Elan Bension of Global Prime said investors should do their research before following social media trends and consider finding an experienced trading mentor.
“We strongly encourage anyone interested in trading or investing to study the psychology behind it first, and make sure that they are fully in control of their impulses,” Mr Bension said. “It’s information overload online when it comes to finding a strategy to trade with.”
Ban on paid testimonials
The research comes as the Australian Securities and Investments Commission is expected this week to escalate its crackdown on personal finance influencers – or “finfluencers” – providing unlicensed investment advice or promoting investment scams online.
ASIC sources said the phenomenon of “social trading” had worsened since the watchdog warned in 2020 that online investing forums were fuelling risky speculation and herd mentality in financial markets.
Chris Brycki, a member of ASIC’s digital finance advisory committee and founder of investment advice fintech Stockspot, has called for the government to introduce new regulations governing unlicensed promotion of financial products online.
“While there are certainly many influencers with sensible investing views, there’s currently no fiduciary or legal responsibility to provide independent advice or meet a ‘best interests’ duty,” Mr Brycki told The Australian Financial Review.
“We’ll be recommending ASIC take the approach that the Therapeutic Goods Administration has recently taken on health influencers to protect consumers.”
The TGA, Australia’s medicines regulator, in January released guidance for social media influencers, effectively banning them from providing “testimonials” for health products if they have been paid or received a gift.
Health influencers can still endorse products but only alongside clear disclosures such as using the hashtags like #ad and #gifted.
“We think this is an important step forward to promote transparency and remove conflicts of interest,” Mr Brycki said. “We feel [similar] rules should apply to finance influencers.”
Under Australian law, only licensed financial advisers can recommend financial products such as shares in a company or units in a managed fund to other people. But giving advice online is a grey space because influencers may be able to rely on a longstanding exemption for media commentators.
Mr Brycki criticised the soon-to-be-launched Pearler Exchange platform, which will reward finfluencers for posting quality content in a social media forum.
The initiative, launched by Millennial-focused neo-broker Pearler and revealed by the Financial Review last week, would allow verified social media users to answer investing questions from peers, while prohibiting answers from anonymous users.
“This could have significant negative consequences for consumers – it would be the equivalent of an online forum for unqualified health professionals to provide medical tips and advice and get paid for it based on the popularity of that advice,” Mr Brycki said.
‘No support or protection’
Pearler has defended its attempt at a “safer” investing forum than the controversial and mostly anonymous threads prevalent on Reddit.
“True to our brand culture, we will proactively moderate mentions of any product or security as ‘not advice’, proactively moderating aggressive behaviour, to start, and learn from there,” said Pearler founder Nick Nicolaides. “The internet is a big place and we can only look after our patch.”
He hit back at suggestions that professional investment advice was necessarily safer for consumers, pointing to conflicts of interest between fund managers and advisers, such as big-ticket conference sponsorships and advertising arrangements.
But the Financial Planning Association has warned that any investors seeking advice from an unlicensed influencer would forgo protections such as the right to complain to an external dispute resolution body.
FPA chief executive Sarah Abood said: “There is an argument that finfluencers and the like are helpful for those who are just starting to engage with their finances but aren’t yet ready to get professional financial advice.
“However, the solution to this shouldn’t be unqualified, non-regulated advisers. There is no support or protection for those who follow unregulated, unprofessional advice.”