Finfluencer usage drops on back of ASIC crackdown

Good news for financial advisers, the number of people turning to social media and finfluencers has decreased in the past year, according to HSBC.

The bank’s Investor Insight study of over 1,000 Australian investors found the number of people seeking investment advice from social media has fallen from 19 per cent last year to 13 per cent. 

This is particularly dramatic for investors in the Gen Z demographic, where it fell by 45 per cent from 37 per cent in 2022 to 20 per cent this year.

For millennials, it has fallen from 26 per cent to 19 per cent. 

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The most popular sources of investment information are market research/industry reports at 36 per cent, company reports at 33 per cent and financial advisers at 31 per cent. 

There has been a recent crackdown on finfluencers, with ASIC stating last year that finfluencers now need to have an Australian Financial Services licence (AFSL) if they want to carry on a business providing financial advice.

“If you carry on a business of providing financial services, you must hold an AFS licence (unless you are exempt or are authorised to provide those services as a representative of another person who holds an AFS licence). Otherwise, you may be in breach of the licensing requirements under the law,” it said in a 2022 update.

ASIC also has notes for firms that use finfluencers, reminding them to do their due diligence on the individuals, put in place appropriate risk management systems, have sufficient compliance resources to monitor the finfluencer, and ensure they only promote products to the firm’s target market as laid out in the target market determination.

ASIC has also taken legal action against finfluencer Gabriel Govinda for market manipulation and finfluencer conduct, who was sentenced to two and half years’ imprisonment, and against Tyson Scholz for providing financial advice without a licence. 

Between September 2014 to July 2015, Govinda used 13 different share trading accounts, held in the names of friends and relatives, to manipulate the share price of 20 different listed stocks.

He also illegally disseminated information about his wash trades and dummy bids on HotCopper. He was seeking to increase (or pump) the share price, then selling (or dumping) the listed stocks at a higher price.

Meanwhile, Scholz received a permanent injunction from the Federal Court for offering paying subscribers various levels of share trading training.

A report at the end of March 2023 from the International Organisation of Securities Commissions (IOSCO) titled, Retail Market Conduct Task Force, called for greater international collaboration to tackle finfluencing.

It noted inappropriate online marketing and finfluencer activity exacerbated retail conduct issues and vulnerabilities. They were also identified as a “driving force” behind crypto and tech-based scams.