecutions for CFD investments

ITV recently reported a series of prosecutions against influencers who had been found promoting unauthorised investments on social media. Financial investments are increasingly being plugged by social media influencers, including The Only Way is Essex and Love Island stars. The Financial Conduct Authority (FCA) has charged various individuals for advising their followers on Instagram to buy and sell Contracts for Difference (CFD) investments.

CFDs are high-risk investments. They work as an agreement between an investor and a provider (who takes a fee). The investor never owns the asset; they take a view on the contract price difference between the time it opens and closes. If the market value increases, they might profit, and if it decreases, they make a loss. However, the problem with this type of scheme is that 80% of people who invest make losses.

Two unauthorised people advising on CFDs, a type of investment usually traded using Bitcoin, paid the social media influencers involved in the recent prosecutions.

The importance of financial literacy

The Capital One report found that “those who took guidance from social media scored the lowest regarding financial literacy”. This term is used to understand and use financial knowledge and skills effectively. It’s essential to have good financial literacy if you want to make the right financial decisions about your life and future.

Balance: Wealth Planning Ltd. is registered with the Financial Conduct Authority (FCA), which gives our clients complete peace of mind. As a financial planning firm, we believe strongly in providing our clients with the necessary financial advice and guidance so they can make informed decisions. Our team has specific qualifications to advise our clients.

We are astonished that so-called ‘financial advice’ is being given online about unscrupulous investment schemes by unregulated people and firms. We believe that any form of financial guidance should be from qualified sources. It’s our aim to educate our clients on areas where they lack understanding so they can make suitable financial decisions.

Financial Advisers, Nottingham and Lincoln

Our qualified and experienced financial planners can advise on various authorised financial investments. We have two exclusive in-house portfolios available, which are low-cost, well-diversified, and minimally volatile. Both portfolios come with ten risk levels, so you can pick one that suits your preferences and needs.

As one of our clients, you can choose from our Core portfolio and Good Practice portfolio. Funds within the Good Practice portfolio are aligned with responsible investing criteria. Our team will help you align investment options with your values to achieve your objectives.

If you are considering an investment and you need advice, get in touch to speak to our financial planning team.