The debate over ‘finfluencers’ amidst ASIC crackdown
The rise of finfluencers
Over the last couple of years, the rise of financial influencers, or ‘finfluencers’, as they have been nicknamed, has continued unabated. Found most commonly on social platforms like TikTok, Reddit and Instagram, 28% of young people in 2021 said that they “follow at least one finfluencer on social media”. And they are certainly having an impact on their audience, with 64% of their followers reportedly having changed their financial behaviour due to their freely available (and unlicensed) advice.
What do finfluencers do?
Generally speaking, ‘finfluencers’ are usually other young people who are passionate about investing, budgeting and financial literacy – wanting to share their knowledge and experiences with others. They may speak about shares, property, cryptocurrency and any number of related topics.
Their advice, usually presented in the form of short videos that are easy to understand and share with others, has encouraged more and more young people to take part in investing for the first time. Around 435,000 people bought stocks for the first time in 2021, with 18% of those aged under 25, and 49% aged 25-39.
What does ASIC’s crackdown mean?
For those handing out financial advice without a licence to do so, the consequences can be dire (including five years’ jail time or a fine of over $1 million). ASIC recently released guidelines distinguishing the differences between stating objective facts about financial products and making investment recommendations.
ASIC’s regulations state: “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 unlicensed financial product advice.”
Consequently, finfluencers are now scrambling to take down videos and remove content that breaches these rules.
One example of ASIC taking legal action is against Tyson Scholz, known as ‘ASX Wolf’, who was raided in November 2021 for allegedly making $1.16 million in 10 months by selling stock market courses within his Discord community. Tyson charged $1,000 to be part of his members-only online chat room that discussed stocks.
The dangers of finfluencers
Greg Yanco, ASIC’s executive director of market supervision, says that consumers need protection from potentially harmful unlicensed advice. Blindly following the recommendations of those with no formal training in the industry can be detrimental to personal wealth and financial situations.
Simply putting a disclaimer on finfluencer posts does not ultimately serve any purpose, as consumers trust the source to have significant experience in the area they are providing advice on; however, rarely do they have a financial licence.
Yanco says that: “the safe areas of providing information are about what is a share, and what are the different types of investments you can make, without going to the stage of suggesting particular types of shares or investments, which wouldn’t be appropriate.”
The benefits of finfluencers
The boom in Millennials and Gen Z taking advice from finfluencers comes as a result of a few factors. Firstly, the ease of access to information that was otherwise too difficult to find and/or understand. Having someone demystify complex topics in compelling short videos is clearly appealing. As well as this, the advice of finfluencers is generally available free of charge on social media platforms.
Those unable to afford the often high cost of licensed financial advice much prefer the notion of free advice from people with whom they can relate and identify. The level of accessibility to financial advice needs to be improved, and finfluencers have assisted greatly with this; they just now have a rulebook for the protection of consumers (and themselves).
ASIC rules don’t cover crypto
ASIC’s guidelines do not cover cryptocurrency, and they are unable to crack down on advice surrounding it, as it is unregulated and not a registered financial product. In 2021, the ACCC received Scamwatch reports of $129 million dollars’ worth of losses that involved cryptocurrency. There are concerns about “pump and dump” crypto scams on social media, which occur when someone artificially talks up the share price of a stock or crypto to increase trading. Once share prices increase, scammers sell the shares, leaving buyers with valueless stock.
If you would like to discuss your own financial situation and future, you can always contact Allworths Wealth Management for a no-obligation chat.
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