In the age of social media, we benefit from an almost constant stream of concise advice about everything, including personal finance. Thanks to some black-box algorithms, information that would previously have taken considerable time to study is now delivered to our doorsteps every day. In fact, 79% of Millennials and Gen Z say they have gotten financial advice from social media.
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This advice is easy to understand, easy to relate to, and often rings true, but with thousands of self-proclaimed financial experts, it can be difficult to know where to start. How do you remove nonsense from professional financial information?
We asked three financial experts about the red flags about self-proclaimed “experts” online and what to look for instead. Here's what they said:
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suspicious credentials
It is important to know that financial influencers are not subject to any vetting, even if they are creating content about a highly regulated industry. Instead, there are plenty of entitled voices. At the latest count, there are 98,967 certified financial planners in the United States (some with social media channels with regulator-approved content).
Connor Bauserman, a financial planner with Preferred Financial Group LLC, said CFPs are held to a fiduciary standard, meaning they must put their clients' best interests ahead of their own.
You might think that all financial advisors should follow this standard, but that's not actually the case. Bauserman said many insurance agents are bound by a “suitability standard, which means as long as the investment is good, you can sell insurance.” Influencers are not bound by any legal standards and can make any number of false statements, false promises, and guarantees.
Dr. Nicole Simpson, CEO of Vanderbilt Securities, is a person who calls herself a “financial coach” because the title is not supported by uniform qualifications, authority, or testing requirements. It is especially important to avoid
What can consumers do to protect themselves? Some experts suggest visiting BrokerCheck and entering the advisor's name. Click “Details” to see their years of experience and a list of exams and certifications. If you have passed Series 6, 7, or 65/66, you are compliant with the fiduciary standard. If it is not listed at all, it is not licensed to provide investment advice.
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general advice
While certain principles are broadly applicable (e.g., having an emergency fund to cover three to six months of expenses), personal finance is personal for a reason.
Preston D. Cherry, Ph.D., CFP and certified financial therapist at Concurrent Financial Planning, explains, “Why financial regulators frown upon professionals giving financial advice directly on social media.'' “There is,” he said.
General advice is easily misunderstood.
Dr. Simpson gave the example of debt reduction, saying, “Influencers might say, 'Get rid of all your debt now!'” But how do you do it? A planner can help you assess your debt and take concrete steps. ”
The influencer might say that you should pay off your small credit card balance first to start winning faster. But if you're competing against his $1,000 balance with an interest rate of 18% and a much larger $10,000 bill with an interest rate of 29.9%, prioritizing your repayment efforts towards the larger balance will make sense overall. This means you pay less interest.
Similarly, influencers tend to focus on only one or two things that have worked for them, such as passive income, rental real estate, or stock market trends. Their personal stories are powerful, but a true financial planner will listen to you and provide a wide range of tools and processes to help you reach your goals.
That said, don't be afraid to suggest new ideas you see on social media to your planner. That way, you can evaluate your ideas with someone who will put your interests first.
No prior disclosure
Influencers can say almost anything, but are they telling the truth? Are they citing sources, or is it mostly just vibes? Genuine advisors are transparent about their fees, potential disputes, and track record.
Additionally, Dr. Cherry points out that investment influencers overuse the phrase “do your own research” to insulate themselves from danger. Of course, it's always wise to educate yourself, but the real goal here is to absolve so-called influencers of legal liability for giving advice that may fail. There are too many hot takes on the content rather than the accompanying financial education.”
Selling over advice
To their credit, many influencers strive to make complex topics easier to understand. But as personal finance becomes a bigger topic online, there are more opportunities for bad behavior. Dr. Cherry said the best social media content “provides financial education that does no harm to the audience and inspires them to better themselves.” Selling misinformation for profit or influence disrupts people's lives and finances. ”
lack of education and experience
In conclusion, Dr. Simpson said, “In the fragile field of finance, experience and education are important.”
Look for meaningful letters after the advisor's name. “CFPs and ChFCs demonstrate that they have received more training and schooling than the average qualified advisor, not to mention that they are legally bound to fiduciary standards,” Bauserman said. “
When it comes to money, Dr. Cherry said the biggest hurdle when working with someone is trust. When influencers and even financial experts are unqualified or inexperienced, trust in personal financial expertise is lost. After all, “professional licenses, certifications, and titles are meant to better serve people, not protect professionals.”
It's clear that people are hungry for personal finance content, and powerful online stories can teach and motivate us to get better in this space. Remember these red flags when consuming social media content. This way you can stay inspired and curious, while also getting solid advice from people you trust.
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This article originally appeared on GOBankingRates.com: 5 red flags to look out for when taking advice from financial influencers
