In Australia, giving financial advice without a license is illegal. Financial advice can take many forms, which is why regulating bodies like Australian Securities and Investments Commission (ASIC) are taking aim at unlicensed (and often unqualified) influencers giving financial advice on social media. There have been repeated calls for stricter monitoring and enforcement action against social media personalities who are crossing the line. Attwood Marshall Lawyers Commercial Litigation Associate Georgia Taylor explains the impact of ASIC’s stricter approach and the information sheet ASIC has now issued for financial influencers or “finfluencers”.
In 2021, ASIC completed a survey that found that 28% of young people said they followed at least one “finfluencer” on social media. Of those who follow a financial influencer, 64% reported having changed at least one of their financial behaviours because of what the finfluencer posted.
Finfluencers can accumulate a substantial online following, building their presence on apps such as Tik Tok, Instagram and YouTube. For some listed financial companies, collaborations with finfluencers may present an effective strategy to promote their products and services to a broader audience and reach the next generation of investors. However, companies should be wary when engaging finfluencers in promotional initiatives or corporate transactions in support of their financial product.
There are high-profile finfluencers earning as much as five or six-figure salaries from promotional agreements with licensed financial firms, such as share market and foreign exchange brokers, investing platforms, and banks, all for fees from subscribers and followers.
ASIC warns finfluencers
The corporate watchdog has now stepped in and issued a stern warning to TikTok, Instagram and YouTube influences about their associated activities with paid promotions, and sponsorships, which see them sharing their opinion on investment strategies targeting young people to make financial decisions based off of their post. If finfluencers fail to heed the warning, they could face up to five years imprisonment and $1 million fines for providing financial advice without a financial services licence.
In a new information sheet aimed at finfluencers, issued by ASIC in April of this year, ASIC took aim at social media stock-tippers who pledge significant profits and promise their followers that the investments they recommend are as good as depositing money in the bank and will even set them up for a millionaire’s retirement.
ASIC has stated that even discussing financial products such as “EFTs” or “shares” rather than assets, could still be considered financial advice which requires a licence under Australian law.
Proposed legislation reform
ASIC’s Executive Director of Market Supervision, Greg Yanco has come out and said that the corporate watchdog was closely monitoring several highly followed finfluencers and expected them to make swift changes to their content.
The Morrison government has appointed Allen’s Partner Michelle Levy to evaluate the 20-year-old financial advice laws. Ms Levy’s inquiry is due to report to Treasury by December 2022. This is a belated step in an industry that has seen finfluencers growing large followings over many years, but one that’s necessary to ensure the regulation of advice which can have serious financial consequences for many Australians.
By law, financial advice is deemed as any recommendation made by someone to purchase or use a financial product.
Provision of financial advice by individuals or corporations who do not possess an Australian Financial Services (AFS) licence or are not authorised AFS licensee representatives contravenes the law.
As the majority of finfluencers do not hold an AFS licence or even tertiary qualifications, they are not subject to the stipulations that apply to licensees, including:
- Having adequate arrangements to regulate conflicts of interest
- To convey financial services efficiently, honestly, and fairly
- To meet education standards; and
- Hold professional indemnity insurance.
If a corporation recruits a finfluencer who breaches the law by imparting unlicensed financial advice, the corporation may additionally be in breach under section 79 of the Corporations Act 2001 (Cth). Only individuals registered with ASIC who hold a financial services licence, or are authorised by a licensee, are permitted to provide such advice. Changes to the legislation could make penalties harsher for those corporations aiding the unlicensed financial advice by promotions.
Considering the release of ASIC’s information sheet and proposed legislative changes, ASIC urges social media finfluencers to obtain legal advice before posting content related to investing, especially if revenue is earned from these posts.
It is important to note that ASIC’s new guidelines do not apply to cryptocurrency or property.
‘No grace period’
While finfluencers have been racing to adjust their content and commercial models, ASIC officials have warned that finfluencers should reassess their past content to identify any potential breaches of law and ensure all content that could be deemed as financial advice be modified or removed. There will be no grace period allowed as ASIC has confirmed offering a grace period would only undermine investor protections and put consumers at risk
Financial Advice Law
ASIC has also cautioned finfluencers about depending on “legal vetting” by social media platforms, fund managers or other commercial partners who may be paying them to endorse their products.
Financial influencers must not assume that any product or service they are promoting has been tested or vetted and signed off by the licensee’s legal team or advisors, absolving them of any sort of obligations. Financial influences have their obligations they must meet and must obtain independent legal advice to ensure they are abiding by current laws and regulations. This is an important step all influencers should take prior to promoting a product to their fan base.
Attwood Marshall Lawyers – how we can help
Giving financial advice without a licence incurs punishment, and for a good reason. The financial services sector is heavily regulated to ensure consumer protection, however in the ever-evolving digital world that we live in, it is important to understand who has the qualifications and license to provide trusted advice when you need it most.
For unsuspecting people on social media platforms, putting their trust in a finfluencer or celebrity who is financially benefiting from promoting financial products, without legally being able to provide such advice, can result in dire consequences for the consumer. It is always best to obtain independent financial advice from a reputable professional when you are looking for assistance in financial planning or investment strategies.
If you have suffered significant financial loss because you have received bad or incorrect financial advice, you may be entitled to compensation, and it is important to understand your rights.
Our Commercial Litigation lawyers are well-versed in handling compensation claims against lending institutions and financial services providers. We use reputable forensic accountants to assess the conduct of the service provider and calculate the losses suffered as a result. But time is of the essence! If you believe you may be entitled to compensation, you must obtain legal advice at the earliest opportunity to find out where you stand.
To determine your likelihood of successfully claiming compensation for financial losses you have suffered, please contact our Commercial Litigation Department Manager Amanda Heather on direct line 07 5506 8245, email firstname.lastname@example.org or free call: 1800 621 071 any time.