“Influence is the last refuge of the scoundrel”
— Samuel Johnson (@SammyJ_letters) 7 April 1775
Although advisers may be critical of the complexity and claustrophobia caused by our regulatory regime, they understand its intent and appreciate the need for adequate consumer protection.
However, while they understand that fraud and misconduct flourishes in the absence of controls, standards and understood social norms, they often struggled to reconcile obvious inequities in our regulatory framework. In particular, many professional advisers consider that they struggle under the burden of compliance (and risk significant penalties) while “financial coaches” and “gurus” often offer the same services without restraint, regulation or any responsibility.
The reality is that regulators, and regulation, can often be slow to adapt to technological change.
Although ASIC may have understood that social media applications (like YouTube, Instagram and Tiktok) stepped over traditional distribution methods to offer “opinions, commentary and perspectives on business activity” it may have under-estimated the immediacy, impact and influence of these new distribution methods.
“The survey results suggest that the role of social media personalities (financial influencers or ‘finfluencers’) should not be overlooked, with 28% of young people indicating that they follow at least one finfluencer on social media .. (entrepreneurs, ‘financial popstars’ and celebrities) ..Of those who follow a finfluencer, almost two thirds (64%) reported having changed at least one of their financial behaviours as a result.”
— ASIC “Young People and Money – survey snapshot”, December 2021
Regardless of the reasons, by publishing 22-054MR ASIC has taken aim at social media “influencers” and provided a clear and unequivocal warning that unauthorised content, and unlicensed conduct, can attract significant penalties including imprisonment and fines.
Better yet, the fact that ASIC had already commenced proceedings against a #Finfluencer in the Federal Court, sends a strong message; both to the regulated population (advisers and licensees) and the unregulated population of social media marketers, financial coaches, celebrities and comparison sites.
Advisers, old enough to remember Henry Kaye, might appreciate the difficulties of preventing (or punishing) unregulated content and unauthorised conduct but ASIC has, at least, issued a public warning backed by a demonstrable willingness to enforce the law.
Only time will tell whether statements of general deterrence, and limited instances of specific deterrence, are enough to influence the conduct of an inchoate industry of self-identified (but often tragically unqualified) financial experts. While the possibility of financial sanctions or prosecution may deter some, or persuade some corporate entities to rethink their affiliate marketing strategies, it may be an inadequate solution to a problem created by the cost and inaccessibility of simple financial advice.
“In 2019, Action Fraud said that more than £3m had been lost in 356 fraudulent “get rich quick” schemes on Instagram over a five-month period, with most of the victims aged between 20 and 30. Scammers promised high returns within hours of investing.”
— Shane Hickey, The Guardian, 22 August 2021
The regulatory parameters
“At its worst, however, Finance TikTok perpetuates financial myths, scams, and dangerously misleading information. As a result, what users end up seeing often isn’t good advice from trusted sources, it’s just one random person’s experience making thousands of dollars off buying and selling Tesla calls.”
— Rebecca Jennings and Emily Stewart, Vox, 18 January 2021
Unfortunately for some, but fortunately for most, providing online financial advice requires more than an O-ring, the Heil Sound PR40 Dynamic Microphone Bundle and a scrappy attitude.
In reality, it’s difficult (if not practically impossible) to, on a recurring or regular basis, provide financial product advice, recommend financial products or refer people to providers of financial products for commercial benefits, unless you’re either licensed or authorised. Even with the profligate use of disclaimers, and stunning visual effects, a #Finfluencer contravenes the Corporations Act the moment they provide an opinion, recommendation or report that could influence a person to make a decision in respect of a financial product.
If you’re just used to providing financial hacks and insights, this requires a little unpacking to make sense. Financial Product Advice is defined by s766B of the Corporations Act, but instead of insisting that you wade through Chapter 7, we’d instead direct you to ASIC’s view that “If a communication is a recommendation or a statement of opinion, or a report of either of those things, that is intended to, or can reasonably be regarded as being intended to, influence a client in making a decision about a particular financial product or class of financial product (or an interest in either of these).”
A person can share factual information about a financial product – for example, fees, features and returns – without providing financial product advice BUT if they present the information in a way that conveys a recommendation (implicitly or explicitly) or could reasonably be seen that way, they have provided financial product advice.
Dealing in financial products (s766C) may be the furthest thing from your mind when you’re simply endorsing/promoting something you’re excited about. You’re dealing (or arranging) in financial products when, for example, you refer your followers to a product issuer to acquire products or interests in products or where you transact for your client to obtain or dispose of financial products.
So, the moment you offer a hack/insight into “Shares of X” and your view that you should buy and hold them because they’ll 10X before the end of the year, you’re actually offering financial product advice and you need to either be licensed or authorised by a licensee. If you offer a link in your post (or in your bio) that provides a simple way to invest in “Fund C”, you’re dealing in financial products and you need to either be licensed or authorised by a licensee.
It’s true that there are licensing exemptions for media and information services, but these only apply to traditional publishers and broadcasting services.
Becoming licensed, or authorised by an Australian Financial Services Licensee, may be an effective way to address these legal and regulatory risks, but neither is an insignificant undertaking and both options impose significant legal and professional obligations.
In fact, some #Finfluencers may be well aware of these obligations and impediments (and deliberately sought to avoid them).
“Social media platforms play host to a variety of advice and insights on personal finance. On TikTok, a space called FinTok has emerged with advice on budgeting, Isas, tax and debt – among other topics – which has been credited with attracting the interest of young people wanting to know how to use their money better.”
— Shane Hickey, The Guardian, 22 August 2021
Although the #CryptoBros aren’t generally caught providing financial product advice, they, like every other person, is prohibited from engaging in conduct (including making statements) that is misleading or deceptive, or likely to mislead and deceive.
Even without a solid understanding of s12DA of the ASIC Act, Influencers (of whatever variety) need to appreciate that they are prohibited “engaging in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.” At a basic level, it requires reasonable grounds for declared opinions, the ability to substantiate claims and a good faith commitment to only issuing true and accurate information.
This obligation applies regardless of whether a person is licensed or authorised, so even those striving to avoid products and simply coach and educate, need be conscious of the impression they create; you don’t need to consciously mislead or deceive to contravene the law, so hype needs to be balanced against a considered appreciation that the impression you create, and not your intent, is critically important.
Of course, embedded conflicts of interests may be a larger problem than either recklessness, ignorance or indifference but, in my view, they’re largely inextricable.
Working with #Finfluencers
It’s unusual, but not unprecedented, for licensees that provide personal financial product advice to work with Finfluencers.
It’s generally more common for product issuers, affiliate marketers and general advice businesses (like comparators) to engage influencers to increase activity, promote products and services or generate engagement for the brand. Influencer marketing is becoming ubiquitous in many industries but, thankfully, the highly regulated financial services industry has slowed the growth of finfluencer models. It has, however, only slowed it. Instagram shows 6048 posts for #fintok and TikTok confirms over 1.0B views of video content on this topic covering everything from cyrptocurrency investment tips to wealth building to billionaire investing.
If you are a Licensee intending to use influencer marketing as part of your business growth strategy, you must take the following steps prior to committing to this strategy
- Read RG234 “Advertising Financial Products and Services” and INFO269 “Discussing financial products and services online”.
- Consider your DDO obligations (including the reasonable steps you’ll take to avoid mis-selling).
- Make your own enquiries. ASIC recommend that you do your due diligence to manage any obligations you’ll assume in respect of your representative (including ensuring they are adequately trained and complying with the financial services laws). We’d recommend that you undertake your own review of their previous collaborations or promotions to ensure their voice, approach and conduct is consistent with your brand. If you intend to appoint them as your representatives, consider your legal obligation to confirm their experience, conduct and character.
- Impose monitoring and implement controls. Even with the significant changes to RG271, too few licensees effectively monitor their social media activity (or that of their representatives). If you intend to commence, or continue, influencer marketing ensure that you have an appropriate risk management framework (and an appropriately resourced function) in place to detect, and quickly escalate and mitigate, any issues.