Shrewd as serpents or simple as doves

Question: A lot of financial planning experts are now giving practical tips on social media, which are specific with regard to the actual investment to buy or sell. How do I choose whom to follow? (This question was posed 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.

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 magnify that confidence and authority.

Well-meaning as they may be, some of these tip givers 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 entered into by the tip giver and his listeners. All the tip giver does is to provide advice. But people who have heard of the tip giver’s reputation will simply trust him without further validation.

Given this tendency on the part of his audience, it all the more becomes the duty of the tip giver, especially if he is giving precise practical advice, to not only follow the prudent man rule but also to monitor the investment performance of his listeners by getting feedback on how the tips are working out for the latter.

But how is that possible if the practical tip is given out in the open via social media? What ensues, therefore is a mere one-way relationship, the provision of tips 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 accepting information. The tip should be treated as a starting point that needs further validation through careful research. 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 which 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 shrewd as serpents or simple as doves. INQ

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™. To consult with a YAMAN Coach™, email [email protected]. To learn more about personal financial planning, attend the 94th RFP Program this March 2022. To inquire, email [email protected] or text at 0917-6248110