News & Insights

In September this year, it was reported that ASIC was undertaking a review of selected financial influencers – or “finfluencers”. For those unaware, the term refers to social media influencers that post online content relating to financial information and advice. With an increase in the popularity of “finfluencers” so too has ASIC’s interest peaked, with the governing body expressing concerns that “inexperienced investors may be increasingly acting on financial advice from unlicensed providers”.

Those concerns followed cautions issued by ASIC in March warning that “Information and advice on social media forums…. may be conflicted. Some companies and product issuers pay promoters to post favourable comments to encourage first-time traders to invest.”

ASIC’s review is ongoing, however, further comments from the regulator this month have given an insight into a number of areas of concern. Relevantly, ASIC has issued a number of warnings to finfluencers, as well as businesses looking to partner with them. Those warnings are a timely reminder for any person or business engaged in the provision of financial advice, whether that advice is provided via traditional means, or via more recent and/or emerging digital platforms.

the role of “finfluencers”

Any person providing advice about financial products is required to hold an Australian Financial Services Licence (AFSL) or be an authorised representative of the holder of an AFSL. Financial product advice is a recommendation or a statement of opinion, or a report of either of those things, that:

• is intended to influence a person or persons in making a decision about a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products, or could reasonably be regarded as being intended to have such an influence; and
• it is not exempted from the definition of “financial product advice”.

The definition of “financial product” is extremely broad and includes, by way of non-exhaustive example, shares, bonds, superannuation, interests in managed investment schemes, life insurance, and general insurance.

A casual browse of social media platforms – whether it be Instagram, TikTok, Reddit or otherwise – reveals a wide range of posts on financial topics. The creators of such posts have been dubbed “finfluencers” – account holders and content creators with a wide-reaching audience and, with that audience (as the title suggests), the ability or potential to influence.

Despite social media appearing to be an informal forum, posts on such platforms can constitute the provision of financial advice. Indeed, Australian Courts have previously found contraventions of the Corporations Act arising as a result of the provision of financial product advice via social media, including via Facebook.

ASIC has noted that most finfluencers do not hold an AFSL. Issues associated with the provision of financial advice from unlicensed providers via social media are a current focus for ASIC, as its recent comments highlight. However, a number of the issues identified are also relevant to holders of AFSLs and demonstrate the need for such holders to be mindful of their social media activity.

ASIC’s concerns

This month, ASIC Commissioner Cathie Armour identified a number of concerns indicating that it is an area that ASIC intends to actively engage in. Those concerns include the following:

• Financial advice cannot be provided by individuals or corporations who do not hold an AFSL, or who are not authorised representatives of an AFSL holder.
• Most finfluencers do not hold an AFSL and are not subject to the requirements that otherwise apply to AFSL holders. Those requirements include an obligation to have adequate arrangements in place to manage conflicts of interest, and the obligation to provide financial services efficiently, honestly and fairly.
• A finfluencer found to be operating a financial services business without an AFSL (or without being an authorised representative of an AFSL holder) may be in breach of the Corporations Act. Breaches can attract significant penalties.
• Companies that engage finfluencers that provide unlicensed financial advice may also be in breach of the act by reason of section 79 of the Corporations Act. That section sets out the circumstances in which a person may be involved in a contravention. Those circumstances include if a person has “been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention”.
• Specifically, finfluencers may be the subject of a conflict of interest arising from remuneration structures. For example, finfluencers may be sponsored, or may generate income from content clicks or views, which may give rise to a conflict of interest or advice that is not in the best interests of the consumer.

lessons for AFSL holders, businesses and finfluencers

ASIC’s warnings are relevant to AFSL holders, businesses and finfluencers.

In light of ASIC’s increasing focus on the provision of advice via social media, any person or organisation posting financial content may wish to assess and evaluate their activities, including whether proposed content may include recommendations constituting financial product advice, as opposed to merely providing general information.

ASIC also advises that businesses looking to partner with finfluencers for the purposes of advertising financial products and services ensure that they do their “due diligence”, so as to “understand what products and services a finfluencer is providing and whether or not they are licensed”.

Holders of AFSLs should also carefully manage their use of social media, given that the posting of content may constitute the provision of financial advice. The provision of advice (including inadvertent advice) and/or the formation of client relationships using social media runs the risk of financial advisors failing to follow their regular procedures, with a view to avoiding conflicts and other ethical issues. A clear social media policy can assist in mitigating such risks.

For more information and advice on ASIC’s warnings, get in touch with our Litigation and Dispute Resolution team.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.