If you see a popular reality TV star pop up on your social media feed endorsing a product – or posting about the impressive returns from a particular investment – you may be tempted to try it. But before you part with any cash, you need to tread extremely carefully. This is the golden rule, no matter how persuasive the post may be.
Finfluencers are unlikely to be trained or regulated, and there may be no editorial control on the content they are posting. Some individuals may be outright unscrupulous. In short, if you do pour money in and the investment turns out to be dodgy, the implications for you and your finances could be extremely serious.
The regulator is cracking down
Earlier this month, the Financial Conduct Authority (FCA) announced that nine individuals – including several celebrity influencers who have appeared on reality TV – had been charged in relation to an unauthorised foreign exchange trading scheme promoted on social media.
The FCA alleges that some of the individuals in question used an Instagram account to provide advice on buying and selling ‘contracts for difference’ when they were not authorised to do so. CFDs are a high-risk investment product used to bet on the price of an asset. In this case, the price of foreign currencies.
Sadly, this isn’t the first sign of a crackdown by the regulator. Earlier this year, the FCA warned so-called finfluencers about misleading social media posts – and urged them to stay on the right side of the law with their content.
Growing numbers are taking their financial guidance from finfluencers
New research from AJ Bell’s Dodl investing app, reveals that almost a third (31%) of novice investors say they use social media platforms to research investment decisions, with Instagram and TikTok being the most popular. Further findings show almost a quarter (24%) say they’d consider buying a celebrity-endorsed product, while almost a fifth (17%) said they’ve already done so. Laura Suter, director of personal finance at AJ Bell, said: “Too many people blindly trust anything they see on social media.”
What are the risks?
While not all of the financial content on social media is bad, it can be a really mixed bag.
Suter said: “Finfluencers can help to explain tricky or technical parts of saving or investing in an engaging way. And that could enable people to make better-informed decisions.”
The problem is, there is a darker side to many of these posts. Suter added: “There’s a significant risk of influencers spreading misinformation, or encouraging high-risk behaviour, such as day trading in individual stocks without properly explaining the risks involved.”
So what exactly is the regulator doing?
The FCA had already fired the warning shot to finfluencers, telling them they were cracking down on misleading social media posts. While no rules or penalties were introduced, the guidance was tweaked to give more examples of when posts will – or won’t be – compliant.
Suter added: “Now, the FCA is clearly ramping up its campaign to keep finfluencers in line. This latest high-profile case is clearly intended to send a message to other influencers. With a maximum penalty of up to two years in prison – and an unlimited fine for breaking the rules – there’s no doubt it will make people sit up and listen.”
Top tips to avoid being scammed
Here are some of the key rules you need to stick to when researching investing to avoid getting into difficulty:
- If you don’t understand the investment or how it works, don’t buy it.
- Do your own research. Make sure you get information from different sources and don’t just rely on social media or one recommendation.
- Don’t be pressured into anything. If you get told the opportunity is only around for a few hours – or that you need to sign up immediately – it’s very likely a scam. Similarly, if you’re told the offer is ‘exclusive to you’ this should also set the alarm bells ringing.
- Be wary of instances where someone has approached you. Often, scammers will slide into your DMs on social media with a ‘great’ offer that you can’t refuse. But no legitimate investment company would contact you out of the blue on social media with an investment. Delete the message and block the contact.
Read more with our article: Should you trust a finfluencer?
Seek help
If you think you have suffered loss in relation to one of these scams, you can contact the FCA consumer centre on 0800 111 6768. For more information on making a complaint to the Advertising Standards Agency, head here.
Speak to the professionals
If you do want advice or guidance on complicated financial topics such as investments, pensions and tax, the best approach is to speak to an independent financial adviser. Read more here.
Photo by Andranik Hakobyan on Canva
