Should finfluencers be regulated?

On ABC TV recently and at the SAFAA conference, Senator Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy said that people offering advice on social media about personal investments are no different from the bloke at the pub, or a taxi driver giving stock tips.

Also interviewed by the ABC, Judith Fox, CEO of SAFAA pointed out that giving tips on social media is very different, noting that ‘If you’re on social media, you can get out to hundreds, potentially thousands and potentially millions of followers who are going to take on board that advice.’

‘Just because you’re on social media does not mean you should be exempt from the regulatory protections [for consumers] that other advisers are subject to,’ she stated.

While there are finfluencers providing helpful advice on topics that range from the importance of a household budget to what an ETF stands for or how to analyse a cryptocurrency, SAFAA’s concern is that the extraordinary reach of most finfluencers cannot be separated from the fact that many of them are running a business based on advertising revenue generated from making investment ‘opinions’. There is no consumer protection for those who act on those ‘opinions’.

Only individuals that hold an Australian Financial Services Licence, or are authorised by a licensee, can give financial product advice to consumers. As a result, finfluencers will ensure that their sites advise that they are not providing financial advice. Yet social media finfluencers frequently promote outright scams and pump and dump schemes, and it can be difficult for audiences to discern what is legitimate content and what is fraudulent. Finfluencers can have vested interests in the investments they promote and the information provided can result in overvalued assets, large price swings and big losses for vulnerable investors.

At the recent financial influencer MarketLit conference – the first one held – it was noted that finfluencers are seeking to fill a gap and ensure that a diversity of voices is heard, given that the financial services sector is overwhelmingly male and of a certain age.

However, the professional and educational qualifications required of licensed financial advisers and the oversight and monitoring they are subject to by licensees and the regulator are not about discriminating against youth or diversity, but about preventing consumers from receiving poor financial advice.

At the MarketLit finfluencer conference, Sommer Taylor from ASIC noted that ‘You might be getting information on something that is simply inaccurate, and those providing it they might have conflicted or vested interests. They may be paid to promote a certain product or idea.’

The regulator is increasingly concerned about online financial content, given the huge influx of new investors into share markets over the past 12 months, many of whom base decisions on social media rather than professional advice or company research. ‘Information and advice on social media forums such as Reddit, Facebook and LinkedIn may be conflicted,’ ASIC says. ‘Some companies and product issuers pay promoters to post favourable comments to encourage first-time traders to invest,’ the regulator says.

Many finfluencers have embraced ASIC’s commitment to policing unlicensed investment advice, pointing out that they want those creating misinformed or dangerous content on social media to be weeded out. Financial Services Minister Jane Hume is clear, however, that the federal government will not step in to address the growing online market for unlicensed financial advice. The government is of the view that buyer beware is the approach.

‘We have to back Australians to be sensible enough to judge for themselves whether to put their hard-earned money into higher-risk assets,’ Senator Hume said at the SAFAA conference. ‘It’s about personal responsibility and common sense.’

‘Some of the information and opinions that consumers receive from online forums will be bad. But some of it will be good. And a lot of it will better engage younger generations in investment and financial markets,’ Senator Hume said.

The social media voice is aimed at some of Australia’s youngest and most vulnerable investors. It is yet to be tested if buyer beware will suffice to protect them.

ABC TV The Business 14 July