A warning on ‘finfluencers’
Young Australians are embracing investing. A survey of approximately 20,000 investors by research house Investment Trends in 2021 found a 34.8% increase in the number of active traders over the 2020 calendar year. Of these new to market traders, 18% were younger than 25 years of age and 49% were between 25 and 39.
Educated on online platforms and engaged with social media, young investors are driving demand for financial related advice from ‘finfluencers’ (financial influencers) who operate on social media platforms such as TikTok, YouTube, Twitter and Instagram. FinTok, the financial arm of TikTok, has hashtags such as #PersonalFinance and #FinTok that have amassed over 4 billion and 340 million views respectively, with young investors eager to learn about cryptocurrency, the stock market, and tax and savings tips.
Finfluencers are drawing attention because of their new, affordable and accessible way of obtaining advice. They share advice on anything from investing to budgeting, to buying a house, and have given insights to many first-time investors and millennials on how to become financially independent. But there is a downside to this cheaper alternative to traditional financial advice: the financial tips of finfluencers are not always the best advice for their audience.
The increasing prevalence of unlicensed financial advice by finfluencers has brought them onto ASIC’s radar.
In a March 2021 media release, ASIC warned inexperienced traders who rely on claims on social media and in advertisements, noting that misinformation surrounding financial trading was becoming more common, as the practice of companies paying influencers to promote and post favourable material to attract customers became widespread.
ASIC has now followed up and on 21 March 2022 it issued an information sheet INFO 269 for social media influencers who discuss financial products and services online and licensees who use influencers.
A person providing advice about financial products such as shares, bonds, superannuation, interests in managed investment schemes or insurance generally must hold an Australian Financial Services Licence (“AFSL”). Whether a finfluencer is providing financial product advice depends on whether they make a recommendation or statement of opinion which is intended to influence a person in making a decision in relation to a particular financial product, or whether that could be regarded as intended to have that influence.
There are some exemptions to the requirement to hold an AFSL when giving advice. One exemption which is relevant to the online environment is for the provision of general advice through publicly available sound, video or data recordings, but only where the sole or principal purpose of the transmission or recording is not the provision of financial product advice. A condition of this exemption is that the adviser must disclose any remuneration they receive for providing the advice, and any pecuniary interest.
Finfluencers that present themselves as a financial adviser or who provide advice without a licence may find themselves subject to significant penalties for providing unlicensed financial services. For a criminal offence, individuals face up to 5 years imprisonment and/or a fine of up to $133,200. Civil penalties include a fine for individuals up to $1.1 million, or 3 times the benefit obtained. The fines are higher where corporations are involved.
Courts have decided that the provision of financial advice can occur on websites and social media, which means financial product advice can be made over Instagram, TikTok and YouTube and other online platforms.
In ASIC v McIntyre [2016] FCA 1276 the Court found contraventions of the Corporations Act which arose from the provision of financial product advice over social media. The contraventions included the carrying on of financial services businesses without holding an AFSL and providing unlicensed financial advice through social media, including on a Facebook page.
A finfluencer was successfully sued in Australia for the first time in 2021 when Zib Himmelfarb obtained a $492,000 default judgement against Alex Saunders for money that Himmelfarb loaned and invested in an incomplete crypto project called DCB following advice from Saunders, who runs a social media channel that discusses cryptocurrency market movements to an audience of over 194,000 across YouTube, Facebook, and a podcast.
ASIC INFO 269 outlines how the law applies to social media influencers and licensees who use them. ASIC says that finfluencers are responsible for ensuring that any content they post is compliant with the law.
According to ASIC, the key takeaways for finfluencers when discussing financial products and services online, or promoting affiliate links, is to make sure that they understand their legal obligations.
If they are carrying on a business of providing financial product advice or arranging for followers to deal in a financial product, they must hold an AFSL (unless exempt or authorised to provide those services as a representative of another person who holds an AFSL).
Content must be accurate and balanced. If online post is misleading, the person posting may be breaking the law.
ASIC advises that finfluencers should also consider whether they have carried out due diligence on the people who are paying them.
ASIC’s INFO 269 also includes warnings for AFSL holders who use finfluencers:
do your due diligence. If the finfluencer is acting on your behalf, and is therefore your “representative” for the purposes of financial services laws, this triggers other obligations (including ensuring they are adequately trained and complying with the financial services laws);
put in place appropriate risk management systems and monitoring processes to make sure the finfluencers you use are not providing unlicensed financial services;
have sufficient compliance resourcing to monitor finfluencers who you engage; and
consider if you have engaged an finfluencer to promote a financial product that is subject to the design and distribution obligations, and whether you have taken reasonable steeps so that the finfluencer only promotes the product to consumers in the target market.
In light of ASIC’s warnings and the increasing focus on the provision of financial advice over social media, any individuals or organisations posting financial content may wish to review their activities and assess whether their content may step over the line of merely providing general information.
Patrick Dwyer and Kathleen Harris
Legal Directors
Thanks to Danielle Hodgson for her assistance in preparing this article.