Young investors warned off social media ‘advice’ amid risky markets

Young investors warned off social media ‘advice’ amid risky markets

September 27, 2022

As higher inflation and rising interest rates send markets into a spin, investors who use tips from unlicensed social media influencers are taking even bigger risks with their money, compared to when markets were consistently on their way up.

Those mostly younger investors who started investing for the first time during the pandemic have not seen higher rates or market cycles before, and may be unprepared for a major sharemarket downturn, says John Winters, chief executive of investment platform Superhero.

John Winters, CEO of investing platform Superhero, says that even though younger investors “live online” most recognise the risk that comes with following financial advice shared by unqualified peopleCredit:Edwina Pickles

It is now more important to seek quality financial advice because it is no longer possible to “throw a dart at the market and make money”, Winters says. “You can’t just jump on the bandwagon and expect to make big [returns],” he says.

Billions of dollars have been wiped off the value of shares listed on sharemarkets around the world over fears the global economy will go into recession, as central banks lift interest rates to curb inflation.

The Australian Securities and Investments Commission (ASIC) has long warned investors that they can get their fingers burned by acting on the advice of unlicensed financial influencers, or “finfluencers”.

Most do not hold Australian Financial Services Licences, which dictate that holders must provide certain educational standards, manage conflicts of interest and provide financial services “efficiently, honestly and fairly”.

Instead, the advice of finfluencers could be funded by advertising revenue from undisclosed sponsors, or they could be rewarded in some other way which could influence their advice.

ASIC has been warning unlicensed finfluencers they could face fines of up to $1 million and potential jail time if found to be giving financial advice. These warnings have been heeded by some, who have stopped talking about investments online or deleted their social media profiles.

Those aged between 18 and 24 are most likely to consider finfluencers to be trustworthy, according to a survey of Superhero users, with 20 per cent saying they trust finance-related content creators.

That contrasts with investors on the platform aged 55 and over, with just five per cent of those surveyed saying they trust finfluencers.

“As you become more worldly and experienced when it comes to investing, you do look to more credible sources [of advice],” Winters says. It is younger investors who “live online” that have been turning to social media, including unlicensed financial influencers, he says.

However, Winters says it appears that ASIC’s warnings are taking effect. “What’s clear from our research is that Superhero investors recognise the level of risk that comes with following financial advice shared by unqualified people,” he says.

“It is comforting that it is only a small cohort [of Superhero’s users] that is looking to social media influencers,” he says.

Research results released by the regulator last month showed 41 per cent of investors saying they sourced information from social media and networking platforms. About 20 per cent of those listed YouTube as a source, with 11 per cent of the cohort indicating Facebook, 10 per cent listing podcasts and 10 per cent listing financial influencers.

The ASIC-sponsored survey found that 43 per cent of over-55s were more likely to say they were investing for the long-term, versus 24 per cent for those aged 18-34. Older investors were also more likely to say their investment portfolios were “well-diversified” compared to younger investors.

Though ASIC’s crackdown on finfluencers is appears warranted, the rise of social media-based financial advice had filled a void for those seeking help, but who do not need a full-blown financial plan that can cost several thousands of dollars.

“You can understand why people are looking for other ways of receiving advice… that is the challenge: Where do they go that is credible?” Superhero’s Winters says.

Licensed financial advisers have been leaving the profession in the face of higher standards and regulatory burdens, after tougher rules were introduced following a series of scandals that left thousands of Australians receiving inappropriate advice.

A review underway on behalf of the Australian Treasury is tasked with finding ways of lowering the regulatory burden, including for superannuation funds or fintechs, so that they can provide “bite-sized” advice at affordable prices.

Sarah Abood, chief executive of the Financial Planning Association of Australia, says while advice needs to be made more accessible, the quality of the advice needs to be maintained.

“We have got to keep the best of what we have gained [higher standards] and not just throw it out because we say that great quality advice in the interests of consumers is too expensive,” she says.

Abood says there are more students graduating that want to move into the financial advice industry, but it is going to take a while for overall numbers to rebuild.

“The reality is that to train a financial adviser takes several years. You need a university degree and a professional year and time working with an experienced planner as well,” she says.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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