6 simple questions to tell if a ‘finfluencer’ is more flash than cash

Images of flashy sports cars. Lavish lifestyle shots. These are just some of the red flags consumers should watch out for when they turn to social media for financial advice.

Consumers should not believe everything they see on Instagram, TikTok or YouTube from the growing numbers of “finfluencers” – content creators who build their audience by giving out financial advice.

The regulator responsible for financial products and advice, the Australian Securities and Investments Commission (ASIC), has issued warning notices^[1] to 18 social media finfluencers. ASIC said it suspects they have broken the law by promoting high-risk financial products or providing unlicensed financial advice. ASIC did not name them.

So, why is regulated financial advice important and what are some of the common practices finfluencers use to attract followers and customers?

Financial advice rules explained

Australian Financial Services laws are designed to protect consumers and investors, while promoting the integrity of financial markets. It is both unethical and illegal to promote financial products without proper authorisation.

In Australia, it is an offence under the Corporations Act^[2] to provide financial advice without an Australian Financial Services licence. Penalties include^[3] up to five years’ imprisonment or fines of A$1 million or more.

ASIC issued a similar warning to online finfluencers in 2022^[4]. Since then, the number of social media posts by unauthorised finfluencers have substantially reduced^[5].

Many finfluencers^[6] became licensed or authorised representatives of a licensee, along with being more diligent about what they were posting online. Natasha Etschmann, with 300,000 Instagram and TikTok followers at @TashInvests, became licensed^[7] immediately after the 2022 warning.

Some other finfluencers^[8] were arrested, issued fines or ordered to take down their websites.

High-risk products

However, some finfluencers who style themselves as “trading experts” continue to provide unauthorised financial advice, usually for a fee or commission. They promote high-risk, complex investment products that can cause consumers substantial harm.

These products include contracts-for-difference^[9] and over-the-counter^[10] derivative products that do not trade on an exchange. ASIC says^[11] its current concerns lie with these content creators:

Their social media content is often accompanied by misleading or deceptive representations about the prospects of success from the products or trading strategies they promote, sharing images of lavish lifestyles, sports cars and other luxury goods.

What to watch on socials

About 41% of young Australians^[12] aged 18 to 30 look online for financial information or advice.

While budgeting tips can be helpful, it’s important to be extra careful with online financial advice. Consumers should not believe everything they see on social media.

Conducting due diligence and checking finfluencers’ credentials on ASIC’s Professional Registers search tool^[13] is crucial. Choose expert and licensed finfluencers rather than accounts with large followings and exaggerated or misleading claims. Popularity does not always mean credibility.

There are certain red flags to watch out for. Some finfluencers use pseudonyms. They promote “exclusive” financial advice content and access to “invitation-only” online communities for a fee. In many cases, they lack credible experience or certified financial planning training^[14] to provide financial advice.

Your finfluencer vetting toolkit

When choosing to follow or acquire the services of a finfluencer, ask:

1. is this finfluencer licensed or authorised?

2. how realistic are the promised financial outcomes? Are they too good to be true?

3. does the finfluencer disclose their personal financial position or investments when discussing financial products or strategies?

4. are they transparent about? their track record of accuracy or accountability?

5. do they address publicly a case when their audience lost money from a strategy they recommended?

6. does the finfluencer tailor content to different investment risk profiles or financial maturity levels in their audiences?

Are you being sold a dream?

Social media finfluencer content can often come with misleading or deceptive representations (such as the sports cars and luxury goods that ASIC has warned about). Content may overstate the prospects of success and potential profits.

Some – usually unlicensed – finfluencers use social media content as “proof” of their financial expertise. One common practice is to try to lure consumers by creating a hyped world around their own personal lifestyle. Many finfluencers often extend invitations to consumers to join closed forums to “learn” their hidden secrets to success or copy their “famous” trading practices.

These finfluencers usually try to convince consumers they can achieve a similar lifestyle by following their advice.

Finfluencers are global

ASIC issued the warnings as part of a recent global week of action^[15]. ASIC and eight regulators from the United Kingdom, United Arab Emirates, Italy, Hong Kong and Canada took coordinated action to disrupt unlawful finfluencer activity.The global campaign aims to raise awareness about unlawful finfluencer activity, protect consumers, and prevent them from investing after encountering misleading content.

Consumers need to distinguish between credible financial advice and self-serving or misleading content before trusting their money to anyone.

Spotted unlicensed influencer activity? Report^[16] this misconduct to ASIC.

References

1. ^{^} issued warning notices (www.asic.gov.au)
2. ^{^} under the Corporations Act (www.legislation.gov.au)
3. ^{^} Penalties include (www.asic.gov.au)
4. ^{^} in 2022 (www.asic.gov.au)
5. ^{^} reduced (www.regulationtomorrow.com)
6. ^{^} finfluencers (www.moneymanagement.com.au)
7. ^{^} became licensed (www.afr.com)
8. ^{^} finfluencers (au.finance.yahoo.com)
9. ^{^} contracts-for-difference (moneysmart.gov.au)
10. ^{^} over-the-counter (moneysmart.gov.au)
11. ^{^} says (www.asic.gov.au)
12. ^{^} 41% of young Australians (www.asic.gov.au)
13. ^{^} Professional Registers search tool (service.asic.gov.au)
14. ^{^} certified financial planning training (www.afr.com)
15. ^{^} global week of action (www.asic.gov.au)
16. ^{^} Report (www.asic.gov.au)