Insights for advisers, by advisers

Finfluencer days may be numbered as ASIC steps in

•2-TikTok

If you’re thinking of hiring an ultra-cool “finfluencer” to help redirect social media traffic to your website or to spruik your products or better yet, to share advice… you’d better rethink your marketing strategy because ASIC is about to make a stand on financial influencers.

The regulator is currently undertaking a review of finfluencer behaviour to ascertain how the financial services law applies to their activities. ASIC was recently quoted as saying “increased levels of retail investor participation and interest in investment is to be encouraged, but we want this to occur in an informed, safe and sustainable way. This contributes to market integrity and confidence for all investors.”

In saying that, finfluencer numbers are growing through the social media platforms such as Facebook, Reddit, Instagram, YouTube and TikTok. The concern is that younger and more inexperienced first-time investors were taking advice from online finfluencers, some of which have been paid to spruik certain products.

On TikTok, a space called FinTok has been created where young people seem to be receiving advice from finfluencers of similar age spruiking volatile cryptocurrency investments and foreign exchange services. According to The Guardian, “In April, the Financial Conduct Authority (FCA) warned social media sites that it may take action if they continue to promote risky, and sometimes fraudulent, investments to often inexperienced consumers.”

The concern is that anyone can set themselves up as a finfluencer and start preaching. As these finfluencers do not hold an AFS license, they are not subject to the requirements that apply to financial advisers.

This includes having the necessary financial education and adequate arrangements to manage conflicts to be able to provide financial services efficiently, honestly and fairly. The concern is that these investors may be acting on this financial advice from unlicenced providers and may have paid for the advice.

According to Money Management, “This may result in conflicted or poor advice being provided to users who may suffer financial loss. It also provides finfluencers with a competitive advantage as they are not subject to the costs and burden of regulation that other AFS licensees are required to comply with.”

While some finfluencers act responsibly, there is a dark side to this new social media phenomenon. Finfluencers can easily be persuaded to spruik ‘pump and dump’ or cryptocurrency scams or can give misleading advice which can influence an investor into making a decision in relation to that product whereby the investor lost a significant amount.

ASIC has significant penalties for giving financial advice without a licence:

  • for a criminal offence, individuals face up to five years’ imprisonment and/or a fine of up to $133,200; and
  • the civil penalties include a fine for individuals of up to $1.11 million, or three times the benefit obtained/detriment avoided.

“ASIC cautioned first-time traders against relying on claims in advertisements and on social media, warning of an increase in the provision of unlicensed financial advice”, says Clayton Utz. There is a fine line between providing advice on a particular product and providing general advice. That’s why caution is clearly needed for finfluencers conducting this sort of activity.

IN Partnership

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