InFocus: Is TikTok advice any better than ‘the man down the pub’?

Finfluncers are presenting a worrying trend in the financial services space given their rising presence during the pandemic which is leaving investors at risk.

These social media influencers use platforms like TikTok and YouTube to post financial content to viewers and the regulator is concerned they may qualify as unlicensed financial advice. 

On TikTok, the hashtag #personalfinance had received over four billion views as users logged on to find out the latest about investments and cryptocurrency. This was particularly the case as the pandemic caused an upswing in younger or less experienced investors accessing the stockmarket and exchange traded funds (ETFs).

According to the Australian Securities Exchange (ASX), a quarter of people who began investing on an exchange in the last two years were under 25. Some 41% of under-25s wanted to receive their investor education from YouTube and 18% received information from social media, it said.

As a result, the Australian Securities and Investments Commission (ASIC) was taking a look at the space and considering how it could ensure investors avoided receiving unlicensed advice from these sources.

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It said: “Since March 2020, ASIC has seen a significant escalation in complaints about unlicensed conduct, including complaints about unlicensed financial advice being provided through websites, social media, cold calling and seminars. 

“ASIC is concerned because consumers unknowingly receiving unlicensed advice do not have the same protections afforded to them under the law when they receive advice from licensed providers.”

Offering unlicensed financial advice was an illegal practice and could lead to a $133,200 fine and a prison sentence.

But the Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume, said there was always an element of ‘buyer beware’ with investments and likened it to speaking to a person in a pub or a taxi driver. She also pointed out it was engaging young people with their finances.

The difference to a man in the pub however, critics countered, was that many finfluencers actually made money from their posts through advertising, affiliate links and branded merchandise.

Speaking in the House of Representatives, Labor MP Julian Hill said: “Everyday Australians are being left to look to social media and TikTok influencers.

“These ‘influencers’ are taking kickbacks, that is what the Government is leaving people to, and it is a return to the bad old days of commission.” 
Another problem for advisers that was pushing younger investors into the arms of social media was the high fees incurred when seeking financial advice. According to the

Financial Planning Association of Australia (FPA), the average initial cost of setting up a financial plan was around $3,300 and then about $4,300 annually to receive ongoing advice which was far beyond the reach of under-25s.

But it did present an opportunity for advisers to demonstrate their value and help give clear information, even if that meant going on social media themselves. It could also present opportunities to target clients of the future.

Stuart Holdsworth, chief executive and director of investment proposition innovation at Financial Simplicity, said: “Fininfluencers have less expertise but they can be influential, it is a challenge to separate the noise.

“There are great opportunities for advisers to become a trusted source now for consumers who feel overwhelmed and don’t know what is right. It is about helping clients to understand and rationalise which is a very important skill.”

Bronwyn Yates, director and head of business solutions at Russell Investments, said: “This is an opportunity to tap into a different market and support financial education. We are already seeing some advisers engaging with clients of the future through education so that they are ready to take advice later. 

“This has been through scaled education programmes or others are on social media where they have their own profile and are building a community as a runway for future client growth.”