Advertising has been with us as long as commerce has. Afterall, if you’re going to sell something you need to let people know about it. Some of the earliest forms of advertising were signs. A sign in a well trafficked area was the best way to capture attention before anyone had the ability to deliver a message to a large number of people. Advertising signs appeared throughout many corners of the ancient world such as Egypt, Rome, Greece, and China.

By the Middle Ages, town criers helped to get announcements and news out to the public. Those with something to sell also saw the value of a loud voice to promote their offerings. Then came the printing press. Books were the first focus, but as the technology advanced, the costs came down. The ability to do bigger print runs in shorter spaces of time opened up the possibilities to deliver more timely information, such as news, which quickly incorporated advertising.

Some of these advertising themes have recurred in the digital age. Initially, the aim was to plaster digital advertising on well trafficked websites, but advertisers found that not many people clicked on those ads. They realised engagement was more important, but it was lacking. This devalued digital advertising and did harm to media companies.

When social media appeared, the average person started to have a voice. They had the ability to be an online town crier for their own cause or someone else’s. It coincided with technology advancing and costs coming down for digital equipment. People soon had cameras in their phone or attached to their computer. Companies realised they could advertise through people who’d acquired large numbers of followers on social media platforms. Their followers were more likely to engage with these more personal ads.

Here the “influencer” was born. Today many people are essentially their own media companies, albeit at the pleasure of platforms such as Facebook, Instagram and Youtube. The influencer can come in many forms, but often they focus on specific areas and then slide in reviews or ads for products related to those areas. When the pandemic struck, and people were stuck inside with government cash, the sharemarket boomed and suddenly every second person became an investing expert. It was here that “finfluencing” took off.

Finfluencing ranged from what might be considered good: talking about budgeting, saving, managed funds and exchange traded funds (ETFs), to the definitely bad: pumping and dumping stocks onto oblivious followers. Good or bad, ASIC put all finfluencers on notice, from the Australian Financial Review in March.

“Our concern is when that information turns to providing advice, and operating a business that is providing advice, without a licence. If someone is providing advice, and they don’t have a licence, we will be looking at taking enforcement action.”

Some finfluencers under close watch are understood to be earning five- or even six-figure salaries from promotional deals with licensed financial firms like sharemarket and foreign exchange brokers or investing platforms or fees from paying subscribers and followers. Under the law, financial advice is defined as any recommendation to purchase financial products such as securities in a listed company or units in a managed fund. Only individuals who are registered with ASIC and hold a financial services licence, or are authorised by a licensee, can provide advice.

A group of finfluencers met with ASIC for a briefing session on what was acceptable, from the AFR April 22:

Multiple attendees told AFR Weekend they were “shocked” by the content of the briefing, especially the suggestion that paid promotions such as sponsored posts or traditional ads could trigger a breach of the law, which states only licensed financial advisers can recommend financial products.

Finfluencers complained ASIC were being heavy handed and had essentially killed their business model. In truth, they didn’t have a business model because they weren’t acting within the legislation. This is something that happens in many areas. People slide in under regulatory guidelines or set up in grey areas and hope the regulators will turn a blind eye, or change the rules to accommodate them. Airbnb and Uber are good examples.

We mentioned the areas that “might be considered good”, this included managed funds and ETFs. Finfluencers certainly considered this good, and while it wasn’t pumping and dumping stocks, it wasn’t good either.

As an example, if you searched Australian finfluencers on youtube, one of the first results was a popular finfluencer reviewing an ASX ETF. Within the video’s first 20 seconds he’d called it “safe” and said it “offers great returns”. Other finfluencers have videos talking about “why you should buy” particular ETFs in 2022. No equity ETFs are safe and the returns they’ve previously posted are historic. Videos on why someone should buy an ETF in a particular year show no understanding that goals and circumstances come before any product selection.

Finfluencers may have mistakenly believed they were educators. In reality, they were reviewing financial products, which is akin to advice in ASIC’s eyes. It’s also something finfluencers do poorly. To engage their viewers they need to use hyped up language that someone licenced to give advice on financial products would avoid. Then there’s the kickbacks from financial product providers. Another historic minefield.

Influencing, at its core, is product centric. It’s why applying it to the financial space doesn’t work. Product pushing has caused nothing but trouble in the financial industry and it was a major reason why there was a Banking Royal Commission in 2018.

It also doesn’t work because finfluencers want to talk about investment funds like they are reviewing shoes, moisturiser, sunglasses, or a flight with Qantas. With these products you could reasonably expect some consistency across the review and product, except maybe the Qantas flight! In contrast, financial products are accompanied by significant risk, and no one knows how they will perform. This risk needs to be at the forefront and it’s more appropriate when assessed at an individual investor level.

Had finfluencers’ focus been solely financial information and education, they could have mined decades of academic research and simply informed investors about data, facts, and what underpins smart investment decisions. This makes individual products irrelevant. Their youtube channels could have eventually been monetised independently of product influence. It’s not as sexy, and probably not as lucrative because it won’t get as many clicks, but the genuine actors will make that pivot. The rest will quickly move on and try to monetise something else – not too dissimilar to banks hightailing it out of financial advice.

We have some sympathy because there is certainly an advice gap. New investors and those who can’t afford financial advice aren’t really getting the service they need. But that gap can’t be filled with product pushing or anything like it.

Shared with permission of our licensee FYG Planners and friends at Mancell Group.

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