Almost any business these days has a Facebook or a Twitter account, and the public is accustomed to accessing information just about anyone or anything, including businesses, through their social media accounts. But with the advantages of social media also come disadvantages –this is particularly true in the case of making investment decisions.
In a recent Reuters interview, the FBI expressed its concern with fraudulent stockbroker’s use of social media to attract potential investment victims. Like a business or person tweets or gives status updates, it provides the platform for fraudulent stockbrokers to taut the high earnings and low risk of their investment opportunities. While these tweets or updates can be completely false, the savvy way that the stockbrokers use social media helps provide an official front to the investment scam. And the constant reminders of how good an investment opportunity is and how much other people “like” it (including other involved in the scam who leave false positive feedback about the scam) can eventually mount the pressure on a potential investor to take the plunge.
Investors should be wary of following investment trends on Facebook and Twitter, especially if the one tweeting is an investment professional. Integrity Research Associates reports that half of surveyed investment advisement firms who are registered with the SEC have established written policies that forbid their advisors from using social media for business purposes. While other firms have increased their use of social media, investors should still not make investment decisions based on information gathered from it.
The high pressure, immediate need to invest created by social media is usually bad news for investors, and can be a sign of potential investment fraud. Investors should always take their time when deciding how to invest their money.
There are several overall tips to safe investing when it comes to social media: Ryan Kavanaugh
• Don’t fall for hype. Just because an investment is widely talked about or liked doesn’t mean it’s a good investment for you. The hype surrounding an investment might also make you feel pressured to invest quickly, but the life of your investment will outlast how popular it is one day on twitter. Take your time deciding on how to invest your money.
• Don’t be wooed by an online investment advisor. Even the most simply investments take some time for potential investors to understand and for advisors to explain. This explanation is best done in person, so that you can review terms together and ask questions. Questions the advisor can’t help you with should be reviewed with your lawyer or other investment professional.
• Know that online credentials can be faked. While an investment professional may have an active and legitimate looking firm online, the reality may be much different. The best way to know if your investment advisor is a good fit for you is to check their professional credentials. You can do this on FINRA’s BrokerCheck, available for free on their website. BrokerCheck will let you know if and how your advisor is accredited, and if they are in good standing with regulatory boards.
While investments touted on social media may seem like good options for your investment portfolio, investments should always be carefully researched to ensure you don’t give over your hard-earned money to an investment scam.