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‘FinTok’ and the dangers of social media financial advice

Remember ‘there is no free lunch’ and thorough research is essential before falling for get-rich-quick promises: Nomi Bodlani – head of strategic markets at Allan Gray.

NOMPU SIZIBA: Social media is full of information – some accurate, some downright wrong. Depending on what information that is, it could be detrimental to one’s pocket. There’s apparently a phenomenon on social media with the platform TikTok, for example, which has some 800 million users worldwide, providing the opportunity for some to offer “financial advice”. It’s called FinTok and it and other social media platforms tend to espouse get-rich-quick schemes which, if not properly researched, could result in potential investors giving their money away.

Well, to discuss this matter further and to caution people to be very careful in this arena, I’m joined on the line by Nomi Bodlani. She’s the head of strategic markets at Allan Gray. Thank you so much, Nomi, for joining us. Tell us about the trends that you’ve seen in terms of financial advice on social media, and why they’re causing you concern.

NOMI BODLANI: Good evening, Nompumelelo. Thank you so much for having me. You mentioned the phenomenon we’ve seen on a platform called TikTok in particular, and what we’ve seen is a range of hashtags, such as #FinTok and #MoneyTok coming up across the platform. They’re promising usually get-rich-quick schemes, and they’re showing off cars or kind of private islands – really the sort of lifestyles that might be attractive to youngsters.

I guess the problem with a lot of these is that the people behind them are youngsters, and they typically have no financial qualifications, and some already have a history of peddling promises of making money quickly to people without obviously the follow-through.

NOMPU SIZIBA: So, in the worst-case scenario, what are some of the dangers with just following that kind of advice without ensuring that it’s with a properly registered financial advisor?

NOMI BODLANI: The most obvious [danger] is that you could lose money and you won’t be able to recover it. These schemes do sell a false sense of what it really takes to achieve financial freedom. And, as much as it may seem really attractive, I think what’s often is true in these [circumstances] is there really is no free lunch. And so what we see is that the ways to make money that seem really quick often end in losses.

NOMPU SIZIBA: So what are some of the red flags that one should look out for in dealing with purveyors of too-good-to-be-true financial propositions?

NOMI BODLANI: There are quite a few that I think can be used to keep top of mind. I’m going to give you four.

The first one is that it must make sense to you.

If you don’t understand how this particular investment product is generating its return, and there are no clear underlying assets, then you need to be cautious.

An example might be what we’ve seen for a long time in history that has been given a digital makeover: what we call ‘pyramid schemes’. This is where you have tiered investments that are classifying investors by, say, multiple levels, or you are being required to recruit new investors in order to realise returns. So as investors you must try and figure out if the scheme makes sense to you and how it makes money.

The second one is if there’s a sense of urgency. Now [someone] wants to create this sense of urgency because they don’t want you to spend a lot of time researching and thinking about a potential investment, and so anything that’s sold as a ‘once in a lifetime opportunity’, or [if] you’re being pressured to make a decision quickly – that you certainly need to avoid.

And then the last two have to do with … doing some homework. So you need ask yourself, is there a track record for this particular financial service provider or the individual that’s promising these returns? Financial service providers typically have some sort of track record of them delivering value to their clients or customers, so look for a track record and whether that exists.

And the fourth red flag is something that’s linked to the track record, but it’s about whether the financial service provider is registered. Financial service providers in South Africa are required to be registered. And so typically anyone that is delivering financial service products or services will be registered with a financial body like the Financial Sector Conduct Authority.

If an individual or a company isn’t registered it means they’re not regulated, and so you need to be asking some questions.

It should be relatively easy for you to be able to go and look for the financial body in a particular country –  for South Africa it’s the Financial Sector Conduct Authority – and you can actually contact them if you are coming across a financial entity that is relatively new or not well established.

NOMPU SIZIBA: Nomi, thank you so much for  your time. More to ask, but not enough time. That was Nomi Bodlani. She’s the head of strategic markets at Allan Gray.

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