How to avoid Dodgy finfluencers and save yourself cash

They may have thousands of followers, have slick social media accounts, and promise to save you money, but be warned - these people aren’t what you think they are.

They’re the financial popstars of social media.

Young, glamorous and seemingly very successful, and give advice on anything from how to buy a house before the age of 25, the best investment opportunities and how to make money from cryptocurrency in short, snappy sound bites.

Some have tens of thousands of followers on TikTok and Instagram.

However, many finfluencers – as they are also known – are unlicensed and are operating in breach of strict Australian Securities and Investments Commission (ASIC) rules.

Some are currently under active investigation, according to the financial regulator.

“Our guidance is designed to make it as clear as possible what is not acceptable conduct,” a spokeswoman for ASIC said.

“And with that, comes the prospect that unacceptable conduct may be sanctioned.”

She said unlawful conduct includes false and misleading behaviour and market manipulation.

Associate Professor of Finance at RMIT University Angel Zhong said following ASIC’s crackdown, some finfluencers have adapted by no longer giving advice about investments, while others have quit their accounts altogether.

However, some unlicensed influencers are still operating.

She added that while ASIC bans finfluencers from making recommendations of financial products and services, cryptocurrency is currently unregulated in Australia and may still be discussed.

She said the other issue was that ASIC only governs Australian based finfluencers.

“When you look at TikTok, Instagram and YouTube, there are a lot of overseas finfluencers that can still affect Australians’ investment decisions,” Ms Zhong said.

She added it was important to also raise awareness among the public about the pitfalls of relying on finfluencers for financial advice.

A survey found that in particular, the younger people are susceptible to being influenced by what they see on social media.

Three fifths of Millenials, those born between 1981 and 1996, who use an investment app, research and learn about investing through social media.

While around a third of Gen X, born between 1965 and 1980, and Gen Z, born between 1997 and 2009, with an investment app, follow at least one finfluencer.

Angel Zhong’s checklist for following finfluencers:

Always check the digital footprint of a finfluencer. Find out his/her background and educational qualifications. Does this person know finance? If someone doesn’t have a finance background, I wouldn’t really trust them. Does this person offer conflicting advice?

Popularity does not equal credibility. The fact that a finfluencer has a large number of followers does not indicate the quality of his/her advice.

Think about the motive of sharing tips with you. Why does someone share investment tips with you for free? A profitable trading strategy will lose its advantage once it is widely known in the market. Treat any recommendation with caution.

Many finfluencers are breaching ASIC rules.

If you see these contents in finfluencers’ posts, consider them as red flags:

1. Specific recommendation of a particular product of stock. In most cases, finfluencers receive commission for making specific recommendations. They make recommendations because they are paid to do so. 2

2. Affiliated links to products or stocks

3.Saying that an investment will give you a guaranteed return

4. Saying that you can get rich very quickly and become a millionaire overnight or retire at the age of 35 as a billionaire. It is possible to make huge returns on an initial investment. But such windfall gains are the exception rather than the rule.

Originally published as How to avoid Dodgy finfluencers and save yourself cash