5 Signs Financial Advice on Social Media Is Actually Good
Written by
Martin Dasko
Edited by
Jenna Klaverweiden
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With 71% of financial content consumed on social media misleading young adults, according to a recent analysis from Social Capital Markets, it can be challenging to determine whether the advice you find online is good. With only 13% of the content creators having any relevant qualifications, social media is filled with inaccurate financial information that could cost you significant amounts of money.
But there are ways to determine whether the advice in a post or video is actually good. Here are the signs that financial advice on social media is actually good and worth applying.
The Advice Includes a Disclaimer
If a post has a disclaimer, that is a good sign. However, you’ll also want to take note of what type of disclaimer is provided.
“Look for posts that contain disclaimers or context about risks,” said Justin Haywood, CFP, co-founder of Haywood Wealth Management. “Credible advisors are transparent about the possibility of loss and emphasize realistic, long-term strategies over ‘get-rich-quick’ promises.”
You’ll want to look for some sort of disclaimer in the content to determine whether the person has shared the possible consequences. The study from Social Capital Markets found that 83% of financial advice didn’t come with a disclaimer and that 57% implied guaranteed returns. This is a formula for financial problems because, without a proper disclaimer, you could be consuming information that doesn’t apply to your situation.
Similarly, you’ll want to see whether the source has been compensated for promoting the investment strategy. “Any paid/sponsored post must be disclosed (although many people don’t), which is also a sign that the ‘advice’ might not be straightforward or even of good quality,” said Eric J. Nisall, a financial expert and founder of Understand Finances. “It might just be a post by someone with a large following in exchange for money.”
Over the last few years, the Securities and Exchange Commission (SEC) has fined various celebrities for failure to disclose that they were compensated to promote a specific product. In many situations, celebrities or well-known influencers misled their viewers with false investment products under the pretense that they were personal fans. For example, Kim Kardashian agreed to pay a $1.26 million fine when it was determined that she had failed to disclose that she was compensated $250,000 to publish an Instagram post on a specific digital asset.
The Financial Tips Seem Realistic
Haywood pointed out that if the advice sounds too good to be true, it probably is. “Social media is full of well-intentioned financial advice, but unfortunately, there’s also a lot of misleading information,” he said.
This is especially true when it comes to investing. If it were that easy to get high returns, then more people would be experiencing similar results.
The best way to determine whether the advice is realistic is to find other similar stories with the same results. If someone on social media is promising you easy profits from an investment but you can’t find many other credible sources sharing the same information, then this could be the evidence you need to determine that the advice is unrealistic.
The Content Doesn’t Guarantee High Returns
If a piece of content promises high returns or profits, you have to be skeptical. Nobody can predict the market’s reaction, and nobody has a crystal ball to determine whether an investment will go up.
If someone doesn’t promise you high returns with a specific investment, then you may be consuming good advice, as this source is likely being candid with you instead of trying to get you to follow them blindly.
The Source Has Proper Credentials
A good rule of thumb is to double-check the credentials of the person offering the advice to determine whether they’re in a position to do so. You’ll want to find out whether the person is registered with a reputable organization, like the SEC. “Tools like FINRA’s BrokerCheck can help verify whether someone is actually licensed to give financial advice,” Haywood said.
Nisall pointed out that sometimes, you won’t be able to gather much information about the source’s credentials on social media. You’ll have to leave social media to look into the credentials or educational/professional qualifications. The main objective is to figure out whether this creator has the right credentials to be sharing advice on a topic as complex as personal finance.
Proper Context Is Given
When it comes to financial advice on social media, you want to ensure that the source provides proper context. This means they include details about their situation and further insights into the topic.
For example, if someone suggests that you invest a portion of your income into a meme coin or a stock without knowing anything about your situation, this could be poor advice. There are also scenarios in which someone could’ve gotten lucky with an investment. It’s crucial that the source of financial advice also provides the proper context and key details so that you can make an informed decision.
Haywood noted that you can validate the advice by cross-referencing it with other trusted sources, like official financial sites or by consulting a registered financial professional.
Social media can be a helpful resource, but you’ll always want to conduct your own due diligence before acting on the advice you consume.
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