Rules to Assess a Finfluencer and to Protect Yourself against Bad Advice
This week we are inspired by an article in The Conversation by an Australian academic in the fields of emerging technologies and Fintech about protecting oneself from bad advice online.
To commence, we will discuss the advice rules and consumer protections that are in place in the EU.
EU Investment advice rules and consumer protections
In the EU, there is a strong focus on consumer protection. This means that anyone providing investment and financial planning advice must be both qualified and licensed by an EU country regulator. To illustrate, Black Swan Capital holds an investment firm license from the Dutch financial regulator, AFM (Authority for Financial Markets). This license has what is called passport approval to be authorised in every EU country allowing us to provide regulated financial advice to people right across the EU. In addition everyone in our team is a qualified financial adviser.
In some EU countries, like The Netherlands, there is also a ban on commissions, which helps to ensure the advice you are provided is in your best interest and is not influenced by any potential payment to the person providing the advice.
What this means is that wherever you obtain financial advice, and/ or wherever someone is offering you an investment product, they must be qualified and licensed. If you are unsure you can always ask them to present their license confirmation.
Regulators in the EU, in their capacity of protecting consumers have put forward several communications about the risks and limitations around online financial advice. And they take action. The AFM fined a finfluencer €256,000 in 2024 for working with an illegal asset manager.
High-risk products
One area the regulators have highlighted is that some finfluencers style themselves as “trading experts” but actually provide unauthorised financial advice, promoting high risk products. They also sometimes promote high-risk or complex investment products that can cause consumers material harm. If you are offered a product offering extraordinary return potential, it is wise to remember that if it seems too good to be true, it probably is.
The EU regulators are very clear that anyone promoting financial products online must be both qualified and licensed and furthermore, they need to take into account your specific needs and circumstances prior to making any recommendations. This applies however you receive advice and is notable for online advisers and product promoters where consumers are most at risk. If someone is selling you something online without properly understanding your circumstances, they are not operating compliantly, and they are putting you at risk.
What to look out for on social media
The article in the Conversation stated that about 41% of young Australians aged 18 to 30 look online for financial information or advice. It is expected to be similar in other parts of the world.
The first thing to look out for is that you should critically and objectively assess all information you see online. Just because it is online, does not mean it is true.
There are certain red flags to watch out for. Some finfluencers use pseudonyms. They might promote “exclusive” financial advice content and access to “invitation-only” online communities for a fee. In many cases, they lack credible experience qualifications to provide financial advice.
Key items to look out for to protect your self online
Check whether the online adviser or finfluencer promoter licensed and qualified. If they are not able to demonstrate this, do not risk it.
There are no shortcuts or quick wins and as we said above, if it seems too good to be true, it probably is. Do not be taken in by the hype of extraordinary promises of returns or images of flashy sports cars and expensive watches.
Are they offering advice or are they selling a product? If they are only offering products they are promoters not advisers.
Do they offer gimmicks like limited time offers, or require you to pay to join an exclusive club? This is also a red flag and should be avoided
Do they disclose how they are getting paid and any relationship they have with any investment product?
If they state they are providing general information only and not providing advice, that is good for general information, but DO NOT take advice or buy investment schemes from them. They are telling you they are not qualified and cannot be relied upon for advice. It is a good indicator to keep away.
Are you being sold a dream?
Social media finfluencer content can often come with misleading or deceptive representations, promising riches. They may promise or infer large returns and downplay the risks you face.
Some, usually unlicensed, finfluencers use social media content as “proof” of their financial expertise. One common practice is to try to lure consumers by creating a hyped world around their own personal lifestyle. Many finfluencers often extend invitations to consumers to join closed forums to “learn” their hidden secrets to success or copy their “famous” trading practices.
These finfluencers usually try to convince consumers they can achieve a similar lifestyle by following their advice.
Finfluencers are global
One of the difficulties regulators deal with is that finfluencers can operate from anywhere in the world. It is really important to understand where the person you are speaking with is based. Check they are actually where they say they are, and if they are from outside the EU, they may not be licensed or allowed to give you advice when you are living here.
If you are unsure check your local country financial regulator, they have registration lists of all qualified advisers. If they are not on the list do not use them. If you would like clarity you can also speak with us for guidance, unbiased and truly independent advice where you can be assured we are licensed, qualified, experienced and acting in your best interest.
