Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

ASIC finfluencer crackdown bites, but advice need remains: Editor's Note

Emma Rapaport  |  01 Apr 2022Text size  Decrease  Increase  |  
Email to Friend

‘Clear guidelines from the regulator about how to avoid straying into advice.’ That was the “ask” from Australia’s finfluencer community last year as criticism rained down on social media personalities dolling out finance tips online.

“At the moment it’s just a bit of speculation about what’s okay,” @investwithqueenie told News.com.au.

“It would be great to know exactly where they are drawing the line,” @brokegirlwealth told the Australian Financial Review.

Well, last week the regulator delivered, and finfluencers got more than they were bargaining for. In a new information sheet, ASIC threatened social media influencers with up to five years jail time if they were found to be providing unlicenced investment advice online. ASICs list of no-nos includes:

  • making recommendations that influence a follower’s decision making about a financial product,
  • sharing hyperlinks to third-party platforms on which financial products are bought and sold (where they’ve been paid to do so), and
  • making misleading or deceptive statements like promising ‘significant’ or ‘risk free’ returns.

Social media accounts offering finance tips and advice have exploded in popularity amid a surge in retail investor trading activity and a gap in the financial advice market. The advice industry has witnessed a mass exodus since the Banking Royal Commission, with thousands exiting rather than submitting to higher education standards and regulatory changes. But Australia’s advice needs haven’t changed, and just like rapid antigen tests, fewer advisers grappling with more red tape has created a supply shock. In turn, the price of licensed personal investment advice has skyrocketed. The Financial Services Council recently estimated the cost of producing advice to be over $5,000; out of reach for most Australians, let alone a 20-somethings starting out in the market looking to dump their money into a handful of ETFs.

In this environment, finfluencers like @theyounginvestor, @tashinvests and @the.brokegeneration have sprung up to fill the gap left by financial education. Easy access to information and slick social media channels have connected them to the ‘do it yourself’ generation like never before. The staid financial firms of their parents can’t keep up. The massive audiences these personalities have amassed has caught the attention of big brands, and a handful of popular commentators are pocketing five-or-six figure salaries, boasting that they’ve been able to quit their full-time jobs to focus on their side hustles. But democratisation isn’t always pretty. Nefarious groups have formed on platforms like Facebook, Reddit and Telegram where ‘pump and dump’ activity is rife.

 

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

The role of social media personalities should not be overlooked, with 28% of young people indicating that they follow at least one finfluencer on social media. Of those who follow a finfluencer, almost two thirds reported having changed at least one of their financial behaviours as a result.

-- ASIC "Young People and Money - survey snapshot", December 2021

Finfluencers want clarity over the difference between ‘helping people invest’ and ‘giving financial advice’. Some of this stuff is black and white, like when a finfluencer posts ‘buy this stock’ or lets you in on their ‘secret trading strategy’, but does talking up an ETF, or showing an investment portfolio count as restricted advice? Of course, we want everyone to be protected from poor advice, the same as we want people to be protected from dangerous medical advice online, but don’t we also want to encourage a new generation to do something historic – gain the knowledge and confidence to achieve their financial goals. The old economic lessons of thrift, leveraging and compounding were known to every member of my family growing up, but not everyone is afforded the same experience.

We can debate whether ASIC’s opening gambit is too harsh, but I think it’s good the regulator has set down some guidelines. These personalities often attract those entirely new to investing who may be highly impressionable given the poor state of financial education in high school. I understand why finfluencers are popular and appreciate the important work they do. I see the frustration of everyday Australians starting to build wealth, stressed out by the complexity of the industry and unsure where to start. But some posts cross a line. Budgeting tips are one thing, product recommendations are another. Influencing financial decisions is not like recommending a brand of coffee or somewhere to eat on the weekend. Recommendations can have huge consequences for someone’s long-term financial health, and should be drawn from a place of deep understanding. It can be difficult to differentiate between a review and a sponsored advertisement, or understand whether a revenue-sharing agreement is in operation. And even though it may be done in earnest, the publishing of a personal portfolio can influence a person’s view of a particular brand or product and encourage them to mimic the strategy.

I do think in criticising finfluencers we can lose sight of the larger issue – people need financial advice, and under the current system, they aren’t wealthy enough to access it. There has to be a middle ground between highly-specialised financial advice tailored for people with multi-million-dollar portfolios and unlicensed investment conversations happening via Tik Tok. Off-the-shelf low-cost robo advice offerings achieve some balance, but they are rigid and lack a genuine discussion around setting financial goals and risk-taking. This issue hammers home the need for a lower-cost model for personal financial advice. A review into Australia’s advice laws is currently in operation, asked by the federal government to consider “how the regulatory framework could better enable the provision of high quality, accessible and affordable financial advice for retail investors”. Let’s hope the outcome is more quality and affordable advice. For now, finfluencers need to start thinking about catering to their latest audience: ASIC. 

is the editorial manager for Morningstar Australia. Connect with Emma on Twitter @rap_reports. You can email Morningstar's editorial team editorialAU[at]morningstar[dot]com

© 2022 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend