Finfluencers – Friend or Foe?

Estimated reading time 2-3 mins
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Topics: Marketing and advertising financial products RG 234 | Compliance Fundamentals

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A new war is brewing in the financial services sector. It’s a battle between the old world and the new, and it’s already got the attention of ASIC (so you know it must be serious). We’re talking about the fight between the traditional financial advice world and finfluencers, those champions of social media who are readily dispensing investment recommendations and trading strategies without so much as a thought for general advice disclaimers.

But are finfluencers really the enemy? Perhaps there’s something to these new tricks that might benefit the traditional ways of financial services.

What is a finfluencer?

In case you’re not familiar with social media lingo, the term finfluencer derives from the broader role of ‘influencer’, people who make a living from promoting products and services to their social media followers. It’s essentially a form of celebrity endorsement, but unlike the celebrities of old (actors, singers, sportspeople) the new celebrity is someone who is famous for sharing their life on social media.

Brands approach influencers to showcase their products/services via short testimonials (typically videos). In return, the influencer is paid – either in currency or free goods.
‘Finfluencers’ are financial-influencers. They use their celebrity to share advice on finance products and services. And yes, in many cases, these finfluencers receive kickbacks from financial product providers.

What’s the risk?

The problem is two-fold for the legitimate advice industry. The main risk derives from the fact that finfluencers are (mostly) unlicensed. People following the unregulated advice of social media personalities could lose thousands in deals and scams (the kind that used to plague financial advice until regulators stepped in), and these customers would have little or no recompense if something did go wrong.

The secondary risk, as Jane Hume told advisers last year, is that these finfluencers are appropriating the brand of ‘financial adviser’, without having met any of the compliance and educational benchmarks, thereby threatening to undermine all the hard work the industry has undertaken to prove its trustworthiness.

In March 2022 ASIC issued an information sheet (INFO 269) reminding anyone who discusses financial products or services online about their legal obligations. The information sheet is intended not just for finfluencers but other financial services businesses that are engaging the services of finfluencers. The regulator also noted that it was monitoring select online financial discussions for examples of unlicensed advice or misleading and deceptive conduct and would take action where appropriate.

(In June 2022, ASIC charged an individual with market manipulation after running a ‘pump and dump’ scheme via an online trading forum. The case was described as the regulator’s first ‘social media conviction’.)

How big is the risk?

What is interesting about ASIC’s approach to date is that the primary target of its communications seems to be the financial services industry. Yes, it gives some reassurance to those working in the sector that their compliance with a burdensome regulatory regime is not in vain, but what about the people that are driving finfluencer behaviour – their followers?

According to Marketing Magazine, the top 5 local finfluencers had together amassed around 350,000 Instagram followers by mid-2021. Further, 63% social media users aged 18-to-34 saying they trust what an influencer says about a brand more than what the brand says about itself in advertising.

That’s a lot of people readily prepared to accept advice from a stranger with no discernible qualifications (other than their popularity).

After ASIC threatened jail time to a group of finfluencers during a closed-door briefing in April, the AFR reported that “several TikTok, Instagram and YouTube finfluencers said they would close their accounts”.

But rather than being viewed as a ‘win’ for traditional advice givers, this is actually a huge missed opportunity for the broader financial services sector.

Is there an opportunity to combine forces for the greater good of the consumer?

More education not less

The popularity of finfluencers (and their ability to drive consumer behaviour as evidenced by the recent Gamestop trading frenzy, in which Reddit users caused a huge uplift in the value of a game retailer in less than 2 weeks) demonstrates that there is a demand for bite-sized financial advice and education. Imagine if that audience was provided with short, easily digestible tips on how financial advice works?

Consider the impact a finfluencer (with an already engaged audience of potential investors) would have on building awareness about the risks of following unregulated advice. They could explain the difference between personal and general advice and who should be trusted to provide what kinds of information. Followers could learn about the risks of investing, not just the rewards. They could showcase how valuable financial advice can actually be at each stage of your life.

If put to work as educators and champions of the financial regulatory system, we could end up creating a generation of financially literate, savvy consumers who are empowered to make good choices.

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Related Learning

Marketing and advertising financial products RG 234

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Discussing financial products and services online Info 269

Information sheet (INFO 269) is for social media influencers who discuss financial products and services online. It sets out how financial services laws apply to you – it is your responsibility to ensure that any content you post complies with the law.

INFO 269 is also for Australian financial services (AFS) licensees who use an influencer. You should be aware of your obligations as you may also be liable for any misconduct by the influencer.