POSTED: 16 Jan, 2022

‘Finfluencers’ – Who are they and what risks do they pose?

Who are ‘finfluencers’ and what risks do they pose to the general public?

Who are ‘Finfluencers’?

Finance + Influencer = Finfluencers

This is the general equation of what a ‘Finfluencer’ is but ASIC and the ATO have other ideas about who should be considered a trusted financial advisor.

Why do they pose a risk to potential investors?

In the world of social media, influencers and content creators with many followers provide financial advice to a wide audience at scale. Many finfluencers provide unlicensed financial advice to an audience of all ages through different channels such as Instagram, Reddit and Tiktok. Some of the advice do not offer or provide adequate protections to consumers that otherwise would be available through consumer affairs and other avenues if receiving licensed financial advice.

A person providing advice about financial products such as shares, bonds, superannuation, interests in managed investment schemes or insurance must hold an Australian Financial Services Licence. What constitutes financial advice depends on whether a finfluencer is making a recommendation, statement of opinion, or intends to influence an individual in making a decision in relation to a particular financial product.

An exemption to holding a license, is if the influencer has provided general advice through video, recording or other means, but only where the sole or principal purpose of the transmission or recording is not the provision of financial product advice.

There is a risk of investors relying on the advice of a finfluencer who may offer advice surrounding Cryptocurrency or NFT’s as they may have their own vested interest in these investments that they recommend.

This advice can tap into the emotions of investors to create a fear of missing out. Investments such as NFT’s are currently being pushed substantially by finfluencers to exhibit hype or excitement, that would not have otherwise provided the investor with protection with their funds in the event of data breaches. Investors should be skeptical and exercise due diligence before purchasing any of these type of investments, or relying on the advice of unlicensed finfluencers.

ASIC has stated that ‘financial advice must only be provided by qualified and licensed financial advisers or financial counsellors, not by individuals or corporations who neither hold an AFS license nor are authorised representatives of an AFS licensee”.

If a finfluencer is deemed to be running a financial services business whilst unlicensed, they may be in breach of the Corporations Act 2001 (the Act), which may result in substantial penalties. This also applies to corporations.

There are significant penalties for providing financial advice without a licence:

  • for a criminal offense, individuals face up to five years’ imprisonment and/or a fine of up to $133,200; and
  • the civil penalties include a fine for individuals of up to $1.11 million, or three times the benefit obtained/detriment avoided.
What to look out for?
  • Schemes which involve market manipulation, where the finfluencer promotes certain investments generating excitement about upward market trends to “pump” the price upwards, then subsequently selling the stock at its overvalued price “dumping” to crash the price again.
  • Check to see if the finfluencer holds the investment they are promoting through their videos or blogs as their advice may be self interested.
  • If they approach you to collaborate, exercise your due diligence and perform checks before engaging with them.
  • Review any regulatory risks that may be present if you are an investor being approached by a finfluencer to conduct business as a financial services business.
  • If they state that they have made substantial gains over a time period, investigate and research the investment’s trend as they may not be disclosing the full picture.
  • Check to see if they are marketing themselves as financial experts, as many find loopholes to avoid breaching the Corporations Act with disclaimers stating that it is merely general advice.

MDC does not hold an AFSL License and will not provide financial investment advice. MDC will refer clients to our appropriate business partners who hold an AFS license to provide tailored financial advice for your needs.