In this episode of PodMD, Consultant Karli Tsemetzis, from DPM Financial Services, will be discussing the dangers of finfluencers and more.
- Transcript
Please note this is a machine generated transcription and may contain some errors.
*As always, all in this PodMD podcast is intended for health professionals and the comments are of a general nature. Information given is not intended as specific medical advice pertaining to any given patient. If you have a clinical issue with one of your patients please seek appropriate advice from a colleague with expertise in the area.
Financial journey of a doctor is unique and complex. DPM Financial Services is a specialist medical financial advice firm that aims to educate doctors of Australia to make the right financial decisions and achieve their financial goals. DPM Financial Services is all about you getting the right advice that suits your personal and professional needs and making sure you have confidence in your financial future.
Today I’d like to welcome to the PodMD studio Karli from DPM.
Karli joined DPM in 2018 and has more than nine years industry experience with a strong background in private wealth. Karli specialises in establishing strategic wealth management plans to achieve clients professional and personal goals and gain financial peace of mind.
We do hope you enjoyed this podcast, but please remember that the information discussed here is of a general nature and is not intended to serve as advice. The views and opinions expressed in this podcast are those of DPM, not PodMD. DPM Financial Services recommends you obtain advice concerning specific matters before making your decision.
Karli, thanks for talking with us on PodMD today.
Karli: Thank you for having me.
Question 1
The topic of today’s discussion is the dangers of social media finfluencers. Karli, can you briefly describe for us the trend around social media influenced investing?Karli: Certainly, so social media influence investing is where people make investment decisions based on information, trends and recommendations that are shared on social media platforms. So this phenomenon has gained traction on various sites and platforms where people discuss topics and cryptocurrency recommendations, as well as other investment opportunities. So people are sourcing investment advice and hot tips from social media rather than seeking professional advice from a qualified financial advisor. Essentially, it’s where financial influences or finfluencers look to provide insights and analysis and recommendations to their followers. So the power of collective action can really drive significant price movements, as we previously saw with the GameStop saga that happened in the US, which was driven by Reddit’s Wall Street Bets Forum. So this collective behaviour is what leads to rapid and substantial fluctuations in a share price, which can potentially create opportunities for gains, but it can also increase the risk of substantial losses. Social media has really made investing more accessible, though, with that it also brings significant risks.
Question 2
What are the main risks associated with taking financial advice from social media influencers?Karli: So with social media influence investing, they’ve seen a significant rise in recent years, and it’s been driven by platforms like Twitter or now known X, TikTok, YouTube, Instagram and Reddit. Fininfluencers use these platforms to post engaging and sometimes click bait style content like videos, articles and social media posts with the aim of connecting with their audience. Many offer investment recommendations claiming to have identified these hidden gems or undervalued assets, and sometimes they may even post snippets of their own successful trades to essentially reinforce their credibility. They can also promote various financial products, services or trading platforms which can operate via affiliate marketing agreements. So through these agreements, they have the potential to earn commissions for referrals and sales, which can ultimately create conflicts of interest if they look to prioritise generating commissions over their followers financial interests.
Question 3
How do regulations and protections for consumers differ between traditional financial advisors and social media finfluencers?Karli: So there are quite a few risks associated with taking advice from finfluencers. One of the risks is the non specific and impersonal advice. Everyone’s financial situation and goals are different and therefore there isn’t this one size fits all solution to investing. Finfluencers will generally not be taking into account your personal situation when they post their advice, and with that there’s a good chance it might not be appropriate for you. So another risk is potentially getting caught up in what we call a pump and dump scheme. What this means is people essentially pumping or promoting a stock to inflate its price to create a hype. At this point, the influencer or person involved has already purchased into that investment at a low price. Once the pumping of the stock has occurred, what can happen is the dump. So this is where the price is artificially high. When they sell off their shares at their inflated price and therefore making a nice profit, once this happens, the stock price usually then crashes, which leaves other investors with significant losses. While social media has made investing more accessible and engaging for a broader audience. It also comes with a potential risk for investors, the spread of misinformation, speculative behaviour and the influence of unverified sources can result in poor investment decisions and outcomes. So if you’re looking to invest in, you are seeking advice from finfluencers, you should exercise caution and you really need to evaluate the information you’re accessing, and consider the long term implications of your investment choices.
Question 4
How do regulations and protections for consumers differ between traditional financial advisors and social media finfluencers?Karli: So the regulations, professional standards and consumer protection differ significantly between traditional financial advisors and fiinfluencers. With traditional financial advisors, there’s extensive education and ongoing training required to be qualified advisor in Australia. Advisors have a legal obligation to act in the best interest of their clients when providing any form of advice, and clients also have access to an external dispute resolution scheme if they have any complaints. So these regulations are in place and essentially are designed to protect consumers. Whereas with finfluencers, they can potentially lack the expertise of formal qualifications that are required to provide financial advice. All they really need is technically a social media account, some followers or subscribers, and to start posting content, rightly or wrongly. And they typically provide general advice that does not take into account your personal financial situation, goals or needs, which makes their advice potentially riskier, if you were to act on. So relying on unqualified individuals can lead to uninformed investment decisions, which can result in potential financial losses in comparison to traditional financial advisors. There are also fewer requirements for influencers to disclose conflicts of interest, such as payments and commissions they’re receiving for promoting certain financial products. You also have limited options for help if you were to lose money by following of influencers advice, because formal dispute resolution schemes are generally not available in these situations. So this discrepancy really highlights the importance of ensuring you are seeking advice from a professional and exercising caution when considering where you source your financial advice from. So the regulations, professional standards and consumer protection differ significantly between traditional financial advisors and fiinfluencers. With traditional financial advisors, there’s extensive education and ongoing training required to be qualified advisor in Australia. Advisors have a legal obligation to act in the best interest of their clients when providing any form of advice, and clients also have access to an external dispute resolution scheme if they have any complaints. So these regulations are in place and essentially are designed to protect consumers. Whereas with finfluencers, they can potentially lack the expertise of formal qualifications that are required to provide financial advice. All they really need is technically a social media account, some followers or subscribers, and to start posting content, rightly or wrongly. And they typically provide general advice that does not take into account your personal financial situation, goals or needs, which makes their advice potentially riskier, if you were to act on. So relying on unqualified individuals can lead to uninformed investment decisions, which can result in potential financial losses in comparison to traditional financial advisors. There are also fewer requirements for influencers to disclose conflicts of interest, such as payments and commissions they’re receiving for promoting certain financial products. You also have limited options for help if you were to lose money by following of influencers advice, because formal dispute resolution schemes are generally not available in these situations. So this discrepancy really highlights the importance of ensuring you are seeking advice from a professional and exercising caution when considering where you source your financial advice from.
Question 5
So instead of following social media finfluences, what can consumers do to can involved in investing?Karli: So investing can be a great way to grow your wealth in a way that is comfortable for your life, your personal goals as well as your risk tolerance. To get started, it’s worth taking the time to educate yourself about investment options and strategies. Knowledge really is your best defence against pitfalls, so do your research and find reliable and trustworthy information sources. It would also be worth seeking advice from a licensed financial advisor who would be able to formulate an appropriate investment strategy for you that is customised to you personally. You want it to really consider your personal situation, objectives, investment time frame and appetite for investment risk as well. And lastly, it’s important to keep in mind that successful investing requires patience and a long term outlook, you should look to avoid chasing short term gains and speculating on volatile assets. It’s often said that time in the market beats time in the market. This means that staying invested in the market for a long period where you can benefit from the market’s overall growth and the power of compounding returns is generally more profitable than trying to guess essentially the best time to buy and sell, which can lead to mistakes and potentially missing a few of the markets best days that can impact your returns. So planning for the future and making consistent well informed investments is a great way to grow your wealth and maintain your wealth.
Concluding Question
Thank you for your time here today in the PodMD studio. To sum up for us, could you please identify the main take home messages from today’s podcast?Karli: Certainly. So you should tread carefully and be aware of the risks associated with acting on recommendations made by social media finfluencers as they can lead to potential losses if not carefully considered or researched. And lastly, while social media may tempt you with promises of quick riches, the path to financial success is mostly effectively navigated with the guidance of a professional. So, if you can to speak to someone about starting to invest or overall holistic planning, consider seeking the services of a qualified financial advisor.
Thanks again for your time and the insights that you have provided.
Karli: Thank you.
