Social media content creators known as "finfluencers" are hugely popular with young people, but they could end up in jail or with a $1 million fine if they don't shut down.
Finfluencers are social media content creators who talk about money, budgeting and investing. Most do not have a financial services licence.
The corporate watchdog ASIC's crackdown on unlicensed financial advice has seen finfluencers scramble to take down posts, but there are concerns the new guidelines don't go far enough to protect consumers.
In 2021, 28 per cent of young people said they followed at least one finfluencer on social media.
Of those who follow a finfluencer, almost two-thirds (64 per cent) reported having changed at least one of their financial behaviours as a result.
Last year the ABC reported on concerns that some finfluencers were breaking the law by providing unlicensed financial advice. It was a view that was dismissed by Financial Services Minister Jane Hume, who said finfluencers were no different from those who shared advice and money tips at the pub.
ASIC has now released guidelines that make it clear that unlicensed finfluencers could face five years' jail time or fines of more than $1 million if they talk about stocks, investment funds or financial products.
Greg Yanco, Australian Securities and Investments Commission's executive director of market supervision, said finfluencers could not rely on disclaimers on posts, or an exemption that applies to media commentators.
"If you're an influencer, and you're providing financial advice, then we'd expect you to have a licence. In fact, you're required to have a licence. And if you don't have a licence, then you need to be careful not to provide financial advice," Mr Yanco said.
"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, or investments would be wouldn't be appropriate."
ASIC's guidelines follow the regulator taking court action against Tyson Scholz, also known as 'ASX Wolf', who the regulator alleges made $1.16 million in 10 months selling stockmarket courses.
Finfluencers weigh up options
ASIC's guidelines also ban unlicensed finfluencers from sending followers to financial products for the purpose of trading.
Some finfluencers have earned enough money online through advertising and partnerships with companies and financial products to quit their day jobs.
Angel Zhong, Associate Professor of Finance at RMIT University, said ASIC’s rules would kill the finfluencer business model.
“I think this is a wakeup call for finfluencers,” she said.
“A lot of finfluencers have removed affiliate links on their pages, and removed posts where they recommended a financial product or declared they no longer make this recommendation.”
Finfluencer Aleks Nikolic, is a full-time corporate lawyer, but has also made as much as $4,000 a month from her Broke Girl Wealth Instagram and TikTok accounts, which have a combined following of around 70,000. However, she said none of that money was through advertisements or affiliates with financial products.
She is one of the many finfluencers to have removed online posts from her social media pages as a precaution.
“I don't think it will be the death of the influencer, I think it will be a change, and a number of people, myself included, will look to, potentially, if they want to continue operating, either getting a licence just to make sure that they are beyond reproach of the regulator,” she says.
Ms Nikolic has questioned why ASIC’s guidelines focused on social media content creators. She says the laws should apply to everyone.
“It is a little odd that this spotlight has been placed on financial content creators when ostensibly books about investing, shareholders conferences, and even TV shows are giving far more prescriptive money advice and investment advice without a licence.”
ASIC rules don't cover crypto
There is a big hole in ASIC's new guidelines -- they don't cover cryptocurrency or property.
ASIC has previously raised concerns about "pump and dump" crypto scams on social media.
It's when someone artificially inflates the share price of a stock or cryptocurrency by really talking it up in order to increase trading. Once the price increases, scammers sell the shares at an inflated price.
In 2021 the ACCC received 10,412 reports to Scamwatch that mentioned ‘Cryptocurrency’ with $129 million in losses. Of these, 4,730 were investment scam reports with $99 million lost.
Mr Yanco acknowledged ASIC could not tell finfluencers to stop talking about cryptocurrency because it was unregulated and not a registered financial product.
Ms Zhong said there was a danger that finfluencers could switch from regulated products to talking about cryptocurrency instead.
“Because the current guidelines only apply to financial products, so maybe they will see this loophole and turn to unregulated financial product,” she said.
Ms Nikolic said it didn't stack up that it was okay to talk about cryptocurrency but not regulated financial products.
“It is a bit of an absurd outcome that the Australian Tax Office can treat cryptocurrency as an investment and tax it," she said.
“It really does mean that bank accounts, superannuation shares, and ETFs are all a higher risk class of content than talking about cryptocurrency.”
Barriers to getting financial advice
Judith Fox, CEO of Stockbrokers and Investment Advisers Association, welcomed ASIC’s guidelines for finfluencers.
Ms Fox said she had been particularly concerned about some influencers on social media engaging in what's known as pump and dump scams.
"You had some of the influences who were talking about particular stocks, which they probably owned, and then people would pile in to buy it at the high price, and then the person would make a lot of money and then dump the stock. So the others would be left with a valueless stock," she said.
Ms Fox said those burned by advice from finfluencers had no recourse.
Where to from here
The popularity of finfluencers has coincided with a boom in millennials investing in shares.
Ms Zhong said young people flocked to finfluencers because of the high cost of obtaining advice from a licensed financial adviser.
"The Financial Services Council recently estimated the cost of producing advice to be over $5,000," Ms Zhong said.
“The young generation love investing, but they are hungry for knowledge.”
Marissa Broome, chairwoman of Financial Planning Association of Australia, agreed access to financial advice should be more accessible, but she said they should have a level of qualification.
"For a country that is wealthy, and has a good superannuation system, we have really low financial literacy," she said.
"But there needs to be some level of consumer protections."
Editor's note: An earlier version of the story reported that Ms Nikolic "makes around $4,000 a month" from her social media activities. This has been corrected to "made as much as $4,000 a month".
