The rise of finfluencers on social media

What are "finfluencers"? And do they need a financial license?

Instagram/Facebook/Tik Tok/YouTube and other social media platforms are filed with young people that have a strong desire to learn about managing their finances and to learn about ways to invest their money. Since the demand is there, this gave birth to finfluencers, being the influencers that talk about finance on social media.

A recent report released by Money Smart dated December 2021 has found that 28% of people follow at least 1 finfluencer on social media and 64% of those that follow finfluencers have indicated that they have changed their financial behaviour because of the information provided by the finfluencer (check out the Money Smart full article here:?

https://files.moneysmart.gov.au/media/kjvjabp5/young-people-and-money-survey-snapshot.pdf).

Finfluencers however should be very careful about the content that they post on social media as this may constitute financial product advice, which is prohibited to be provided without a Australian Financial Services licence (AFS licence). Finfluencers should always ensure that their content complies with the Corporations Act 2001 (Cth) (Act) and all other financial services laws.

In March 2022, ASIC issued a guideline explaining the rights and obligations of finfluencers called “Information Sheet INFO 269 – Discussing financial products and services online”?(INFO 269) (which can be accessed here?https://asic.gov.au/regulatory-resources/financial-services/giving-financial-product-advice/discussing-financial-products-and-services-online/). INFO 269 targeted specifically finfluencers and flagged 3 areas that finfluencers (and AFS licence holders who use finfluencers) should be aware of:

1. Providing financial product advice;
2. Dealing by arranging;?
3. Misleading or deceptive conduct.

In March 2022, ASIC issued a guideline explaining the rights and obligations of finfluencers called

“Information Sheet INFO 269 – Discussing financial products and services online”?(INFO 269) (which can be accessed here?https://asic.gov.au/regulatory-resources/financial-services/giving-financial-product-advice/discussing-financial-products-and-services-online/). INFO 269 targeted specifically finfluencers and flagged 3 areas that finfluencers (and AFS licence holders who use finfluencers) should be aware of:

1. Providing financial product advice;
2. Dealing by arranging;?
3. Misleading or deceptive conduct.

1. Financial product advice

Finfluencers post various personal and financial content on their social media platforms. The information ranges from household budgeting tips to how to build personal wealth and tips and tricks on saving habits. Finfluencers need to be careful in providing this sort of content because some of it may constitute financial product advice.?

Under section 766B of the Act,?financial product advice?is defined as a recommendation or a statement of opinion, or a report of either of those things that:

• is intended to influence a person or persons in making a decision in relation to a particular
• financial product or class of financial products or class of financial products, or an interest in
• a particular financial product or class of financial products; or
• could reasonably be regarded as having intended to have such an influence.

Financial products?include things such as shares, bonds, superannuation, interests in managed investment schemes, life insurance, general insurance, derivatives and margin lending facilities.

ASIC provides the following?examples?as to what might or might not constitute?financial product advice:

• “I’m going to share with you five long-term stocks that will do well and which you should buy and hold.”?This statement is intended to influence someone’s decision to buy a certain financial product and is likely to be considered as financial product advice.
• “ETFs will make you a guaranteed positive return”. This statement provides an opinion that a positive return is guaranteed and is likely to be considered as financial product advice.
• “You can invest by buying shares – this means you are investing in a company and you get to vote on the company’s management and potentially earn dividends. On the other hand, ETFs can track different asset classes or individual assets that may generate a return but the ETF provider owns the shares or assets on behalf of the fund members.”?This statement describes different types of financial products, with no implied recommendation that one is better than another and it unlikely to be considered financial product advice.
• “You can save money each week by preparing your own home-cooked lunches for work, instead of eating out”. This statement provides a tip on saving money and budgeting and it is unlikely to be considered financial product advice.

In addition, if the finfluencer receives a benefit/payment for posting the financial product (ie if a post is sponsored) then the finfluencer is more likely to be considered as providing financial product advice because it shows intention to influence the audience.

2. Dealing by arranging

Finfluencers that have links posted on their content which allows viewers to buy and sell a financial product could be considered as a financial service and requires a financial services licence.?Examples?of what might or might not constitute?dealing by arranging:

• You promote a?link?for your followers to access an AFS licensee’s trading platform to trade financial products. It’s a unique link that can’t be accessed anywhere else except on your profile or post. You receive a payment from the AFS licensee for each click resulting in use of the platform. People that access the link also receive a benefit when buying the products because of your unique link. It is evident from this dealing that you are actively involved in this process and it’s likely to be considered dealing by arranging.
• You provide the names and details of AFS licensees that have a platform to trade financial products. From this dealing you are not actively involved in the process and it is unlikely to be considered dealing by arranging.

3. Misleading or deceptive conduct

Misleading or deceptive conduct has nothing to do with whether a person is licensed or not however ASIC included this third option in the INFO 269 presumably because of concerns in this area.

Misleading or deceptive conduct is any statement made that is misleading or deceptive, or likely to mislead or deceive in relation to financial products or services. It doesn’t matter if the finfluencer didn’t mean to mislead as it all depends on the overall impression the post creates when it is viewed by the audience. Any statement made by the finfluencer needs to be true, accurate and substantiated. If a finfluencer makes a prediction, like for example the rate of return expected or the level of risk, the finfluencer should have strong grounds for making that statement.?

Examples?of what might or might not constitute?misleading or deceptive conduct?can be found below:

• “Holding onto this share in the long term will generate significant returns and is just like depositing your money in the bank”. This statement is likely to be deceiving because you couldn’t possibly substantiate how?“significant returns”?will be generated and also the statement gives the impression that the product is safe which may not be true;
• “Trading in this derivative is a risk-free way to make quick profit on the side – I made $$$$ from trading these alone!”. This statement is likely to be misleading because the comment?“risk-free”?is an inaccurate representation of risk this being despite the fact that the person may be able to substantiate that they made a lot of money from that trade;
• “ETFs offer good diversification across different asset classes, though there are still risks that the market or sector that the ETF tracks will fall in value”. This statement is unlikely to be misleading because the risks and benefits are both highlighted.

The examples that were offered by ASIC in INFO 269 outlined above should provide some clarity to finfluencers as to what activities require a licence and which don’t.

Finfluencers should carefully think about the content that they put to their audience and carefully consider whether they are providing unlicensed financial advice including financial product advice or dealing by arranging. Equally, AFS licensees should be aware when using finfluencers to promote their products as this might have implications in respect of their obligations as a licensee. AFS licensees should:

• Be aware whether the finfluencer is acting as their representative which may give rise to obligations of the AFS licence holder;
• Ensure that the finfluencer is not providing unlicensed financial advice;
• Have sufficient compliance resourcing to monitor finfluencers;
• Ensure that any products advertised subject to design and distribution obligations are only promoted to consumers in the target market.

Conclusion

Finfluencers should think about the content that they provide on their platforms and whether that content could represent unlicensed financial services or financial product advice or dealing by arranging. The penalties for providing financial product advice without an AFS licence is up to 5 years in jail and severe financial penalties for corporations.

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