The financial influencer space has exploded in recent years. While getting free advice from a so-called “money guru” may seem cost-effective, is it really the best option?
Many of these influencers claim that you can make easy money with little effort, but there's more to this than meets the eye. Keep reading to discover how to spot a liar in the financial influencer scene.
What is a financial influencer?
A financial influencer is someone who has the power to influence the financial decisions of others. They may have a large following on social media, an active blog, or their own website. These influencers often collaborate with other experts and financial institutions, and many actively seek their advice.
Financial influencers advise their followers about investments, taxes, budgeting, retirement planning, and more. While financial influencers have the potential to positively impact the economic well-being of individuals and society as a whole, many of these influencers have selfish motives.
Do all financial influencers have experience or knowledge?
While some financial influencers may have had formal training or education in finance, accounting, business, or economics, giving them a deeper understanding of the economic landscape, not all have professional expertise.
Many influencers are self-taught through personal experience or by studying financial topics from books, videos, and other sources of information. Although many financial influencers may have had the opportunity to speak at conferences, write for publications, or engage in other activities, this doesn't mean they have extensive expertise or knowledge.
Numerous influencers gain their followers by being entertaining, rather than genuinely knowledgeable.
Why would financial influencers lie?
Financial influencers may lie for a variety of reasons. They may be trying to promote a particular investment opportunity or product, or they may be trying to increase their following.
Most of these influencers get paid to promote certain financial services, even if they don't use these products themselves.
Financial influencers may be under pressure from their sponsors or advertisers to promote certain investments. Many are driven by ego, hoping to be seen as an expert in their field and gain recognition for their advice.
They may also be trying to manipulate the stock market (as it has been said happened in the Reddit/GameStop case back in 2021) for their own personal gain or the gain of their sponsors.
It's your money on the line
At the end of the day, financial influencers have their own best interests in mind. Many of these influencers are getting paid to promote specific products or services, so you can’t necessarily trust their financial advice. Just because they claim that a financial service is effective and trustworthy, doesn’t mean it is.
Sometimes, the information that financial influencers provide is outdated or irrelevant. Financial markets and regulations are constantly changing, so advice from a financial influencer from a few years ago may no longer be applicable.
Additionally, the influencer may be relying on information that is not accurate or reliable, especially if they aren't true experts in their field. You can protect yourself and your money by doing your own research and learning from credible sources outside the financial influencer world.
Legal risk
Trusting an alleged money guru not only comes with financial risk, but legal risk as well. Several social media influencers have been charged with conspiracies to commit securities fraud. These influencers have the power to hype interest in specific securities with the intention of raising the value and then selling shares at inflated prices.
Listening to someone with a questionable ethical code, like an influencer willing to commit fraud, is never a good idea. Following their financial advice could not only cause you to lose money, but it could get you into some legal trouble of your own.
How to spot a liar in the financial influencer world
- They ask for money: If you have to give an influencer money before they provide any value or content, this is the first sign that it is a scam.
- It feels too good to be true: Always trust your gut. It is likely too good to be true if someone promises massive gains and quick money for minimal effort or investment. Remember that there are never absolute guarantees when it comes to money.
- Very rushed opportunities: If you have to act quickly in the moment, with no time to think about the decision, this is a big red flag. You should never feel rushed or hurried when investing your money – in fact, it should be a thoughtful and careful decision.
- Too complicated or easy schemes: When an investing strategy is so complex that you are having trouble understanding it, don’t put your money into it. Likewise, it isn’t a good sign if it feels incredibly simple.
- No disclosed experience or education: When taking advice from someone, especially financial advice, you should always be aware of their education and credentials. You wouldn’t want someone who isn’t a real doctor to perform surgery on your body; likewise, you don’t want to take advice from someone with no real expertise or training.
- No signs of evidence: If a financial influencer isn’t a millionaire, they shouldn’t be teaching others to become millionaires. Real-life experience and evidence are key.
- Wildly exaggerated sales pitch: Your gut will tell you if someone’s sales pitch seems scammy. Additionally, using extremely technical vocabulary in the sales pitch is another red flag.
- Lots of followers, but not much engagement with them: If someone has millions of followers on their social media accounts, but only a few likes or comments on their posts, it is possible that many of their followers are bots, and not real people, which is never a good sign.
- Pushing too many paid promotions: It is normal for influencers to have regular paid advertisements on their social media profile, but if every post seems to be a paid promotion, it might provide insight into this influencer’s true motivation.
3 Steps to protect yourself
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Research
Knowing the chances of success and the risks involved with investment opportunities is critical before making any decisions. Before listening to financial advice, research the influencer’s credibility. You’ll also want to learn more about their proposed scheme, if it’s legal, and if it's even possible.
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Ask the people you trust
If you have a trusted financial advisor, banker, accountant, or another financially-sound friend or family member, ask them if this scheme seems legitimate. Getting the advice of an outside party can provide valuable insight.
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Don’t let your research go to waste
Tell your friends and family if you think you've discovered a fraud. Giving them a warning could save them thousands of dollars and legal troubles. The more people are aware that a financial influencer is lying, the more likely it is that word will spread and that people will stop listening to this fraudulent influencer.
