ASIC’s wake up call for ‘Finfluencers’ in Australia

As a large number of retail investors rushed into financial markets during the pandemic, finfluencers have also enjoyed growing popularity in Australia. Finfluencers talk about investment trends and options on social media and there are ongoing concerns that they may mislead novice investors. Finfluencers have just received a wake up call from ASIC, which is likely to bring some of their business to an end.

In Australia, giving financial advice without a license is illegal, nevertheless unlicensed influencers have been providing financial advice on social media for some time.

Financial market participation has seen exponential growth in Australia over the recent 24 months, especially in stocks, cryptos, and ETFs (Exchange-traded funds).

A large proportion of the new investors are Generation Z and Millienials, who are eager to set foot in financial markets and achieve financial independence. Being new to the market, they are hungry for financial knowledge.

Young investors are also heavy users of social media platforms. They are increasingly turning to online platforms like TikTok and YouTube to learn about finance and investing.

Following repeated calls that governing bodies like ASIC should be taking a harsher stance on finance influencers by stepping up monitoring and enforcement efforts last year, recently ASIC has issued an information sheet for finfluencers.

This is not new regulation. It is the application of the existing regulations in the context of emerging areas in financial markets.

The information sheet by ASIC is a wake-up call for finfluencers, who have been making a huge amount of money from content sharing and promoting affiliated products.

The information sheet formally warns finfluencers that ASIC is monitoring their online activities and reiterates the licensing requirement in the context of finfluencers.

It provides specific case studies to explain the types of actions by finfluencers, if unlicensed, constitute breaches of the Corporations Act 2001.

In particular, finfluencers who receive payments or benefits by recommending specific investment products and services are likely to be providing financial product advice.

Finfluencers who receive payments for promoting financial products using affiliated links to prompt followers to buy financial products and services are likely to be dealing by arranging, which can only be conducted by licensed individuals.

The information sheet also clarifies how statements made by finfluencers can be deemed as misleading, such as making a prediction without reasonable grounds and fact checking.

While the information sheet is useful from the perspective of the providers of content — the finfluencers, ASIC should also actively promote the information among the viewers of the content, the followers of finfluencers.

Unverified investment advice is no different to fake news, which is frequently flagged by social media platforms that urge viewers to read with caution.

Newbie investors are particularly susceptible to receiving dodgy financial advice, as the internet replaces traditional outlets like accredited financial advisors.

With the goal of protecting the financial wellbeing of investors, especially the young and inexperienced ones, ASIC should consider conveying the messages to young investors who rely heavily on finfluencers. And it is important to do so in a fun and engaging way by using social media, just as the finfluencers attract their large audiences.

At the meantime, it is worth considering why young investors turn to finfluencers in the first place. The problem probably relates to the costs of obtaining licensed and high-quality financial advice.

Author: Dr Angel Zhong - Deputy Dean, Research and Innovation and Associate Professor in Finance, at RMITs College of Business and Law.

08 April 2022

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ASIC’s wake up call for ‘Finfluencers’ in Australia