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A scroll through social media can unleash a torrent of tips, tricks, and 'guaranteed' investment wins from a new breed of financial influencers, or 'finfluencers'. Promising insider knowledge and showcasing lavish lifestyles, they have attracted millions of followers, including a growing number of experienced investors.
For those who have spent a lifetime building their savings and pensions, the slick presentation of a social media post can be a first step to a devastating scam. Read on to find out how to distinguish credible expertise from a convincing fraud.
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Social media is full of financial influencers – sometimes dubbed ‘finfluencers’. They’re personalities who use their platform to promote financial products and share insights and advice with their followers.
While some operate legitimately, others tout products or services illegally and without proper authorisation. Through online videos and posts, they often flaunt lavish lifestyles for the illusion of success.
Ian Futcher, financial planner at wealth manager Quilter, says that financial influencers have become hugely popular, particularly among younger generations. But while some of the content online can be a useful way to spark interest in money matters, it comes with significant risks.
“A short video or social media post can never take into account someone’s full financial circumstances, and there is no regulation ensuring the advice is appropriate or in the consumer’s best interests,” he adds. The financial risks of are real and often serious.
According to research by TSB, 31% of people have acted on financial advice they found on social media. Of those, more than half (55%) ended up losing money. Futcher adds: “The reality is that sometimes the people behind these accounts are incentivised to promote products or eye-catching returns rather than provide balanced guidance.
If someone is promising guaranteed profits, urging you to act quickly, or suggesting something that looks too good to be true, those are major red flags.” Regulator the Financial Conduct Authority (FCA) has warned that some ‘finfluencers’ present a significant risk to the public.
A Treasury Committee session in April this year heard from Lucy Castledine, director of consumer investments at the FCA, and Steve Smart, the regulator’s joint executive director for enforcement and market oversight.
They said scammers had taken to finfluencing after legislative crackdowns had meant running boiler room scams or pension cold calling scams are more difficult to operate.
Sarah Coles, head of personal finance at Hargreaves Lansdown, believes that “nefarious finfluencers” are finding ways around the steps the FCA is taking to crackdown on financial fraud through online platforms.
While social media platforms now require that paid-for posts such as adverts must be placed by authorised firms, this has led to scammers to exploit what’s known as ‘organic content’.
These are unpaid, user-generated posts that get around these rules. Scammers are often based overseas, which makes it harder to prosecute them. Coles says: “There are plenty of good actors in this space, offering sensible guidance from regulated people. But there are also a worrying number of people using this approach to defraud their victims.”
If you’re seeing content online, ask yourself whether your expert really is qualified to give financial advice. There are plenty of people working for regulated businesses, or as independent professionals, who have built up vast amounts of knowledge and experience Many financial journalists are also knowledgeable and experienced, although they aren’t regulated in the same way.
Famous people – such as TV presenters or professional footballers – are often on social media with huge followings. Sometimes they cross over into talking about money matters. Coles warns that just because you’ve heard of them, it doesn’t make them an expert in this area.
High follower numbers are often seen as a sign of legitimacy on social media – in the belief that, with so many people listening to what they say, they must be onto something. But lots of followers just means the person is good at social media, or in some cases has paid to get followers.
It doesn’t say anything about their financial expertise. Some experts online have huge, well-deserved followings. However, so do reality stars selling payday loans.
Social media influencers can present themselves as outsiders with insider knowledge. Coles warns that they often claim the traditional finance sector is hiding something from you that only they will share.
Often they’ll promise to give you a head start and their ‘secret hack’ or tip might appear to break all the conventional rules of finance. For example they may say they’ve found a way of making huge returns without taking a big risk.
But it’s far more likely they have misunderstood something or are deliberately misleading you. They may also be talking up the benefits of an asset they already hold, in an effort to ramp up the price. The same basic rules apply to everyone: higher potential rewards always come with a higher risk of loss.
One way to protect yourself online is to only engage in financial transactions with people or firms who are FCA regulated. This includes financial advisers as well as companies offering financial services or products.
Use the FCA’s Firm Checker tool or search the public Financial Services Register on the FCA website. See our step-by-step guide below for how to do this. This will show you if the firm or individual is authorised and has permission to offer the specific financial product or service you’re interested in. If a firm is not found, or the details don’t match, it may be an unauthorised firm.
Quilter points out the benefits of getting regulated advice. “Regulated financial advice offers real consumer protection. Advisers are qualified, required to act in a client’s best interests, and their guidance is tailored to the individual. And if something does go wrong, you also have recourse through the Financial Ombudsman Service.”
Here’s a step-by-step guide to how to check if a person or company is regulated by the FCA.
1. Go to the FCA’s website
2. Find the Firm Checker tool to search for firms and individuals.
3. Search for the firm by name, and select the type of financial product or service you are looking for.
4. Confirm that the firm is listed as authorised and has permission to provide the specific service you need.
5. Ensure the contact details listed on the FCA’s register match those you have been given for the firm.
6. If you have doubts about contact details or a firm isn’t listed, notify the FCA using its scam reporting tools.
Regulators across the world, led by the FCA, have joined forces to protect social media users from illegal financial promotions.
In the UK, the FCA has stepped up enforcement actions by authorising criminal proceedings against three people, as well as sending ‘cease and desist’ letters and issuing 50 warning alerts.
These alerts have already triggered over 650 takedown requests across social media platforms and led to the removal of more than 50 websites operated by unauthorised ‘finfluencers’.
The FCA’s Steve Smart said: “Our message to ‘finfluencers’ is loud and clear. They must act responsibly and only promote financial products where they are authorised to do so – or face the consequences.”
Social media platforms will take posts down and block accounts if they are identified by the FCA and a request is sent. But it can take weeks for this to happen, and the FCA said some platforms were slower to act than others.
Meanwhile criminals often use a technique known as life-boating, where scammers operate multiple similar accounts, ready to replace any that are shut down. This means they can put the same content back up within hours. Castledine said the platforms have the technology to identify this behaviour, and they could do more.
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