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The way investors are accessing their information is changing. With more and more financial advice being provided online on social media, people are becoming more knowledgeable about their financial status and are becoming more informed on strategies to preserve their wealth. Whilst the democratisation of such financial knowledge can help those unable to afford financial advice, financial knowledge spread through social media raises questions regarding exactly how qualified these ‘influencers’ really are.
The Australian Securities and Investment Commission (ASIC) conducted a ‘Young People and Money Survey’ in 2021 which found that 33% of 18-21 year-olds follow at least one financial influencer on social media. This survey also found that 64% of these young people reported that they had changed ‘at least one of their financial behaviours as a result of following a financial influencer’. Whilst this may seem surprising to some, the rise of the ‘fininfluencer’ has been troubling for the financial advice industry, particularly in the wake of the shocking Financial Services Royal Commission in 2017.
It is important to note that ASIC enforces the Corporations Act 2001, and aims to promote transparency and fairness in financial markets, particularly to encourage informed participation by investors and other financial consumers. ASIC imposes significant penalties for breach, with the maximum penalty being five years imprisonment for individuals. ASIC also makes any ‘misleading or deceptive conduct’ illegal.
Whilst this may seem irrelevant to ‘financial influencers’ operating on social media sites, many influencers may actually be breaching the law unknowingly. For example, an individual sharing ‘10 financial assets you should buy that will do well in the long-term’ on TikTok could breach the law by providing unlicensed financial product advice. If someone is to give information in a way that is intended to influence another’s decision relating to financial products, it is important for them to have an Australian Financial Services licence. If an influencer is receiving money to advertise certain financial products, it will be even easier to prove that they have intended to induce a consumer and that they have breached the law. Furthermore, stating that a financial product is ‘guaranteed to give you positive returns’ or make money could be considered ‘misleading’ under the Corporations Act.
ASIC has also acknowledged that some financial influencers have had a ‘positive impact’ on their audiences and have helped to increase education to many new investors that are coming into the market. The Chief Executive of the Financial Planning Association has also highlighted the role of fininfluencers in ‘improving financial literacy and confidence among consumers’.
However, the concern that unqualified advice could put new investors at risk outweighed any educational benefit perceived. This is important, as even well-meaning individuals may be caught breaching the law. All this news comes in the wake of declining financial adviser numbers since the 2017 Financial Services Royal Commission which found that financial institutions were selling inappropriate financial products to customers, were charging customers for services that were not provided, and were not acting in their ‘best interests’.
Whilst the stringent oversight faced by financial advisers ensures that consumers are able to have full confidence in the advice they receive, these strict conditions have also dramatically increased regulatory costs and standards. This has resulted in a large decrease in the number of advisers, and has forced those who remain to ditch low value clients and charge higher fees to remain profitable. Furthermore, this highlights an underlying problem; those who most need financial planners most likely are those who cannot afford one. With the only other viable option being to self-teach, ASIC’s stringent enforcement of the law has made it also difficult to refer to social media. These dire conditions are only exacerbated in the context of Australia’s ageing population.
Origin, a startup based in San Francisco, aims to offer financial planning as an employee perk by partnering with companies. By providing a platform in which employees are able to track their financial milestones and gain professional advice, Origin empowers employees to better manage their finances. Furthermore, with research indicating that employees spend 2-4 hours weekly dealing with their personal finances, Origin’s offer allows employers to improve employee productivity and retention.
Origin’s success holds hope for the financial future of many Australians and highlights the capacity for companies to step in and be socially responsible when the government has not.
