Why you shouldn’t take financial advice from friends, family or the internet

Whether it’s a family member, a colleague or a stranger on a Facebook group, ask for advice today and there are usually many people willing to give it. While it’s often well-meaning, rarely is it expert.  And that’s fine if you are asking for recommendations for local restaurants, but if it’s about something more serious – like your money – it can quickly become problematic.

But unfortunately, getting financial advice from family, friends or the internet is not uncommon. In fact, in Australia today 31% of us get financial advice from family or friends and 23% from the internet – concerning statistics when it could put a person’s entire future at risk.

Here are a few things to think about before you take financial advice from anyone.

Are they experts?  

When you go to ask someone for financial advice (or it’s offered!) ask yourself whether that person is considered an expert. You wouldn’t ask your plumber for medical advice because the consequences of amateur advice could be dire – well the same goes for your finances.

Even if someone looks to be successful, perhaps they have all the trappings of wealth, you probably don’t know their circumstances in any detail.  They may have started with considerably more and what they have today represents a loss, or they made money, but could have done it in a better way and made more, or even worse – their lifestyle is propped up by debt.

Another thing I’ve personally seen hundreds of times in my career is a client with a stock pick or red-hot investment tip from someone with “insider knowledge.” I can quite confidently say that these rarely, if ever, pay off. In fact, off the top of my head, I’m struggling to think of a single example where it has been successful.

There is a reason that there is a whole industry in financial advice and why it’s so regulated – to make sure that the advice is well-informed, explained clearly, and given in the best interest of the recipient.

Is the information accurate?

Perhaps your mother-in-law did read an interesting article from a reputable source and the information she is giving you about superannuation investments is entirely accurate, but maybe it isn’t.  While family and friends are almost always well-intentioned, it’s easy for information to be misinterpreted or change as it is shared down the line.

It doesn’t mean you have to disregard the information completely, just don’t act on it until you have done your own research and talked to a trusted expert adviser.

Does it align with your values, circumstances and goals?  

Your financial decisions should be a direct reflection of your values and life goals and take into account your current circumstances and future plans. If the person giving advice does not have a deep understanding of what is important to you and what you want to achieve, their advice is not likely to be right for you.

A financial adviser will start by developing a detailed understanding of your position today, long and short term goals and what’s important to you – because it’s different for everyone and it’s these things that should define how you manage your money.

Are there other motivations at play?

If someone is giving you “free” financial advice, particularly an individual or organisation you have no relationship with, it’s hard to believe that their sole motivation would be to advance your financial position.

Advice shared freely on websites or social media can often be biased or otherwise motivated.  When it’s a café owner surreptitiously recommending their own business as the best place to get coffee, it’s dishonest, but the damage is likely to be minimal. When it’s someone who has a vested interest in a company recommending it as an investment, however, it can jeopardise people’s futures.

Even seemingly well-intentioned advice from family members or good friends may have other unconscious motives – such as a parent giving an adult child conservative advice because they are worried their child is taking too many risks.  It’s completely well-meaning and designed to “help” you, but if it doesn’t match your risk profile and isn’t in line with what you want to achieve it’s probably not the best move for you.

Ask yourself why the person is giving this advice, and remember, when it comes to financial advice, a good rule of thumb is that if it costs nothing, that’s probably what it’s worth.

The same goes for giving financial advice

You’ve probably heard the saying ‘never a borrower nor a lender be’; it could also be applied to amateur financial advice – don’t give any and don’t take any.  Above all else, it can be incredibly damaging to relationships, and is rarely, if ever, rewarding to them.

Humans are inclined toward self-serving attribution bias, whereby we credit ourselves with success, but blame external causes for failure. So, you will likely only be remembered as the source if your advice leads to negative consequences.

At the end of the day, when it comes to giving or receiving financial advice, it’s best left to the experts for everyone’s sake.  Working with a trusted financial adviser is the best way to get expert advice that aligns with your values and circumstances, and helps you achieve your long and short-term goals.

Contact Apt Wealth Partners today to find out how our award-winning team can help you navigate your finances to live for today while planning for tomorrow.

General Advice warning

 The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.