A trend of recent years is the emergence of online financial influencers. The Covid induced lockdowns have amplified their voices, and also the concerns of those that have lost money from their recommendations. This has led to the focus of a number of financial regulators including in The Netherlands.
Whilst online financial influencers may make information more accessible for some people, the Netherlands Authority for the Financial Markets (AFM), has offered warnings to consumers for their protection.
This research was done in The Netherlands, but it is relevant for all expats across the EU, as online influencers operate on global platforms across national boundaries.
The AFM did a study into more than 150 ‘finfluencers’, 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.
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.
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.