The rise of the ‘finfluencer,’ a term combining the social media influencer and finance advisor, brings both an array of misinformation and too-good-to-be-true hacks whilst potentially making alternative and lesser-known information and methods on financial decisions more accessible. Jeff Sekinger, Founder of Nurp, gives his hot tips on how to navigate the otherwise confusing world of online financial advice.
Data shows that young professionals turn to social media for financial advice for various reasons. Thirty percent of US adults say their parents do not teach them lessons on building financial wealth. Often, instead of consulting credible financial advisors, they turn to social media and get overwhelmed and swayed by influencers who capitalise on unverified financial advice, and it’s easy to fall prey to their misleading or outright harmful agenda.
No wonder get-rich-quick schemes are resurfacing for the nth time. Coupled with these social media influencers’ hot takes on managing money and their social influence, this makes a very powerful bait.
Having worked in finance for a while now and interacting with over a million online audiences has given me a new perspective on the amount of financial advice available out there. While some of it is helpful, I’ve also seen a concerning amount that can be confusing or even misleading. Unsurprisingly, more than ever, distinguishing what’s credible from what’s not has become very challenging for individuals with little to no experience in the financial industry.
Therefore, financial literacy is important for making informed decisions that impact your future. Whether you’re a young professional or a first-time investor, understanding at least the basic financial principles can help you get started in exploring the tricky, modern financial industry.
Look out for these five red flags in financial advice
1. Overly complicated solutions
A lot of financial products can seem extremely confusing and complex. While some are, most are not. It is important for every investor to understand what they are investing into, why it has value, how it generates yield and what fees are involved. I see too many people hear about an opportunity, make a quick decision before they understand it, then end up losing money or paying exorbitant and unnecessary fees.
2. Promises of high returns with no risk
There is no such thing as a high return with no risk. If someone promises you sky-high returns without any downside, they are likely not being honest. Dive deep into the conversation, and don’t hesitate to ask as many questions as possible because, most of the time, you’ll discover they’re likely a fraud. Trust your instinct when it says ‘run.’ There’s never a lazy way to get rich!
3. Lack of verifiable credentials
Don’t get caught up in your favorite influencer’s bio and financial advice. Run a background check to see whether they have actual track records of success in the field or just show off designer clothes and cars on TikTok or Instagram.
4. Pressure tactics
If you feel pressured to quickly decide from that ‘take advantage of this limited-time offer’ IG reel, pause and step back. Credible financial influencers should encourage you to take the time you need to make an informed, balanced decision. Don’t let FOMO cloud your judgment!
5. Absence of transparency
Transparency is the foundation of credible financial advice. Be cautious of influencers who aren’t open or ‘selectively open’ about their methods, fees and potential conflicts of interest. A relationship is built with transparency and trust. And if one is missing, your financial journey could end up a disaster.
How to validate financial advice sources
Make sure you’re taking the proper advice from influencers affiliated with recognised financial organisations. These individuals should have certifications like CFA (Chartered Financial Analyst), CFP (Certified Financial Planner) and CPA (Certified Public Accountant), which indicate credibility and professional expertise. If one is missing, their verified success stories should prove you worthy of your trust.
Look for experiences shared by other clients to gauge the influencer’s reputation and ‘after-sales service.’ You might also want to verify the information you receive by cross-checking with reputable sources from websites like Investopedia, FINRA and the SEC.
Also, utilise free resources and educational materials from credible financial organisations. These will help you better educate yourself and cross-check the advice you come across online.
Recommendations for seeking professional financial advice
● Seek multiple opinions
- Never rely on a single source for financial advice. Seek multiple opinions to get a well-rounded view.
● Stay informed
- Stay up-to-date with financial news and trends. Being informed helps you make better decisions and recognise when advice is outdated or irrelevant.
● Prioritise your goals
- Understand your financial goals and decide for yourself. A clear understanding of what you want to achieve makes it easier to identify which advice aligns with your objectives and future goals.
● Establish a relationship with a trusted advisor
- A long-term relationship with a trusted financial advisor can provide ongoing support and guidance. Choose someone who aligns well with your values and financial goals.
Discerning credible financial advice is a skill that can save you a lot of time, stress and money. You can confidently navigate the financial landscape by watching out for red flags, thoroughly researching your sources and maximising all the free resources you can get. Don’t get swayed by scammers out there, instead, help in building a community where informed financial decisions are the norm rather than an uncomfortable topic.