Regulators Target Viral Finance Advice: The Future of Finfluencers in Australia
There is a new term that is making Australian lawmakers concerned: Finfluencers.
Finfluencers are financial influencers. The problem they create is that most financial advisors are extremely careful about the kinds of advice they give because their organization is governed by laws that regulate how advice is given so it doesn’t pressure customers into debt by advising them to buy stocks doomed to fail.
The problem with social media is that they do not belong to organizations as they are self-employed, meaning these regulations don’t apply to them. But they can be just as dangerous with their advice, if not more, as it is often not clear whether they have an agenda.
This article explores finfluencers in Australia and what the government is planning to do about them.
The Rise of Finfluencers in Australia
Finfluencers are like influencers who focus on giving out information on financial matters like stocks, what to invest in and how to make money fast. They are completely separate from licensed financial advisors who are regulated by their government because finfluencers face no legal limits on the advice they give to their users.
The popularity of finfluencers exploded during COVID-19 because of the economic uncertainty and lockdowns keeping everyone bored indoors and wanting to set up a new lifestyle.
One of the causes for concern is that this type of influencer is engaging with young people and may be offering unhelpful, potentially exploitative advice to get rich themselves from the lack of information of others.
Why Regulators Are Concerned
There are many risks associated with finfluencers. These risks stem from the fact that these individuals are not regulated and appeal to young people with limited life experience and financial knowledge.
The risks include:
Misinformation
Finfluencers may spread incorrect financial advice, leading to confusion, poor decisions, and harm to inexperienced investors.
Unrealistic promises
They often exaggerate returns or downplay risks, creating false expectations that mislead consumers into dangerous investments.
Potential consumer losses
Followers might suffer financial setbacks, losing savings or investments, by trusting unverified influencer tips without safeguards.
One of the most famous examples of this was when Melbourne-based trader Gabriel Govinda, online alias “Fibonarchery,” orchestrated a calculated share-price manipulation strategy—a classic pump-and-dump. He used social media and trading forums to lure followers and take their money, knowing they would not see a return.
The Regulatory Crackdown
Australian authorities are not sitting pretty while finfluencers are fleecing thousands of young people. The Australian Securities and Investments Commission (ASIC) has created guidelines on social media finance content.
These guidelines explain that there will be penalties for breaking the guidelines, such as a maximum of five years’ imprisonment for individuals and corporate fines of millions of dollars.
However, the ASIC is trying to avoid being heavy-handed in their approach and instead show they have a balanced response to finfluencers. Because of the complexities of free speech, they are trying to weigh the right to expression against financial safeguards by treating every case with detailed scrutiny.
Consumer Response and Public Opinion
There are mixed reactions from the public on these changes. Many Australians appreciate the oversight that the ASIC provides in giving protection to social media users, but others have serious concerns over censorship that may result from these new regulations.
As a result, social media advice is likely to change drastically, which is likely what the ASIC intended, in order to prioritise financial safeguards for individuals over freedom of expression. The trust in social media financial advice is likely to improve as a result, as users know that finfluencers will face harsh penalties for consciously exploiting users through subpar guidance.
Financial literacy campaigns have also begun to help young people as a way of supporting education alongside the new regulation, and help young and older people make better social-media-motivated financial decisions.
Lessons for Enterprises: The AI Connection
There are some parallels between finfluencers and enterprise AI applications in the sense that both are fairly new and require transparency, accountability, licensing, and oversight to protect users from harm caused by misinformation.
Much like finfluencers, AI can offer misleading advice to users, leading to bad financial decisions and financial ruin, as it often hallucinates and can be biased toward certain responses and companies in an invisible way.
One example of the perils of unchecked AI is LLMs in healthcare, as they show how powerful models must be regulated to avoid misinformation, bias, and harmful recommendations that can lead to sometimes fateful decisions.
The answers to finfluencer and enterprise challenges of this nature are more transparency, accountability, and compliance in finance and healthcare to protect consumers.
Conclusion
There are many risks that finfluencers present, such as exploitation of users that can cause financial ruin if unregulated.
However, a regulatory review has now been conducted, resulting in new regulations being implemented across social media for financial advice, accompanied by hefty fines and potential prison time for those who do not comply.
There is also a lesson for enterprises that use AI here: Regulation ensures sustainability and protection for consumers, whether in finance or healthcare.
Even if a technology is new, it’s usually not long until regulations come into place, so for finfluencers and enterprises, it’s essential to offer quality services and advice that favour, not exploit, customers and users.
Pranab Bhandari is an Editor of the Financial Blog “Financebuzz”. Apart from writing informative financial articles for his blog, he is a regular contributor to many national and international publications namely Tweak Your Biz, Growth Rocks ETC.
