Finfluencers have been brought into line – or have they?

You can choose your friends but can you really choose your finfluencers or even know where they live?

After the Australian Securities and Investments Commission (ASIC) finally outlined how the law will apply to financial influencers and the corporate sponsors who sometimes pay them, a gaping hole remains as to how effective the changes will be.

As anybody who follows social media such as YouTube, Instagram and Tik Tok will know, these platforms are very much an international beast, although the ASIC laws can only effectively apply to Australians.

While ASIC could try to take action against foreign finfluencers by targeting the platforms they use, in reality it will be practically very difficult for foreigners to be brought into line with the Australian regulations, or even to know about them.

Foreign finfluencers – particularly those in the US but also in many other countries – will effectively remain free to conduct their commercial arrangements and dish out “advice” on a variety of social media channels without the restrictions that are applied here in Australia.

Potentially, even Australian companies could even be promoted by foreign finfluencers and it would be very difficult for ASIC to know about it.

Lack of financial planning has left a huge unmet appetite for advice

As an example of how big and international the finfluencer market is, the hashtag “StockTok” has more than 1.7 billion views while “FinTok” (financial TikTok) has had more than 500 million views.

Searches for various types of investing advice are in the multiple millions and even billions, so there can be little doubt about the massive global demand for this information.

In Australia, the demand has been ramped up as the financial planning industry shrinks dramatically in the wake of the Hayne Royal Commission and much stronger regulatory requirements and educational standards.

An estimated 9,000 financial advisers have left the industry since 2018, with the number of adviser licences falling below 20,000 by the middle of 2021 – the lowest since 2015 – and has kept declining since then, with some estimates that it will drop as low as 13,000 by the end of 2023.

Fees are rising and advisers are getting very choosy

At the same time, financial advice fees have been rising and advisers have become much more selective about clients they will take on, with the emphasis being on wealthier clients with substantial sums to invest.

So, it is little surprise to find a young and eager investor group searching for tips on social media, although the quality of some of the offerings and the conflicted remuneration of those offering the “advice” is obviously very varied.

In 2021, an ASIC survey found that 33% of 18–21-year-olds follow at least one finfluencer on social media.

A further 64% of young people reported changing at least one of their financial behaviours as a result of following a finfluencer.

While it is admirable that ASIC is trying to clean up the local finfluencers and ensure that they are licenced if they give specific or detailed advice, it is still vitally important that consumers of financial or budgeting advice from social media sources take their own sensible precautions about the information they digest.

Some finfluencers are effectively pushing dubious investment schemes or platforms and are being paid for their trouble – others offer advice that is misleading or simply may not work or apply in specific markets such as Australia due to different tax or other laws.

There is also a considerable amount of interpretation needed to work out if a particular finfluencer needs to be licenced or not.

Factual information ok but not stock tips

According to the ASIC announcement, Australian finfluencers are free to share “factual information that describes the features or terms and conditions of a financial product (or a class of financial products) without giving financial product advice.’’

However, if you present factual information in a way that conveys a recommendation that someone should (or should not) invest in that product or class of products, you could breach the law by providing unlicenced financial product advice.

Paid finfluencers probably need a licence

“If you’re an influencer who receives benefits or payment for your comments in relation to financial products, you’re more likely to be providing financial product advice because it indicates an intention to influence the audience.”

ASIC said if a finfluencer reported things such as “five long-term stocks that will do well and which you should buy and hold” then they would need a licence, however “descriptions of different assets without any recommendation or tips on money saving or budgeting were not classed as advice.’’

“Finfluencers should also consider whether they needed an AFS licence, be familiar with relevant regulatory guidance and doing their due diligence on who they were paid by (including non-monetary benefits),’’ according to ASIC.

Where does your favourite finfluencer live?

While applying these ASIC rules to foreign finfluencers will be problematic to say the least, foreign governments and the platforms themselves have also been trying to regulate social media finfluencers with mixed success.

TikTok, for example, has banned users from publishing sponsored posts about cryptocurrencies and investment services – although it would be unwise to believe this change will be 100% effective.

The golden rule with any financial advice, wherever it comes from, is to be highly sceptical to avoid any scams and to always research independently and widely before investing any money anywhere.

It is also important to really understand the broker you are using to buy anything, with this being a particularly problematic area for cryptocurrencies and even international shares.

If something seems too good to be true, it probably is and that applies even more in the social media space than elsewhere.