4 major reasons to steer clear of online financial advice

The digital age has changed so much about the way we live, and one factor included in this change is our finances. From the way we spend to how we are paid, almost every action we take with our money is now done online.

If you, like most people, manage your finances online, you could feel tempted to search for answers to your questions in the same place. The cost of living crisis has worried many people, with inflation reaching 10.1% in the year to January 2023, and the Bank of England (BoE) raising the base rate to 4% in February.

In the past, it is likely you have turned to Google with your questions about the following topics:

• Pensions
• Investing
• Mortgages
• Interest
• Inflation
• Savings

While there is no harm in a quick Google search, some people are replacing professional financial advice with social media “advice” from influencers and investors.

A survey of millennials, published by IFA Magazine in 2022, found that while 46% go to websites for financial guidance, only 25% seek professional advice. Yet those offering their “expertise” online, with no knowledge of your unique circumstances, could lead your finances astray.

Read on to find out four major reasons to steer clear of such advice, and some alternatives you could explore if you need guidance when it comes to your money.

1. Broad-stroke social media advice doesn’t take your personal circumstances into account

If you are scrolling through social media and find a video about “the next great investment strategy”, it’s understandable that you might be tempted to watch it. You’re only human, and when a “knowledgeable” person tells you it’s possible to make high returns quickly, you might easily believe them – especially when times are tight.

The truth is, social media investors and so-called “advisers” can repeat facts published by authorised bodies, such as the Financial Conduct Authority (FCA) or the BoE – but beyond that, any opinion they offer is pure speculation.

Even if this person has some financial qualifications and knowledge, the way your wealth will be affected by the wider economic climate is unique to your personal circumstances.

The options you “should” explore with regards to saving, investing, and taking out loans depend on:

• Your long-term financial goals
• Any existing debt you have
• The amount of wealth you have to invest
• Your attitude to risk, meaning your ability to cope with fluctuations in your portfolio
• Your capacity for loss, meaning how much wealth you could potentially stand to lose from an investment.

While it is easy to be fooled by confident bloggers, social media influencers, and other online “experts”, it is important to remember that these individuals, even well-meaning ones, do not know or care about your personal situation.

Only bespoke advice from a qualified individual can help accurately determine a beneficial course of action for your wealth.

2. Taking online advice could carry unnecessary investment risk

Unlike speaking one-on-one with a qualified financial planner, taking investment advice from an unknown person on the internet could lead your finances down a risky path. While the insights they offer might work for some, there is no “one size fits all” portfolio.

Worryingly, a study by the FCA suggests social media advice can not only be misleading, but it can also stoke up risk-taking behaviours, particularly in under-40s.

Indeed, the research found that 4 in 10 people do not consider “losing some money” a risk of investing, and 78% saying there are some industries they think are a “safe bet”.

While this study only included under-40s, anyone regularly using the internet can be convinced to take unnecessary risks by confident online “advisers” – without a full understanding of the potential consequences.

Whereas, working with a financial planner can help you figure out your capacity for loss, diversify your assets appropriately for your circumstances, and create a strong long-term plan.

3. The Financial Conduct Authority blocked more than 8,000 misleading ads in 2022

Worryingly, it is not just individuals on social media that can offer misleading advice.

According to MoneyAge, the FCA blocked 8,500 misleading ads in 2022 alone – an amazing 14 times the number in 2021.

These ads could include content that:

• Promises a certain level of investment return (when any professional would tell you there is almost always a risk of losing capital)
• Attempts to lure people into transferring their pensions or other funds into a fraudulent scheme
• Encourages individuals to take advice from unauthorised firms.

So, if you are browsing the internet looking for pension, investment, or savings options, beware of misleading ads.

While the FCA is stepping up its technology to tackle the false information out there, it could be beneficial to consult a professional before making any big financial decisions.

4. A professional financial planner can offer bespoke advice based on years of industry experience

Ultimately, taking online advice is no replacement for forming a trusted relationship with a qualified financial planner.

While there is nothing wrong with checking the facts on a reputable website, following the advice of individuals online can put your hard-earned wealth at unnecessary risk.

Working with a financial planner with years of experience in the industry can help you:

• Assess your long-term goals, including when you want to retire and how you’d like to help the next generation
• Create an investment portfolio that suits your appetite for risk and your wealth targets
• Mitigate your tax liability where possible
• Put cover in place to protect your wealth.

If you have questions about your wealth circumstances, speak to a financial planner here at Prosser Knowles for independent advice.

Get in touch

If you are worried about a scam, need advice about your investment portfolio, or have questions about any other financial matter, get in touch. Email enquiries@prosserknowles.co.uk or request a callback from one of our advisers.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.