The Rise of ‘Finfluencers’
Financial influencers, known as ‘finfluencers’, have recently gained popularity on social media sites. They are known for providing personal finance and investment advice to their followers. But it’s questionable how credible their advice is and whether they’re even qualified to give out this advice in the first place. ASIC has finally cracked down on them, but will their efforts make a difference?
Why are they so popular?
Finfluencers are most popular amongst young people between the ages of 18 and 21. According to a 2021 ASIC survey, 33% of 18-21 year olds follow at least one finfluencer on social media and a further 61% of young people reported changing their financial behaviours because of a finfluencer’s advice. The most popular platforms for finfluencers are Youtube, Facebook, Podcasts, and TikTok. On TikTok, the hashtag “fintok” has 1.7 billion views.
Although the financial advice itself is often questionable, the popularity of finfluencers highlights an unmet need in the investing and personal finance space. Although young people want to enter the stock market, many are unfamiliar with how to invest and are looking for quick, simple tips to help them get started. This is why they tend to turn to finfluencers on social media platforms, where they can find free advice rather than having to pay thousands of dollars to see a financial adviser.
What’s the problem?
Investing is not a straightforward task as finfluencers make it appear. Rather than actually educating young people on how to make their own informed decisions, finfluencers tend to prioritise quick gains and encourage risky trading behaviour. They might entice you through misleading statements like “this stock will make you a guaranteed positive return”. Some have even encouraged their followers to quit their jobs and become a “full-time day trader”. Their advice is often not independent either, as they may be paid to make sponsored posts promoting particular financial products such as trading apps and cryptocurrency exchanges. They might also provide affiliate links to their followers and discount codes for specific platforms or products. Most finfluencers aren’t finance professionals and are providing this advice without a financial services licence.
There’s an even darker side to finfluencers – scams. “Pump and dump” scams are particularly prevalent online. The scam occurs when someone with a large platform (like a finfluencer) talks up a stock/cryptocurrency to increase trading volume. This leads to an artificial inflation of the price of the stock. Then, the scammer will sell the shares at this inflated price. Young people who look up to these finfluencers are particularly vulnerable to these online scams.
Can anything be done?
The Australian Securities and Investment Commission (ASIC)has been recently cracking down on finfluencers, particularly those who provide financial advice without the licence to do so. ASIC has deemed factual information acceptable, but not when it crossed the line into ‘advice’ or a‘recommendation’.
ASIC warned that it was closely monitoring finance-related online spaces and would impose fines of up to $1 million and potential jail time if they found that a finfluencer was giving unlicensed financial advice. This has had a big impact on Australian finfluencers, as many have either deleted their profiles or stopped posting investing-related content.
But cracking down on Australian finfluencers may not be enough, when young people are getting advice from all over the globe. Applying ASIC rules to foreign investors is practically impossible. Although TikTok has banned users from publishing sponsored posts about investing, it’s never 100% effective. It’s especially difficult to regulate when Instagram stories can disappear after 24 hours.
Ultimately, heavy regulation won’t address the reason why finfluencers became so popular in the first place: the lack of access to affordable, independent, high-quality financial advice. As a result, young people will likely continue to seek out the advice of finfluencers, within Australia and across the globe.
Financial influencers, known as ‘finfluencers’, have recently gained popularity on social media sites. They are known for providing personal finance and investment advice to their followers. But it’s questionable how credible their advice is and whether they’re even qualified to give out this advice in the first place. ASIC has finally cracked down on them, but will their efforts make a difference?
Why are they so popular?
Finfluencers are most popular amongst young people between the ages of 18 and 21. According to a 2021 ASIC survey, 33% of 18-21 year olds follow at least one finfluencer on social media and a further 61% of young people reported changing their financial behaviours because of a finfluencer’s advice. The most popular platforms for finfluencers are Youtube, Facebook, Podcasts, and TikTok. On TikTok, the hashtag “fintok” has 1.7 billion views.
Although the financial advice itself is often questionable, the popularity of finfluencers highlights an unmet need in the investing and personal finance space. Although young people want to enter the stock market, many are unfamiliar with how to invest and are looking for quick, simple tips to help them get started. This is why they tend to turn to finfluencers on social media platforms, where they can find free advice rather than having to pay thousands of dollars to see a financial adviser.
What’s the problem?
Investing is not a straightforward task as finfluencers make it appear. Rather than actually educating young people on how to make their own informed decisions, finfluencers tend to prioritise quick gains and encourage risky trading behaviour. They might entice you through misleading statements like “this stock will make you a guaranteed positive return”. Some have even encouraged their followers to quit their jobs and become a “full-time day trader”. Their advice is often not independent either, as they may be paid to make sponsored posts promoting particular financial products such as trading apps and cryptocurrency exchanges. They might also provide affiliate links to their followers and discount codes for specific platforms or products. Most finfluencers aren’t finance professionals and are providing this advice without a financial services licence.
There’s an even darker side to finfluencers – scams. “Pump and dump” scams are particularly prevalent online. The scam occurs when someone with a large platform (like a finfluencer) talks up a stock/cryptocurrency to increase trading volume. This leads to an artificial inflation of the price of the stock. Then, the scammer will sell the shares at this inflated price. Young people who look up to these finfluencers are particularly vulnerable to these online scams.
Can anything be done?
The Australian Securities and Investment Commission (ASIC)has been recently cracking down on finfluencers, particularly those who provide financial advice without the licence to do so. ASIC has deemed factual information acceptable, but not when it crossed the line into ‘advice’ or a‘recommendation’.
ASIC warned that it was closely monitoring finance-related online spaces and would impose fines of up to $1 million and potential jail time if they found that a finfluencer was giving unlicensed financial advice. This has had a big impact on Australian finfluencers, as many have either deleted their profiles or stopped posting investing-related content.
But cracking down on Australian finfluencers may not be enough, when young people are getting advice from all over the globe. Applying ASIC rules to foreign investors is practically impossible. Although TikTok has banned users from publishing sponsored posts about investing, it’s never 100% effective. It’s especially difficult to regulate when Instagram stories can disappear after 24 hours.
Ultimately, heavy regulation won’t address the reason why finfluencers became so popular in the first place: the lack of access to affordable, independent, high-quality financial advice. As a result, young people will likely continue to seek out the advice of finfluencers, within Australia and across the globe.
