The rise of finfluencers - what you need to know

The social media landscape is awash with finfluencers - amateur 'financial advisers'. While some are helping to improve financial literacy, it's an area fraught with danger for consumers.

It's hard not to admire Kim Kardashian.

The reality TV star turned social influencer has made a motza flogging everything from cosmetics to body-sculpting underwear.

But even her considerable star power failed to impress the US Securities and Exchange Commission.

Back in 2022, Kardashian was fined $US1.26 million ($1.93 million) for crossing over into 'finfluencer' territory, touting financial products on social media, in this case cryptocurrencies, without making it clear she was paid for the post.

With earnings said to be in the order of $US2 million ($3 million) per post, Kardashian can probably afford to drop a couple of million on a fine.

The trouble is that she is far from alone.

What are finfluencers?

Globally, the number of influencers is stratospheric. Around 64 million people worldwide are classified as 'influencers', flogging ideas or wares to their followers, in return for a fee (or a few freebies) from the companies whose products they promote.

Across the largely unregulated social media landscape, it may be harmless enough to promote hair styles, cosmetics or recipes. But it's a very different matter for people with zero financial qualifications to dole out money advice.

Yet that's exactly what finfluencers do, using social media as a platform for financial tips that can range from the sensible to the bizarre.

Do finfluencers have to be licensed?

Fortunately for consumers, Australia is an outlier in the finfluencer world. In 2022, our financial watchdog ASIC mandated that anyone touting personal finance advice on social media must be covered by an Australian financial services licence (AFSL).

Finfluencers who ignore the rules can end up behind bars, and we're not talking about the sort that serve cheap cocktails at happy hour.

Phil Anderson, general manager of policy, advocacy and standards at the Financial Advice Association Australia (FAAA), says an AFSL is an essential part of the overall financial services regime "to ensure that consumer protections exist and that companies and individuals are held to account by the Australian financial services regulator and the courts".

ASIC may have set the cat among the pigeons by requiring finfluencers to operate under an AFSL, but there is nothing new about requiring a licence to give financial advice.

Nonetheless, Vince Scully, a financial services veteran and co-founder and CEO of online financial planner Life Sherpa, believes our licensing laws are a step forward.

"Australia is the only developed jurisdiction with the requirement for finfluencers to be licensed, and that has to be a good thing for consumers."

A key factor behind ASIC's requirement for finfluencers to be licensed is the sheer scale - and nature - of their followers.

How many Aussies follow finfluencers?

A survey by the regulator in 2021 found one in three 18-to 21-year-olds follows at least one financial influencer. Two-thirds of young people reported changing at least one of their financial behaviours as a result of following a finfluencer.

Those numbers haven't changed much in the intervening three years.

Research by the comparison site Finder shows that 30% of Australians still turn to social media for financial guidance, with most looking for tips on simple matters, such as how to save, budget and trim spending.

What is considered financial advice?

Even so, Anderson says it is easy for a finfluencer to get caught within ASIC's regime.

To clarify, if there is no mention of a product or class of products (such as superannuation or shares), financial advice is not being provided.

However, the legal definition of financial advice includes 'a class of financial product'.

On this basis, offering tips about reducing spending to enable salary sacrificing into super, even without mentioning a specific product, would be regarded as financial advice, says Anderson. The upshot, he cautions, is that "unlicensed finfluencers need to be very careful".

Are finfluencers promoting financial literacy?

Anderson acknowledges that finfluencers can have a positive influence as long as they stick to financial education.

"The level of financial literacy in Australia is generally low," he says. "So knowledgeable finfluencers can help people think about their situation."

Some licensed advice firms also recognise the benefits that a finfluencer can provide.

"We felt the need to licence a number of influencers long before ASIC mandated this," says Scully. "We started out licensing Glen James [My Millennial Money, now called This Is Money], and after ASIC's crackdown we were approached by a number of other finfluencers."

Today, Life Sherpa has a network of content creators that includes Victoria Devine (She's on the Money), Queenie Tan (Invest with Queenie), Betsy Westcott (Inner Money Journey) and Phil Muscatello (Shares for Beginners)."

Scully says part of his firm's motivation is that finfluencers can give more Australians access to financial education. But there is a commercial benefit, too.

"It's also a business venture for Life Sherpa as there is cross-pollination between our member base and influencers."

Scully says Life Sherpa collaborates with its stable of finfluencers on content, noting that "as the licensee, we have a right of veto".

Content is managed through a combination of education and supervision while trying not to interfere with the creative process.

"A number of our finfluencers, including Glen James and Victoria Devine, come from a financial services background, which makes compliance easier," says Scully. "For those who don't, such as Queenie Tan, we provide a good grounding in compliance."

Despite ASIC's mandate for licensing, the social media swamp has not been drained.

"It is not evident to us that the number of unlicensed operators has declined," says Anderson.

Part of the problem lies in the way social media platforms work - and the fact that all of us can access posts from finfluencers based in other countries that don't impose licensing requirements.

Why is your feed suddenly full of influencers?

Sydney-based tertiary student Nicolas Michaels has followed finfluencers in the past to learn more about investing. The issue, as he sees it, is that viewing one personal finance post can mean being inundated by a whole lot more.

"The algorithms used by social media platforms are designed to serve up content they think a user will like," says Michaels. "So, each time I watch a TikTok video about investing, my feed is quickly dominated by more of the same. And it's hard to sort the good from the bad."

It's a problem without an easy solution. Vince Scully says the UK's Financial Conduct Authority is close to introducing similar licensing requirements to ASIC's.

But, he says, "a lot of content is US-centric, and the sheer volume of resources that regulators would need to stamp out unlicensed advice on social media altogether makes it unlikely this will happen".

How much money do finfluencers make?

One thing is certain. Overseas-based finfluencers may be doling out questionable advice but that doesn't stop them raking in big money.

US-based Humphrey Tang has an astonishing 54 million followers, likes and subscribers across social media.

It's easy to see why he's popular with posts titled 'How to go from $0 to $100,000+ in 2024'.

Also based in the US, Tori Dunlap has more than 26 million followers, likes and subscribers. Her videos come with titles that include 'How I saved $100k at 25' and 'How to invest like a millionaire' (in this video Dunlap introduces herself by saying 'Hi, I'm a multi-millionaire...').

It makes the posts of licensed Aussie finfluencers look tame in comparison, and it's a no-brainer that posts promising a road to riches attract attention.

"It's a lot easier to get views for posts spruiking 'how to get rich quick' than those that explain basic budgeting techniques," says Scully.

For the record, Scully singles out Reddit as "probably one of the worst platforms for financial misinformation".

Why are people turning to finfluencers?

As our financial lives become more complex, there is a strong need for financial education.

A survey by Allianz in 2023 found more than a third of young Australians don't feel confident with their knowledge of financial literacy and 29% are embarrassed by their lack of money knowledge.

On the flipside, the high cost of face-to-face advice, currently averaging $4250 annually, is beyond the means of many Australians - young or old.

"Most Australians do not have sufficient knowledge to make major financial decisions without access to support and advice," says Anderson.

Financial education should start when people are young.

"Australians should not wait until they are ready to retire to find out about financial products and financial markets. As a country, we can do so much better."

Finder's money expert Taylor Blackburn says finance creators are helping to improve financial literacy in Australia.

"From tips on how to save money at the checkout, to how to get out of credit card debt, social media may provide individuals with knowledge that was once out of their reach, empowering them to improve their financial future."

With so many money personalities popping up online, it is critical to be able to know who's the real deal.

"What applies to one person may not apply to another, so it's important to check the experience and qualifications of people who supply financial advice on social media," adds Blackburn.

How to check if a finfluencer is legitimate

Life Sherpa's Vince Scully recommends looking at four key aspects of a social media post to work out if the advice is legitimate:

1. Is it Australian content? 

If the influencer is based in Australia, they are required by law to be licensed.

2. Is the person licensed?

This is easy enough to spot. Head to the influencer's web page. Scroll down to the bottom of the home page, where it should state that the influencer is an 'authorised representative' of a licensed advice firm, with the AFSL number clearly displayed.

3. Who is paying for the post? 

Scully says sponsored posts or posts that mention specific products should at least raise an amber flag for followers.

4. Is the influencer operating under a pseudonym? 

If you can't work out the influencer's real name, this should be an immediate red flag. If their true identify isn't revealed, chances are they have nothing to lose from flogging dodgy advice.

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