Fighting fake advice and ‘finfluencers’, ASIC will have to move fast

The regulator has moved late and now must score convincing public victories in its plans to tame social media’s ‘fininfluencer’ sector.

Whatever the faults of licensed and qualified advisers they are, at the very least, carrying some formal training.

A promised clampdown on so-called “fininfluencers” from the financial service regulator ASIC comes much too late to halt the exodus of qualified advisers from the industry. ASIC will now need to register some clear public victories — most likely in the courts — before its latest threats to bring these social media promoters to account are taken seriously.

The regulator is moving in the right direction in trying to protect younger investors who have flooded into the market since the Covid-19 crash, many of these investors may now facing substantial losses after the technology sector sell-off: the ASX 200 is down 4 per cent year to date, the All Tech index is down by 15 per cent.

Some might argue younger investors need to learn the hard way: Certainly there is a point at which people cannot be protected from themselves. But the unregulated power of such “fininfluencers” is unprecedented, at its worst it constitutes fake advice.

In common with traditional advisers many fininfluencers are to be welcomed as educators. However, many others in the game regularly shock with the sheer bravado they display to even present themselves as relevant.

Some of the most objectionable influencers are to be found on forums such as Tik Tok, where someone like Ryan Feller of Oklahoma City caught widespread attention when he offered a “sneak peek” at a “top secret trading strategy”. Feller explained how he turned $US400 into $14,000 in a month.

“I see a stock going up and I buy it — and I just watch it until it stops going up — and then I sell it and I do that over and over ….and it pays for my whole lifestyle,” Feller blithely told the world last year. Needless to say, such “strategies” will only work only in a rip roaring bull market and at that only for a short while.

Feller has so far attracted more than 3,000 “likes” on TikTok to that particular video presumably from novice investors who know even less than he does.

A recent Australian industry survey found that social media exchanges such as TikTok and Reddit are a top priority for younger investors .

Locally, the best fininfluencers will make sure they publicly support the ASIC move. Already leading names such as Glen James of My Millennial Money has praised the move, but then again James is not just a qualified adviser but a former state director at the Association of Financial Advisers. The operators ASIC have in their sights are unlikely to be publicly welcoming regulation.

Whatever the faults of licensed and qualified advisers they are, at the very least, carrying some formal training such as security advisers examinations when they move to offer financial advice to the uninitiated. What’s more they are bound by law to honour a string of obligations such as best interests duty which are nowhere to be seen for social media figures.

Yet these same advisers have been pushed from pillar to post in recent times with an endless series of inquiries and reviews. Just this week a jaded public — and even more weary financial advice sector — saw the commencement of a new “quality of advice” review to be led by Michelle Levy of lawyers Allens Linklaters. The review has received scant attention due to review fatigue. The most notable review in recent years has been the Hayne royal commission, which actually recommended the “quality of advice review”. Mind you, it also recommended an overhaul of mortgage broking practices which has never come to pass.

In reality most investors are sandwiched between “off the shelf” low cost roboadvice offerings and upscale financial advice which costs $3000-$4,000 a year.

The best way forward is enable financial advice to be cheaper and ideally offer “bite sized” advice so consumers can pay for what they want and only what they want. Such a change could bring more advisers back into the sector and ultimately reduce costs through new competition.