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Finfluencers: Can you trust personal finance influencers on social media?

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Finfluencers: Can you trust personal finance influencers on social media?

Finfluencers, or finance influencers, have gained significant popularity with the rise of social media platforms like Instagram, YouTube, TikTok, and Twitter. They use these channels to reach large audiences, offering engaging and accessible financial content.

With complex financial concepts broken down into simple, relatable terms, finfluencers make personal finance easier to understand compared to traditional, jargon-heavy advice. However, this popularity raises a very important question: Can we really trust personal finance influencers on social media?

What is a finfluencer?

A finfluencer, short for financial influencer, is a content creator who shares advice and insights about personal finance, budgeting, saving, and investing on social media platforms such as TikTok, Instagram, YouTube, and so on.

They produce engaging and accessible content that simplifies complex financial concepts, making them easier to understand for a broad audience, particularly younger generations.

Finfluencers often use their personal experiences and stories to connect with their followers, offering a more relatable and humanised approach to financial education compared to traditional financial advisors. Their influence has grown significantly as more people seek financial knowledge and tips online.

Do Australians listen to Finfluencers?

Australians do turn to finfluencers for financial tips, as indicated by the latest RealTime Omnibus research by YouGov.

The report revealed that 35% of Australians who use investing apps rely on social media and personal finance influencers to research and learn about investing, making them one of the second-most popular sources of information. This suggests that finfluencers play a significant role in shaping the investment decisions and strategies of Australians, particularly among those who are active in the digital space seeking financial advice.

Why have finfluencers become so popular?

Aside from leveraging popular social media platforms, and demystifying complex financial concepts, finfluencers add a personal touch and storytelling aspect which makes their advice more appealing. They share their own experiences and journeys to create a sense of connection and trust with their audience. People often prefer learning from someone they perceive as a peer or an online friend rather than a faceless institution.

Engagement is also another factor that contributes to their popularity. The interactive and dynamic nature of finfluencer content, including Q&A sessions, live streams, and webinars, fosters a more engaging and responsive learning environment. This interaction can make financial education feel more personal and immediate.

Most importantly, the current economic climate, marked by uncertainties and challenges, has driven greater interest in personal finance, particularly among younger generations who may not have received adequate financial education in schools. These financial influencers fill this gap by providing free, easily accessible advice that could empower individuals to take control of their finances.

Personal Finance Influencer Red Flags to Watch Out For

When considering advice from finfluencers, it’s crucial to be aware of potential red flags that might indicate unreliable or harmful guidance. Here are some key warning signs to watch out for:

1. Unrealistic Promises

Be skeptical of claims that seem too good to be true, such as “guaranteed” or “foolproof” methods to get rich quickly with minimal effort. Always remember that no financial strategy can offer certainty without risk.

2. Overly Aggressive Sales Tactics

Genuine finfluencers prioritise helping their audience improve their financial situation. If an influencer constantly pushes products or services, it might indicate their primary motivation is making money off their followers rather than providing sound advice.

3. Lack of Transparency

Influencers who claim extraordinary financial achievements, such as retiring at a very young age or earning large sums from side hustles, should be able to provide evidence or detailed explanations of their success. A lack of proof can signal that their advice may not be credible.

4. Excessive Paid Promotions

While many influencers monetise their platforms through affiliate marketing or sponsored posts, an overabundance of such promotions can suggest that their recommendations are financially motivated rather than based on genuine experience or expertise.

5. Low Engagement Despite High Follower Counts

Many followers with little interaction (likes, comments, shares) can indicate the presence of fake followers or bots. Authentic engagement is a better indicator of an influencer’s impact and reliability.

6. Requests for Money Upfront

Be wary of finance influencers who ask for money or gift cards before providing content, products, or services. This can be a clear sign of a scam.

Be vigilant with these red flags so you can better navigate the world of personal finance influencers and avoid falling for misleading or harmful advice.

Is offering financial advice on social media even legal?

Offering financial advice on social media can be legal under certain conditions, but it must comply with stringent regulatory requirements.

In Australia, for instance, the recent Federal Court decision in ASIC v Scholz (No 2) [2022] FCA 1542 has underscored that individuals, often termed ‘finfluencers’, who provide financial product advice or recommendations on social media may be considered as carrying on a financial services business.

According to Section 766B of the Corporations Act 2001, financial product advice includes any recommendation or statement of opinion intended to influence a decision about financial products. Therefore, those engaging in such activities must hold an Australian Financial Services License (AFSL) unless specifically exempted.

The case of Tyson Robert Schols, who faced legal action for offering investment tips on Instagram without an AFSL, exemplifies the legal implications.

While social media offers a powerful platform for disseminating financial knowledge, compliance with regulatory frameworks, including AFSL requirements and consumer protection laws, is crucial to avoid contravening financial services regulations.

The Australian Competition & Consumer Commission’s (ACCC) recent sweep targeting misleading testimonials further underscores the heightened scrutiny and potential consequences for non-compliance in the realm of financial advice on social media. Thus, while legal avenues exist for providing financial advice via social media, adherence to regulatory standards is paramount to ensure legality and consumer protection.

Should you use social media for financial advice?

Social media platforms can offer a wealth of information and insights from various sources, including financial influencers and online communities. This accessibility can be beneficial, especially for those seeking diverse perspectives and real-life experiences in managing finances.

However, there are significant caveats to relying solely on social media for financial advice. For instance, the credibility and qualifications of those offering advice on social media may vary widely. Unlike licensed financial advisors who are bound by professional standards and regulations, finfluencers and individuals on social media may lack formal training or oversight. This can lead to misinformation or advice that may not be suitable for individual financial situations.

Also, the nature of social media itself can amplify risks. There is a potential for misleading endorsements, biased recommendations, or outright scams, as highlighted by recent regulatory actions and sweeps targeting misleading financial testimonials. Without proper due diligence and verification, users may unwittingly expose themselves to financial risks or fraudulent schemes.

While social media can provide a starting point for financial education and awareness, it should ideally complement rather than replace personalised advice from qualified financial professionals. Seeking guidance from licensed financial advisors or planners ensures that advice is tailored to individual circumstances, complies with regulatory standards, and prioritises the client’s best interests.

Personalised Advice from Help My Wealth

Approach advice from finfluencers with discernment and caution. Help My Wealth offers a reliable alternative, providing personalised support through a proven three-pillar program. We help our clients make informed decisions to secure their financial futures. For those seeking trustworthy guidance and a proactive approach to financial success, exploring resources like Help My Wealth can pave the way to greater financial confidence and security. Contact us today for an obligation-free call or visit the Help My Wealth website to learn more about how to take control of your financial journey today.

Finfluencers: Can you trust personal finance influencers on social media?

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Finfluencers: Can you trust personal finance influencers on social media?

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