Social media is great for a lot of things. Posting pictures of that delicious birria taco you ate last night. Cat memes. Checking the latest updates from family, friends or even your favorite celebrity.

One thing it’s not so great for? Financial advice.

Yet that’s exactly what many people are doing. A 2021 survey from NAPFA found that 39 percent of Americans under the age of 65 get financial advice from the internet or social media — and 60 percent have acted on the advice they received online.

Another survey found that TikTok and YouTube are more popular sources of financial advice for Gen Z investors than a professional financial advisor.

After all, when you look at your social media feed and see people driving fancy cars and taking lavish vacations, it’s easy to start feeling a little envious. And when they tell you that they’re willing to share their “secrets” to making a lot of money in stocks, it’s only natural that you’d want to pay attention.

But as the old saying goes, if something seems too good to be true, it probably is. And that’s especially true when it comes to getting financial advice on social media.

A Lot of Social Media ‘Advisors’ Are Running Pump and Dump Schemes

In an interview with CNBC, Brad Klontz, a certified financial planner and financial psychology professor at Creighton University, warned: “People who put on lavish displays of wealth are trying to manipulate you. Plain and simple. […] This is an old sales technique. These guys are getting rich, but not from day-trading. It’s from selling you a course. Studies show that actual multimillionaires downplay their wealth.”

Like it or not, those aspirational social media posts showing off fancy cars or exciting vacations with “only a few hours of day trading each week” are not real indicators of success. They’re a way to draw you in, and get you to fall for their schemes.

What kind of schemes, exactly?

The majority of people in this area tend to be operating what is known as a “pump and dump” scheme. As Investopedia explains, “Pump-and-dump is a manipulative scheme that attempts to boost the price of a stock or security through fake recommendations. These recommendations are based on false, misleading, or greatly exaggerated statements. The perpetrators of a pump-and-dump scheme already have an established position in the company's stock and will sell their positions after the hype has led to a higher share price.”

In fact, in December 2022, eight social media influencers were charged by the SEC for their role in a $100 million fraud in which they used Twitter and Discord to falsely promote themselves as successful day traders to pull off a pump and dump scheme.

While novice investors who fall for such traps on social media aren’t going to face legal charges themselves, the consequences can still be extremely dire. The social media influencers who “pump and dump” the stock sell their shares so they can turn a profit — but their sales will cause the value of the stock to fall. Ultimately, the other investors are left “holding the bag” and having to deal with the financial losses from the now much-lower share price.

In some cases, your losses could almost completely blow out your investment account.

That’s Just the Tip of the Iceberg With Social Media Fraud …

Pump and dump schemes are far from the only type of fraud that inexperienced investors could encounter on social media. The story of RagingBull, which faced a multimillion dollar fine from the FTC, is the perfect example of the dangers of following online investing advice.

The scheme was quite simple. RagingBull’s operators made fake earnings claims to encourage newbie investors to sign up for their subscription plans. The company lured customers in with fake testimonials of investors who had allegedly made hundreds or thousands of dollars in just a few minutes using the company’s trading services.

In reality, the company didn’t track trading results or provide worthwhile trade recommendations, causing investors to lose money. At the same time, the website’s users were losing even more money because they were stuck with an expensive subscription that was difficult to get rid of.

RagingBull is far from the only fraudster running such a scheme — many on social media tell others how to attain wealth in the stock market, even when they aren’t actively involved in it at all. Even well-known celebrities could potentially offer fraudulent advice.

For example, Kim Kardashian recently had to pay a $1.26 million settlement because she didn’t disclose that she was paid $250,000 to promote the crypto fund EMAX to her Instagram followers — a fund that lost 99 percent of its value after it peaked in May 2021.

And sure, while many of these individuals get caught and end up paying hefty fines, it isn’t gong to bring back the money you lost by following bad investment advice. If you’d used that money for another taco, you’d at least have got a good meal out of the deal. But getting the rug pulled out from under you on fraudulent social media stock advice leaves you with nothing but regret.

“There are some legitimate people who share thoughtful advice on social media when it comes to investing and planning out your financial future, but you need to double check the person’s background to ensure that they are legitimate,” says Leonard Kim of AdvisorCheck. “On top of that, social media is rampant with fraudulent accounts of people who are imposing the identities of those who are actually sharing decent financial advice, so you will need to check through the followers and likes per post, along with verifying whether or not that person’s social profiles are spelled correctly and are the same ones that exist on that person’s website.”

“Overall, it’s much easier to just turn to a reliable financial source like AdvisorCheck, and work with a finance professional in your area who knows how to cater a financial plan to your specific scenario, than to just take financial advice from social media, as there is a high probability that the specific advice you’re receiving does not apply to your particular financial situation,” Leonard Kim continued.

There’s a Big Difference Between Philosophical and Granular Financial Advice

Even when someone on social media appears to be legitimate — such as having a known history in the financial world or a verifiable track record — this doesn’t mean their advice is going to be right for you.

One of the problems that comes with social media influencers who aren’t trying to pull off an investing scam is that their advice is usually philosophical, instead of granular.

What does that mean? It means you get pretty broad advice that may not be personalized to your specific financial needs.

This is especially true when it comes to tax-related advice. Social media is filled with misinformation about taxes — like how someone was able to write off their Mercedes-Benz G-Wagon (which retails for nearly $140,000).

That’s something you can potentially do if you own a restaurant and use your G-Wagon to transport goods for the restaurant, or if you’re a real estate broker who uses it to take clients to visit listings. But that’s not something that could be done for a business where you don’t have an intended, justifiable work purpose for that kind of vehicle.

In reality, whether you own a business or are just starting a side hustle, you’re going to be much better off getting financial advice that is personally tailored to your situation. Granular advice — which takes an in-depth look at your finances, goals and needs — will put you on track for actually reaching those goals. Better yet, you’ll avoid the tax headaches that can come from following poor advice online.

Read the Fine Print and Get a Quality Financial Advisor

If all this talk on bad social media financial advice has made you lose faith in humanity a bit, don’t give in to despair just yet. While social media is filled to the brim with scams and bad advice, it is far from the only place you can go to receive financial and investing information.

In reality, your best bet is to stick with something decidedly old-school when seeking this type of advice: working with a licensed financial advisor.

There are several reasons why hiring a financial advisor can be a good idea — though of course, you should always do your due diligence to ensure that a potential advisor has a good track record and will truly act in your best interests. Just like there are many scammers on social media, there are also some not-so-great “professional” advisors who could get you into similar financial problems.

That being said, working with a financial advisor (meaning they are an IAR, RR or Dual Registered Representative) can offer several valuable protections:

First, these advisors must pass professional exams to certify their knowledge and skills. The idea is that by achieving a certain level of industry expertise, they will be better equipped to help their clients avoid bad investments. They must also follow consumer protection laws, actively working to protect their clients from fraud and scams. This includes disclosing any conflicts of interest and being truthful in their advertisements.

Compare this to social media influencers, who are not covered under consumer protection laws. While such individuals may still face SEC fines, investors who follow their advice are much more limited in their ability to recover losses that resulted from that advice.

Another important factor is that financial advisors work directly with individual clients. They don’t make broad statements that will appeal to a lot of people on social media. Instead, they use that oh-so-important granular approach that helps them develop individualized strategies for each client.

After all, what works best for an established business owner in their 40s is going to be quite different from the needs of a newlywed couple in their 20s who are just starting their careers. Professional advisors look at areas such as your insurance and credit needs, spending habits, current debt obligations and life goals to develop a successful long-term strategy.

Follow the Professionals — Not Social Media

Sure, working with a financial advisor may not be as flashy as what you see on social media, but in the long run, you’ll be a lot better off. Leave finances to the experts — but don’t worry, you can still use Facebook the next time you’re looking for food recommendations.

Our Favorite Birria Places:

You saw Birria in the headline and we don’t want to leave you disappointed. This wouldn’t be complete without our best recommendations for Birria Tacos.

My favorite Birria taco spot, Red Tacos, is located in Orem, Utah. 

In Laguna Hills, you can find Tacos De Birria Los Carnales, which is actually located in a church kitchen. Jenn Quazza raves, “Delicious little gem located in the quad of this beautiful Laguna Hills Episcopal Church. It's hard to find good Tacos de Birria with consomé. I was pretty impressed with their prices for the menu and their friendly service.”

Birria El Jalisciense located in Boyle Heights in Los Angeles has a few hurdles, as they only accept cash and are only open on weekends until 1:00pm, but they have an exceptional Birria taco as well. Get there early as you will want to ensure you are able to get your birria before they are sold out, as inventory moves quickly at this location. Stella Cerda exclaimed, "My husband and I drove from Bakersfield just to give it a try. It was worth the drive. Great birria and consume." 

Here is a widely popular Birria taco recipe if you plan to make some at home. 

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Written by Lucas Miller, Entrepreneur Magazine contributor

Fact checked by Billy Quirk

Reviewed by KJ Kim

Disclosure

The information provided in this article was written by the research and analysis team at AdvisorCheck.com to help all consumers in their financial journeys, by providing the resources and the insights to help improve one’s financial health, make it through recessionary and inflationary periods of time, and save their earnings to use them towards building a secure financial future. 

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