3 Tips for Assessing Investments Promoted on Social Media
For years companies have been soliciting investment opportunities on social media platforms. Like every other business, they are moving away from direct mail and cold-calling to prospecting for new clients on the internet. It makes sense, too. Internet marketing campaigns can be less expensive, broader and easier to capture metrics. Issuers from around the world, including banks, fund managers, exempt market dealers, cryptocurrency entrepreneurs and real estate developers have realized this. As such, there are more investment opportunities promoted on social media today than ever. Here are some factors to keep in mind as you come across them.
Look beyond the advertisements
Among the many advantages of social media marketing is the ability to produce enticing, professional advertisements. These can make an investment opportunity seem appealing just from a visual perspective. Imagine photographs of a stunning property, shiny offices and dozens of testimonials from happy investors.
However, it’s necessary to look past the gloss and find the details of the offering. You should be able to access lengthy informational packages that include thorough descriptions of all risks involved. According to Alexis Assadi, the Chief Executive at Pacific Income Capital Corporation, the devil is often in the fine-print.
“There’s a problem inherent in virtually all investment opportunities,” says Assadi. “Securities are complex financial instruments that are assembled with the assistance of lawyers, accountants, auditors and bankers. If you look at their underlying documents, they are often hundreds of pages long and contain advanced legal language. Many people don’t have the level of sophistication required to truly understand an offering.”
Take comments with a grain of salt
Most social media platforms allow users to comment on posts, pictures and pages. It may be tempting to scroll through the comments about an investment opportunity to see what others have to say. Beware, though, that the public may not be adequately informed to make a correct statement about a potential offering. They may not comprehend the market in general or know the facts about the investment in particular.
Literally anyone from anywhere can login and give an opinion, whether positive, negative or neutral. As such, you should take them with a grain of salt. Think of it as though you’re in a shopping mall and people are randomly telling you what they think about an investment. You might be interested to hear their opinions, but you probably wouldn’t base your decisions on them.
Get informed about the basics of the law
In general, companies are not allowed to conduct widespread marketing campaigns for investment opportunities without a license. The rules can differ in each country, but the principal remains true in most places. If you are considering an investment that you found on the internet, then it will likely have to have been promoted in connection with a registered securities broker or dealer. Or the firm should be relying on some exemption from the law.
Be sure to ask the company to explain how they are soliciting in compliance with applicable regulations. You might take it a step further and ask that they refer you to a government website in your jurisdiction that highlights the law.