A new breed of influencer has recently sparked an interesting regulatory debate.
Using social media platforms such as TikTok, YouTube, Instagram, Reddit, Facebook and others, so-called “fin-fluencers” or “FinTokers” spruik everything from shares and cryptocurrency to exchange traded funds (ETFs) and other niche investment products.
In Australia, it’s unlawful to give financial advice without a licence.
Hefty penalties of A$133,200 and up to five years’ imprisonment may apply to breaches. Yet, the bulk of fin-fluencers are sharing their opinions with thousands of followers without any licence or regulatory oversight.
Lack of concern
For the moment, the Federal Government doesn’t appear too concerned.
In a speech to the Stockbrokers and Financial Advisors annual conference earlier this year (reported in The Australian Financial Review), finance services minister Jane Hume said, “The TikTok influencer spruiking Nokia is not that different to the bloke down at the pub who wants to tell you all about the really great company he just invested in – but with a much louder voice.
“This isn’t financial advice, but as has been the case since taxi drivers started giving stock tips, it is an inevitable part of a financial ecosystem.”
Dr Angel Zhong, senior lecturer in finance in RMIT University’s School of Economics, Finance and Marketing, strongly disagrees with this assessment.
“First, fin-fluencers do it more loudly and they have a much greater audience compared to someone at a pub,” she says, noting that they also get paid as content creators for posting on social media platforms.
“The bloke at the pub talking about an investment – he doesn’t do it for money. He’s just doing it for fun or telling his friends, so their motivation is different.”
Dr Zhong first became aware of the issue last year, as trading volumes around the world increased due to lockdowns caused by the pandemic.
She published a research paper that showed a flood of retail investors in Australia increased trading volumes by 66 per cent from January to May 2020, overtaking institutional investment during that period.
As the data and the market movement increased, the Australian Securities and Investment Commission (ASIC) also became concerned about the surge in trading volumes in a volatile market, warning that “social influencers and social trading are contributing to herd momentum in speculative stocks”.
Two generations of new, digitally savvy investors – Millennials and Gen Z – have been rapidly entering the market, making conditions ripe for misinformation and unscrupulous operators. This is where it gets complicated, says Dr Zhong.
On the one hand, fin-fluencers can educate and demystify aspects of investment, allowing first-timers to gain enough confidence to enter the market.
That’s good news for the economy, because more funds flow into capital markets.
On the other hand, new investors’ financial literacy may not be strong enough to enable them to separate good advice from bad.
“If you have a population that does not have the financial literacy to make decisions about whether this investment advice is sensible, then that would be potentially detrimental to their personal financial wellbeing,” she says.
Mind the gender gap
Professor Alison Preston is a labour economist and leading authority on gender equality with the University of Western Australia’s Business School. According to the 2016 Household, Income and Labour Dynamics (HILDA) Survey, Australia’s average financial literacy is generally quite high compared to other nations.
However, Preston says Australia has one of the world’s largest gender gaps in this area, with only 48 per cent of women deemed financially literate, compared to 63 per cent of men.
In teenagers, the gap is even starker – only 15 per cent of female teens passed the financial literacy test, compared to 28 per cent of males.
Regulation pros and cons
“I do think there’s a case for regulating it,” says Preston of the booming FinTok phenomenon.
“The flip side of this is, I wouldn’t want to see it all closed down, because it might actually be where the young people get their knowledge from.”
Preston doesn’t see harm in young people “playing to a degree” in the stock market or other low-stake activities, if it helps them better understand finance.
On the other hand, “certainly, what you don’t want is it to be so unregulated that we’re getting scammed and people are losing their money.”
A close eye
ASIC is watching the situation closely. In a recent appearance at a Parliamentary Joint Committee on Corporations and Financial Services, ASIC commissioner Danielle Press made it clear that it all comes down to whether or not the FinTok post meets the definition of “financial advice”.
“If it is, it’s probably unlicensed. That is illegal activity, and we would be very interested in that illegal activity.”
Meanwhile, ASIC is actively on the lookout for examples of unlicensed financial advice on social media and encouraging whistle blowing on recurrent unlawful behaviour.