3 tips to assess if their advice is valuable

Queenie Tan is full of financial advice. Whether it’s cheap date ideas, buying furniture, saving your first $ 100,000, doing your tax return, or investing in Dogecoin, there is apparently no a subject the 24-year-old from Sydney could not tackle with confidence.

His posts and videos have earned him 15,000 followers on Instagram and 42,000 followers on TikTok. His explanation of Australia’s tax rules for cryptocurrency capital gains has been viewed over 360,000 times. His advice for first time home buyers over 400,000 times. Both videos are less than a minute long.

Queenie’s qualifications as a financial expert are slim. She worked as a marketing manager. She says she has accumulated nearly A $ 350,000 in assets in five years. That, besides being photogenic and lively, is more than enough to join the growing ranks of “finfluencers” – the creators of social media content who build audiences by providing financial advice.

Becoming an end influencer can be very lucrative. On TikTok, the #FinTok hashtag has been viewed over 340 million times. Californian Stephen Chen, a former math professor turned “financial freedom coach,” is one of FinTok’s top elites, with nearly 780,000 subscribers. Another is Sara Rosalia, a Canadian teenager who, under the name “Sara Finance”, has attracted more than 670,000 subscribers.

Aspiring influencers also find financial content to be a successful formula on Youtube, Twitter, and Reddit.

But as lucrative as this trend may be for those who make it to the top of the money tree of financial influencers, the payoffs for followers are far less certain. It’s the Wild West for financial reporting, with few checks and balances regulating other areas of financial advice.

Driving commercial frenzies

The Plaxful cryptocurrency trading platform analyzed 1,212 videos from a sample of 50 popular finance-focused TikTok accounts in 2020. It rated 14% of them as misleading. This included, without disclosures or disclaimers, encouraging users to purchase specific assets and implying that an investment would guarantee a profit.

Elon Musk’s social media posts are shaking up the markets.

In recent months, we’ve seen how influential social media can be in encouraging people to buy or sell particular stocks.

There was the Gamestop trading frenzy, in which the shares of a video game retailer went from US $ 19 to US $ 347 in less than two weeks, spurred on by Redditors and aided by tweets from Elon Musk.

Musk’s twitter also helped raise the price of Dogecoin and push the price of Bitcoin up and down.

A social media influencer at their best will build an audience with solid financial advice. But they can also build an following by making sensational statements about their advice, promising huge returns, and even pushing failed products.

Read more: GameStop: How Redditors Played Hedge Funds For Billions (& What Could Come Next)

Other financial advice is regulated

The Australian Securities and Investments Commission said complaints about unlicensed financial advice, including through social media, have been increasing since March 2020 – the start of the COVID-19 pandemic. The corporate regulator has expressed concern about the advice because consumers have no legal protection.

In Australia (as elsewhere) there are laws regulating the conduct of financial advisory firms. Counselors must be licensed. Running as an unlicensed financial advisor can result in a fine of up to A $ 133,200 and a prison sentence of up to five years.

To be eligible for a license, you must take courses and pass exams, including ethics.

Becoming a financial influencer, on the other hand, doesn’t require any specific expertise. In most cases, content creators are bound by general rules against false and misleading claims, platform guidelines, and codes of marketing practice requiring disclosure of paid partnerships.

Like the guy at the pub?

Despite this, the Australian government has indicated that it sees no need to do more to regulate financial influencers. Federal Minister for Financial Services and Digital Economy Jane Hume described them last week as “an inevitable part of a financial ecosystem”. She explained:

The TikTok influencer who drives Nokia isn’t that different from the pub guy who wants to tell you all about the great company he’s just invested in – but with a much louder voice.

“Some of the information on the online forums would be bad,” she said, “but some will be good, and a lot of it will better engage younger generations in investment and financial markets. “

“Some of the information and opinions consumers receive from online forums will be bad.  But some will be good.  says Jane Hume, Australian Minister for Pensions, Financial Services and the Digital Economy.
“Some of the information and opinions consumers receive from online forums will be bad. But some will be good. says Jane Hume, Australian Minister for Pensions, Financial Services and the Digital Economy.
Mick Tsikas / APP

These are rather simplistic things for a minister in charge of the digital economy.

The guy at the pub, on the other hand, doesn’t make any money from his speech.

Social media influencers do it. Take the example of Youtube. If they can attract a large enough audience, content creators can make money through ads, affiliate links, sponsored content, and the sale of branded products. They can potentially profit by touting the stocks they own or get paid to promote a product.

Three tips for evaluating finfluencers

This doesn’t mean that all influencers are suspect. Their advice, such as Queenie Tan’s advice on saving money, can be very helpful. They wouldn’t be popular if it weren’t for a demand for accessible financial information that in itself doesn’t cost a fortune.

So here are my three free tips, if you like #fintok, for assessing an influencer credibility and advice.

Read more: From tulips and scrips to bitcoin stocks and the like – how the act of speculating became a financial mania

First, don’t assume that a large number of followers are worth following. Popularity is not the same as credibility. Look at their backgrounds and degrees. You don’t need a degree to get rich, but there should be some sort of proof for them to claim to be someone worth listening to.

Second, why are they sharing their secrets with you for free? The Chinese philosopher Lao-tzu is said to have said: “Those who know do not say it”. This is as true now as in the 6th century. If an influencer really has a strategy to beat the market, why are they telling everyone on social media? Anyone touting a particular stock, product, or strategy should be treated with suspicion.

Third, beware of anyone promoting a get-rich-quick scheme. Yes, it is possible to make huge returns on an initial investment. But these windfall gains are the exception rather than the rule.

Any influencer who tells you to emulate their success secrets is probably not telling you the whole truth unless they also advise you to try your hand as a finfluencer.

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