Advisers as finfluencers – the regulatory framework for online education and advice

05 Jun 2023

From AdviserVoice - this Regulatory Compliance and Consumer Protection article is proudly brought to you by Perpetual Investments

Advisers are at the forefront of consumer protection, through both the provision of advice, and the creation of financial education content.

Finfluencer: A finfluencer is a content creator who breaks down complex financial concepts into easy-to-understand explanations^[1].

Casually drop the word ‘finfluencer’ into a conversation and you will evoke a range of responses. Depending on the audience, those responses could range from “Yes I follow a few of those” (millennials), to “They are a blight on the financial landscape and should be run out of town” (a gathering of financial advisers).

But whilst finfluencers have recently been newsworthy for mostly the wrong reasons (providing unlicensed ‘advice’, stock manipulation), merely dismissing them as a fringe dwelling nuisance ignores the powerful trends that have seen their birth in the first place. These trends are ones that will shape the financial landscape for years to come, having major ramifications for the way advisers – proper, registered, qualified advisers – will need to advise clients of the future.

Many advisers and licensees are already recognising that the way younger consumers expect to access advice is changing and that to remain relevant and accessible, they must embrace the delivery of advice – and financial education – in new ways.

Along with advice, financial literacy is one of the fundamental pillars of financial consumer protection, and many advisers share a strong commitment to educating their clients. Some are already creating educational content, promoting it through their social channels and hosting it on their website. In this context, advisers themselves are already acting as finfluencers, and the ASIC guidance around discussing financial products and services online is as relevant to the contemporary advice practice as it is to the young Tik Tok star.

In this article we will discuss the underlying mega trends that are seeing the worlds of advisers and finfluencers merge, and cover off in detail the guidance from ASIC – born out of consumer protection concerns – that advisers need to be aware of as they look to provide online education to clients and prospects.

Younger consumers, including self-directed investors, want more advice, not less

The surge in young retail investors since 2020 has been widely discussed in the media. And regardless of whether recent market volatility has diminished their enthusiasm for investing, the fact remains that this group represents a strong cohort of consumers needing, and happy to seek, advice.

The long-held article of faith across the financial advice profession that self-directed investors – the ‘DIYers’ – are not a viable target market for advice seems particularly untrue in relation to these younger investors.

In actual fact, as the research below from the US and Australia shows, the preference to ‘go it alone is’ actually much higher with older investors, especially those who are retired (and therefore have more time on their hands to manage and research, and likely have more experience).

75% of US Millennials surveyed by the National Association of Personal Financial Advisors^[3] said they want to work with an advisor to help them mitigate risk and plan for retirement (compared to 50% in 2016).

In Australia, research by the ASX found that nearly a third (31%) of ‘new generation’ investors are already using a financial adviser^[4], while CoreData found that whilst overall, around one in four (25.7%) Australians sought financial advice during 2020, the highest demand was highest from Gen Y (32.2%)^[5].

But they want to access information, education, and advice differently

The increasing preference for digital channels is starkest among younger investors.

UK research^[6] published in 2021 looked at the preferred sources of research for newer investors (3 years or less) compared to more established investors, and found the newer (and younger) investors were considerably more likely (63% v 32%) to rely on ‘contemporary’ sources (including YouTube and social media). This is highlighted in Figure 2 below.

Australian research reveals similar findings:

An ASX retail investor study^[7] found that 41% of ‘new generation’ investors preferred to access investor education via YouTube.
Of Australian investors using an online investing app, more than a third (35%) turn to online communities and forums to research and learn about investments, with the same proportion (35%) also relying on social media/finfluencer content^[8].

Finfluencers are filling a gap

To the extent that finfluencers are providing information and financial education, through digital channels, at little or no cost (some run a subscription model), their popularity is understandable. Indeed, ASIC’s own research^[9] in 2021 found that 33% of 18–21-year-olds follow at least one financial influencer on social media. The survey found a further 64% of young people reported changing at least one of their financial behaviours as a result of following a financial influencer.

Advisers are starting to learn from – and even partner with – influencers

Understanding the factors behind the popularity of finfluencers, and applying them to advice delivery, may prove critical if we are to address the chronic advice gap in Australia. Many advisers and licensees are already recognising this, and are looking to incorporate finfluencer elements into their businesses, either by partnering with finfluencers, or by acting as finfluencers themselves.

Melbourne based practice Guideway, for example, has partnered with finfluencers Natasha Etschmann, who’s podcast ‘The Get Rich Slow Club’ has more than 40,000 subscribers. According to Guideway CEO Alex Aracas, said the partnership dovetails with its ambition to make quality advice more accessible and affordable:

“As the demand for advice and education increases, we believe it will be unlikely that practices will have this time or imperative to invest to build a compliant self-sustaining education or general advice service. At the same time, we can see from the engagement levels with finfluencers that this emerging channel is highly valued by consumers.”^[10]

The number of financial advisers who have themselves turned finfluencers via their own podcasts include Victoria Devine (‘She’s on the Money’), Adele Martin (The Savings Squad), and Glen James (My Millennial Money). We are also seeing more advisers offer online education around everything from budgeting and saving to superannuation and investing. Many of these are on a subscription basis and are intended to create a cohort who are more ‘advice ready’.

No matter which path advisers take into the finfluencer world, ASIC’s guidelines (shared below) are as relevant to them as they are to unlicensed social media celebrity finfluencers.

ASIC crackdown on finfluencers

Alarmed by the exploding popularity of finfluencers, many of whom were effectively providing advice without being licensed to do so, ASIC announced^[11] a major crackdown on finfluencers in early 2022. ASIC’s message in essence was to either get licensed and play by the rules, or face increased scrutiny and prosecution.

Of particular concern were those finfluencers who were promoting specific investment products, many of them high risk. More often than not, the finfluencer would have a financial incentive to spruik those solutions.

As two recent court cases prove, ASIC are determined to make good on their threat.

Following a late 2022 finding that finfluencer Tyson Scholz (aka the ASX Wolf) had provided financial product advice regarding ASX share trading without a licence, the Federal Court recently issued an injunction permanently banning him from carrying on a financial services business^[12].

And in May 2023, Gabriel Govinda was sentenced to two and half years in prison for a ‘pump and dump’ market manipulation scheme promoted through his online identity ‘Fibonarchery’^[12].

ASIC Guidelines on acting as, or in partnership with, a finfluencer

At the same time that they announced their crackdown, ASIC published an information sheet about discussing financial products and services online^[14].

Information Sheet INFO 269 ‘Discussing financial products and services online’ outlines how the law applies to social media influencers, and the licensees who use them^[15].

Commenting on the launch of INFO 269, ASIC Commissioner Cathie Armour said:

“The way investors access information is changing. It is crucial that influencers who discuss financial products and services online comply with the financial services laws. If they don’t, they risk substantial penalties and put investors at risk.”^[16]

The information sheet is highly relevant to advisers looking to offer some degree of online education, and/or partner with an external finfluencer.

What does INFO 269 set out to do?

According to ASIC¹⁶, INFO 269:

highlights activities where influencers may contravene the law if they are unaware of the legal requirements, using a series of practical examples on:
- financial product advice
- dealing by arranging
- misleading or deceptive conduct
explains issues for influencers to consider including:
- whether an AFS licence is needed
- being familiar with relevant regulatory guidance
- doing their due diligence on people who are paying them (including non-monetary benefits)
reminds AFS licensees who use influencers to:
- do their due diligence
- have appropriate risk management systems and monitoring processes
- have sufficient compliance resourcing to monitor the influencers they use
- consider their design and distribution obligations.

How ASIC describes the law about what constitutes financial advice

Even though the term finfluencer has its origins in the social media term ‘influencer’, the concept of ‘Influence’ is coincidentally central to the definition of financial advice (as distinct from information and education).

In INFO 269, ASIC describes the relevant law thus:

“Financial product advice is a recommendation or statement of opinion which is intended to influence, or which could reasonably be regarded as being intended to influence, a person making a decision in relation to financial products”.
“You can share factual information that describes the features or terms and conditions of a financial product (or a class of financial products) without giving financial product advice. However, if you present factual information in a way that conveys a recommendation that someone should (or should not) invest in that product or class of products, you could breach the law by providing unlicensed financial product advice.”^[17]

Providing extra clarity for finfluencers, ASIC goes on to say:

“If you’re an influencer who receives benefits or payment for your comments in relation to financial products, you’re more likely to be providing financial product advice because it indicates an intention to influence the audience.”

INFO 269 contains a number of examples of scenarios that would be regarded as advice (including recommendations on stocks to hold, and statements about likely future performance of investment products), and those that would not (including providing tips on how to cut expenses and a comparison of the general characteristics of different investment products).

Guidance for licensed advisers providing online education

While experienced licensed advisers would be in little doubt as to their compliance obligations, and the distinctions between information, general advice and personal advice, the nuances around online education, especially that delivered through videos and podcasts, require extra vigilance. Inadvertently showing branded materials in videos, referencing sponsors, or calling on personal examples can see the advice line crossed, bringing forth a raft of compliance complications.

Mistakes are also harder to erase when they have been posted online (taking down some content can be very difficult).

INFO 269 also draws attention to relevant Regulatory Guides, and in the context of providing online information and education, even experienced advisers could benefit from revisiting RG 234 (Advertising financial products and services), and RG 244 (Giving information, general advice, and scaled advice).

RG 234 includes a range of useful guidance relevant to audio and video materials, including around the treatment of disclaimers:

“They should also have sufficient prominence to effectively convey key information to a reasonable member of the audience on first viewing of the advertisement. Information is less likely to be noticed and understood if it is in fine print, contained within a dense block of text, only shown on television or a computer screen for a brief period, or placed where there is distracting content shown simultaneously.”^[18]

Guidance when partnering with external influencers

AFS licensees who use external influencers may be liable for misconduct by those influencers, and to this end ASIC recommends licensees:

do their due diligence. If the influencer is acting on behalf of a firm, and is therefore their ‘representative’ for the purposes of the financial services laws, this triggers other obligations (including ensuring they are adequately trained and complying with the financial services laws)
put in place appropriate risk management systems and monitoring processes to make sure those influencers are not providing unlicensed financial services
have sufficient compliance resourcing to monitor the influencers, and
consider if they have engaged an influencer to promote a financial product that is subject to the design and distribution obligations and – if so – whether reasonable steps have been taken to ensure the influencer only promotes the product to consumers in the target market.

Of course, taking these steps can somewhat undermine the authenticity of finfluencer content, a point recognised by Vince Scully, CEO of Life Sherpa. Commenting on his firm’s partnerships with various finfluencers, including Queenie Tan, Scully observed that context collaboration was key:

“The question is, how do I satisfy my monitoring and supervision obligations as an AFSL holder and still meet the spontaneity and authenticity that you need in social media? We can either amplify our content or the finfluencer’s content. We collaborate in a sense that one plus one becomes three. Recently, in our studio, we had Queenie, Victoria [Devine], and I record a combined episode for ‘She’s on the Money’. Collaboration around events and content brings a greater variety; the more voices you have, the better”.^[19]

Conclusion

Once thought of as a nuisance and a threat to financial advice, the rise of finfluencers may actually be a boon for the future of advice, creating a cohort of advice ready consumers, and enabling advisers to make their offering more affordable and accessible to this cohort. Additionally, by opening up the eyes of advisers to the potential of digital technologies for delivering education, information, and advice, finfluencers have encouraged innovation in advice business models.

In introducing tougher regulation for finfluencers, ASIC has responded to legitimate consumer protection concerns relating to unqualified, unlicensed ‘celebrities’ providing what amounts to financial advice.

But this crackdown isn’t about unlicensed social media stars. Those advisers providing educational content on tools through their social channels and website are, in effect, already acting as finfluencers, and in this context, ASIC’s guidance in this area is equally relevant to licensed advisers.

With the sector now more tightly scrutinised and regulated by ASIC, the worlds of finfluencers and traditional advisers are coming ever closer together. By operating within the guidelines provided by ASIC, ultimately we should see advisers and finfluencers work together for the benefit of consumers, making information, education, and financial advice more accessible to everyone.