Beware of investing advice on social media

The last time you were really sick, chances are you visited Dr. Google. Although the Internet is a valuable source of information, any physician will tell you that it can also lead people astray. The same goes for investment advice.

With more businesses using social media --- blogs, interactive forums, Twitter, YouTube, and so on — as marketing tools, seeking a financial advisor named Facebook comes with caveats.

"All of this information we have available to us is valuable; the task is to separate the wheat from the chaff, the good information from the noise," says Robert Stammers, director of investor education for the CFA Institute.

Knowledge is power … But be careful

"Being empowered is great," says Tamara Smith, vice president of marketing and consumer affairs at the Financial Planning Standards Council, a non-profit organization that certifies financial planners in Canada.

The amount of educational content and investing advice online is vast, but just because an article gets Tweeted and reTweeted, doesn't lend credibility to the source, Smith warns.

"Taking advice out of context, without looking at broader implications of financial planning, can be dangerous. Financial planning needs a holistic view; there are lots of pieces, and investing is only one. In the blogosphere and on the Internet, investing is the piece that gets a lot of attention. But you don't know what the implications of an investment might be to your retirement plan, tax situation and credit."

Information versus advice

No one denies social media's value when it comes to information. About five million investors use social media to research financial decisions, according to a report by Cogent Research and LinkedIn.

Through discussion boards, Facebook, Twitter, Google+, and LinkedIn, 79 per cent of investors with more than US$5 million in investible assets do their own investment research, the survey found.

However, a list of facts is one thing; telling people what to do is quite another.

"The best advisors on social media are not going to be providing specific advice," says Greg Pollock, president and CEO of Advocis, the Financial Advisors Association of Canada. "Each client's situation is unique. You need to look at the entire picture of one's financial plan and ask, 'Does this particular product make sense for this particular investor at this particular time?' Otherwise it's like driving somewhere you're unfamiliar with without a map."

If you follow an advisor on Twitter or "like" one on Facebook, do a background check: is she licensed? What kind of professional training does he have?

The number of followers someone has on Twitter doesn't necessarily reflect his credentials or credibility.

Look behind the scenes

"Ask yourself, 'What is the reason for this person or this site for providing this information?' A lot of people are writing on investments because they're trying to attract people to a certain website," Stammers says.

In other words, what may be presented as objective information may be nothing more than a slick sales pitch.

Always go to the "About" tab on any given website, blog, forum to see who or what is behind it. Research the people or companies behind Twitter hashtags and Pinterest groups.

Get a second opinion

"Use a little bit of mistrust if somebody is selling you something," Stammers says. "Question everything. Go to a financial advisor or someone who works in the markets and say, 'I've been reading this blog or online commentary. Does this make sense?'"

Avoid jumping on the bandwagon

"With blogs and other social-media tools, people can get into a herd mentality," Pollock notes. "If there's a hot stock everyone's blogging and Tweeting about, people may think, 'I better get in on that.' That emotional side of investing is exactly what clients shouldn't be doing and can lead to a lot of costly mistakes."