3 ways financial influencers could jeopardise your client’s wealth

According to FTAdviser, the Financial Conduct Authority (FCA) has warned investment companies about the use of influencers to promote their products on social media. The warning came after a sharp increase in regulatory action against authorised firms using media promotions

In 2021, the financial watchdog had to amend or withdraw 564 promotions, a rise of 172% on the previous year. Then, in February 2022, it ordered investment platform Freetrade to remove all paid-for social media influencer posts after suggesting consumers in debt could use the platform to make money.

This may not be surprising when you consider the FCA suggested that the rise of investing apps and social media advice may affect thousands of people – especially younger generations. So, with this in mind, read on to discover three ways relying on social media for financial advice might be harmful to your client’s wealth.

1. Some influencers could promote scams (without realising it)

An article by Money Marketing explains that care should always be taken when listening to advice on social media. One reason for this is that financial influencers – known as “finfluencers” – may promote investments that offer high returns without the necessary approvals.

As a result, your clients may be more likely to be caught out by a scam. For this reason, clients should always be extremely wary of investments that offer high returns, especially when they seem too good to be true.

More worryingly, an article in Tech Times in April 2021 suggests that influencers themselves may not realise they’re promoting high-risk investments or scams. It reported on an apology made by the then 17-year-old financial influencer Matt Lorion, who inadvertently promoted a cryptocurrency scam called “Mando” on TikTok.

2. The investments being offered could be high-risk

The rise of investing apps and social media advice not only increases the chances of your client falling victim to scammers. It may also result in them investing in funds that are too risky for them without realising.

This is because financial advice provided on sites including Facebook, Instagram, TikTok, and YouTube, may not provide regulatory information after an individual makes an unqualified claim.

One BBC investigation found that video-makers on TikTok didn’t explain that the content should not be treated as financial advice. Furthermore, in some cases past market performance was used to indicate future growth.

This could cause your client to invest in a fund that’s too high-risk for them without them realising, which may result in significant losses later on.

3. Many financial influencers are not qualified or regulated

When used responsibly by bona fide financial professionals, social media can be an effective way to help everyone make better decisions about their wealth. The issue can be that, all too often, financial advice is provided by untrained and unqualified influencers who are not authorised by the FCA.

The best way to ensure your client is talking to someone who is competent and qualified to provide advice, is to encourage them to sit down with a financial planner. Unlike influencers, planners have the relevant qualifications to fully understand the solutions they are recommending.

They also have to demonstrate to the FCA that they are continually developing their knowledge to ensure they are up to date on product knowledge, financial regulation and taxation.

This means they understand whether an investment really is right for your client, and will ensure it dovetails into their objectives and current situation. This could help provide the potential growth your client requires at a level of risk that’s right for their circumstances and risk profile.

In addition, financial planners will fully explain any recommendation they make using clear and understandable language. This means your client will have peace of mind that the investment is right for them, and they’re unlikely to be making a decision they later regret.

Get in touch

If you have a client who is a DIY investor and gets financial advice or information from social media, they might benefit from a conversation with us.

We can carry out an audit on their investments to ensure they are right for your client’s circumstances and make recommendations when they are too high-risk or unlikely to provide the growth potential required.

If you or your client would like to discuss this further, please contact us at hello@ardentuk.com or call 01904 655 330. As award-winning specialists in financial planning, you’ll have peace of mind that we will provide the right advice and excellent service.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Get in touch

By talking about your current situation and listening to your aims, we create a personalised plan that will put you on a path to achieving your aspirations.

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