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Shrewd as serpents or simple as doves

Shrewd as serpents or simple as doves

Choosing investment advice on social media

by Efren Ll. Cruz, RFP®

Question: A lot of financial planning experts are now giving practical advice on social media, which are specific as to the actual investment to buy or sell. How do I choose whom to follow? (Asked at “Ask a Friend, Ask Efren” free service at www.personalfinance.ph, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram, and Facebook)

Answer: Information is one of the more crucial ingredients in making the right investment decision whether it be investing in private or public offerings. And with the current state of technology, information is so readily abundant.

But just like fake news, there is also an abundance of inaccurate, incomplete and downright false information that may be teeming with conflicts of interest. Now, more than ever, there is a need to take information with the proverbial grain of salt.

choosing investment advice on social media — Photo by CLIPPING MARKETING DIGITAL

People like to give free tips for many reasons. These free tips can range from basic steps in investing to specific investment recommendations. Perhaps, in giving away tips, the tip givers feel a sense of being well-meaning and/or authoritative. Successful tips only reinforce the confidence of the person in sharing even more tips. The speed, breadth and depth of reach of technology like social media magnifies that confidence and authority.

Well-meaning as they may be, some of these people do not realize that there is a responsibility in providing such tips as they are taking on an advisory role. They either ignore or are quick to forget about the prudent man rule, which Wikipedia describes as follows:

“Under the Prudent Man Rule, when the governing trust instrument is silent concerning the types of investments permitted, the fiduciary is required to invest trust assets as a “prudent man” would invest his own property with the following factors in mind:

the needs of beneficiaries;
the need to preserve the estate (or corpus of the trust); and
the amount and regularity of income.”

There is no formal trust instrument between the tip giver and their listeners. All the tip giver does is provide advice. But people who have heard of the their reputation will simply trust them without further validation. Given this tendency, it all the more becomes the duty of the tip giver to 1) follow the prudent man rule and 2) monitor the investment performance of their listeners through feedback on how the advice is working out for them.

But how is that possible if the investment advice is given out in the open via social media? What follows is a mere one-way relationship—providing advice without due consideration for the unique situation of the listeners and without any handholding after.

Therefore, the listener should be as shrewd as a serpent in choosing investment advice on social media. Treat it as a starting point that needs further validation through careful research. Before you invest, you should investigate.

And, if doing the research and actual investing proves to be too daunting, for a modest management fee, the listener can be as simple as a dove and buy into pooled funds or open investment management accounts. Both of these options follow the prudent man rule. In this way, returns are optimized because they are tempered with the needs and risk profile of the listener as investor.

In investing, you can choose to be either shrewd as serpents or simple as doves.

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Efren Ll. Cruz is a Registered Financial Planner and Director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach™. He also writes for the Philippine Daily Inquirer’s Money Matters column HERE.

For more financial management advice for entrepreneurs, you can check out the column The Business of I Do on Inspirations.ph every Monday (publication date may change without prior notice) or send questions directly to yaman@personalfinance.ph.