The Problem with giving Advice
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The problem with giving financial advice is that you mostly don’t have “skin in the game”. What does skin in the game even mean? It simply means you are directly involved in or affected by something.
Now to finance, it means you don’t have anything to lose or gain financially from your advice.
When you take advice from strangers on the internet like me (lol), we are not held responsible for the advice we dish. However, when you consult a professional, financial advisers usually have fiduciary duties.
Big word yeah, what is fiduciary duty?
Fiduciary duty is the responsibility of one person over the other to act in the person’s best interest. If A has a fiduciary duty over B, it means that A will act in B’s self-interest and will be responsible for the advice he gives B.
Why does it matter?
When you ask a person (an unprofessional like me) what you should do with your money or other financial matters, a few things are involved.
The person you are asking does not have the full context of your financial life. And you are probably not ready to say it all. Like you won’t disclose your medical records or legal troubles to anyone except a professional. Client confidentiality is an added benefit that such professionals must abide by.
The person you seek advice from might be vested in what they are advising you to do. Say, for example, I own shares in a company. I might advise you to buy that shares so that the share price might go up. I advise you to buy the company’s shares in my best interest and not necessarily your best interest. Again, if a professional should do so, they not only violate the ethics of their profession, they might be prosecuted for that.
The last is skin in the game. This is quite interesting because, in the financial world, it is easy to dish advice and not suffer from the consequence of the advice. It is easy to shill1 an asset, pump it to the moon 🚀🚀🚀, and then dump it on unsuspecting individuals.
This writing reflects on a discussion I had with my roommate and this writing by Jack Raines, Not financial advice. You can subscribe to his newsletter here
a term used by crypto boys to describe aggressively promoting a coin
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