We wrote about the dangers of online financial influencers, the so called ‘finfluencers’, a year ago and from recent news and events, are revisiting this important topic.
The key message here is: beware!
The emergence of online financial influencers has been a growing trend in the last few years. The Covid induced lockdowns and advancement of platforms like TikTok & Instagram have amplified their voices bringing them to a larger, and global audience.
We have recently spoken with expats in Europe that have had their money at risk from these online promoters, sometimes based outside Europe. In fact, there are real concerns for those that have lost money from these online recommendations and sales tactics. So much so that financial regulators like the Authority for Financial Markets (AFM) in the Netherlands have issued warnings about online influencers and reminded them of the regulatory requirements.
Our first rule is if it seems too good to be true, it probably is.
The AFM did a study into more than 150 ‘finfluencers’, in 2021 and produced some alarming findings:
- The Influencers do not consistently place the interest of followers ahead of their own interests;
- There are few neutral influencers and transparency is often lacking
- Risk of unlicensed investment advice is real
- Sometimes risky products are recommended
In addition, they pointed out to the online financial influencers directly, that they may be operating in breach of regulations.
Research done by the AFM in The Netherlands is relevant for all expats across the EU, as online influencers operate on global platforms across national boundaries.
These findings can be summarised under two topics: professionalism and transparency.
Professionalism and the risk of unlicensed investment advice
The AFM found most of the online influencers do not have any relevant financial education or professional work experience, even though they pitch themselves as experts. The first danger to the investor is a lack of recourse. These unlicensed influencers will typically not have professional indemnity insurance to protect their clients; they will not be a member of a consumer ombudsman complaint handling process, and their actions are not monitored by a compliance team.
They tend to not have an understanding of the regulations and as such are less likely to act within their bounds.
Furthermore, as they do not have professional qualifications or experience, they are less likely to understand the complexities and implications of global financial markets and investment risks, on individuals’ specific circumstances. This means they can give bad advice.
They have been found to be recommending risky, unregulated, and inappropriate investment solutions, giving wrong information and bad advice.
The AFM said “finfluencers do not always comply with the rules, for instance, because they make ill-considered recommendations and provide investment advice. They also promote risky products and are not always transparent about their own interests and the remuneration they receive.”
This all boils down to the fact that, as a consumer, you are at a higher risk of being given inappropriate and maybe non-compliant advice. It fits in with the adage we apply to many investment circumstances: that if it seems too good to be true, it probably is. If you apply this critical assessment, you may protect yourself and your money.
Lack of transparency
The trend in the posts and videos of many influencers is to reference a particular investment and draw attention to a following link from where the viewer can access that investment. What is rarely disclosed is on what basis they are recommending it.
Some influencers were found to try and get viewers to sign up for their training courses and their books for a fee.
More worrying, the AFM identified that some influencers would recommend that their followers open a particular investment account, but don’t disclose that for every account opened, they receive a commission. The AFM reinforced and emphasised that this is especially forbidden. Besides the lack of transparency, any commissions relating to investments are banned in the Netherlands. If you find yourself being told the advice is free and that they are paid by commission from the product, then this is illegal and you can report them to the AFM directly.
Under the topic of transparency, the AFM also found that many social influencers lack independence, neutrality and put their own needs- trying to make money- ahead of the needs of their viewers. They noted there were very few independent financial influencers. Research on this topic done in other countries has shown that one of the main drivers of an influencer is to exploit and monetise their large follower base on their social media platforms.
On a positive note, it was recognised by the Dutch regulator that the emergence of ‘finfluencers’ can make investment and financial information more accessible to people. This in principle is positive. But only if, and it is a critical ‘if’, the person giving the advice is a licensed, educated and experienced financial services professional. Otherwise, it can be worse and more dangerous than no advice at all.
Like any aspect of your life when you need expert advice, whether it is medical, financial, legal or a plumber for your house, you should always defer to a proper professional rather than an enthusiastic amateur, or worse someone trying to exploit you and make money for themselves at your expense.
Our key check list:
- Confirm they hold a license in the EU to give investment advice. This gives you, the investor, protection and recourse. If they say they don’t need a license, or they are just a club, beware.
- Make sure the recommended investments are compliant and regulated.
- Confirm they have expertise in working with expats in general, and in relation to your circumstances in particular (eg if you are US connected).
- A firm should never promise returns. If you are being offered the promise of returns, be sceptical.
- Understand where your money will be invested, who will be managing it, how you can keep an eye on it, and how you can withdraw it.
- As we said above, if it seems too good to be true, it probably is.
If you would like truly independent and professional financial and investment advice, specific for expats, speak with us at Black Swan Capital. You can reach us at [email protected] and we will be very happy to see if we can assist you.