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Getting – or giving – financial advice via social media is tricky business.
This week, Kim Kardashian agreed to pay $1.26 million to the Securities and Exchange Commission to settle a charge of illegally promoting a crypto security on social networks.
Celebrities aside, many influencers providing investment advice on social media these days care more about going viral than anything else: they need to be entertaining, easy to understand, and maybe a little shocking. If he has a good pace, even better.
How many times have you heard Financial advice who meets these standards? Learn to repay the debtsaving money or investing for the future is rarely funny, often boring – and certainly hard to dance to.
It’s not about bad advice, it’s about transparency
The SEC claims that Kardashian received $250,000 to promote EthereumMax cryptocurrency tokens on her Instagram feed. His message read: “This is not financial advice but I share what my friends just told me about the Ethereum Max token!”
The SEC says the announcement contained a link to the EthereumMax website, which provided instructions on how to purchase EMAX tokens.
The SEC sanction was not imposed because Kardashian was accused of giving financial advice, but because the SEC said it did not disclose “the nature, source or amount” that she had been paid for the position. Kardashian agreed to settle the case without admitting or denying the SEC charges.
Kim Kardashian obviously knows how to make money; no one disputes it. Being paid a quarter of a million dollars for an Instagram post is proof enough of that. But his path to prosperity may not be close to the bumpy financial road many of us travel.
Who do you get financial advice from
Celebrity endorsements are usually pretty benign. If we see a big star like Matt Damon, Steph Curry, or Tom Brady promoting crypto investments in a TV ad, we realize that’s a paid take.
But social media can be less transparent, especially if the endorsement comes from someone who isn’t famous but is no less serious or convincing. Sometimes we confuse these lesser-known spokespersons with some kind of “expert”. But what do we really know about these promoters? Are they really rich and successful savers and investors? Or is it a paid pitch or an impromptu idea aimed at generating thousands of lucrative views?
And these virtues are legally enforced.
Can you find great money ideas on social media?
Of course you can. But if a social media influencer misleads you or misrepresents an investment, what is your recourse?
Registered and licensed financial advisers must follow federal and state securities laws. Communications with clients are monitored and approved. Severe penalties are provided for in the event of fraud or the dissemination of false information.
The Financial Industry Regulatory Authority, for example, says it is devoting its resources “to taking meaningful enforcement action…and weeding out bad actors who pose the greatest risk of harm to investors and markets.”
FINRA, the SEC and state authorities monitor the financial advice industry. Investigations of advisor violations can result in fines and even restitution to harmed investors. But if the TikToker, blogger, social influencer, or YouTuber you’re getting bad advice from isn’t registered or licensed, your options for righting a wrong might be limited.
Know how the influencer makes money
Knowing that an investment idea is a paid pitch gives you context. It’s not a recommendation; it’s an ad. And if an influencer’s financial idea or budgeting process is designed to drive views, clicks, or subscriptions, that’s not reliable advice; it’s a show.
Questions to ask any advisor, licensed or not:
Do you invest the same way you recommend me? If not, why is it not a good idea for you too (variable annuity, crypto token, structured note)?
Would you recommend this idea to your mother? It doesn’t always work. I had a fellow advisor who once told me that he would chop off his “mother’s legs” to get one deal or another. I’m sure he was joking – and probably a little drunk from lunch – but it was an illuminating comment nonetheless.
Can you just explain to me how you make money? Is it by selling myself (course subscriptions, product announcements, commissioned investments, insurance policies)?
When your desire for concrete financial help goes beyond what you can find on social media, consider reaching out to a paid advisor who works to a fiduciary standard – putting your needs first.
Then your social feed can be all about fun.