Less consumer protection against ‘finfluencers’ under proposed changes to financial advice, consumer groups warn

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Consumers would lose protection against dubious advice dished out on social media by a burgeoning industry of “finfluencers” if proposed changes to financial advice laws are introduced, consumer groups warn.

Financial advertisements, webinars, newsletters and property investment seminars would also boom if the government accepts a Treasury review proposal to stop licensing providers of “general advice” as a financial service.

The review was recommended by the Hayne banking royal commission and is looking at measures to improve the affordability, accessibility and quality of financial advice.

Consumer groups say the proposal is “imprudent” as it would diminish the corporate regulator’s power over who can recommend financial products.

“The general advice framework is one of the key tools that ASIC has to regulate and rein in the
growth of finfluencers. Finfluencers operate on the margins of the advice framework and the industry’s popularity has surged on social media,” reads a submission to the review from CHOICE, the Consumer Action Law Centre, Financial Rights Legal Centre and Financial Counselling Australia.

“As consumers face increasing risks through instability in global equities markets and the
promotion of cryptocurrencies as alternative investments, it would be imprudent to remove one
of the key protections that allows ASIC to control who can make product recommendations.”

The Australian Securities and Investments Commission this year warned “finfluencers” – social media influencers, often with large followings, who focus on money matters – about their legal obligations. Under current laws, financial product advisers must hold a licence or face hefty penalties.

Allens partner and financial services law expert Michelle Levy, who is leading the review, released a paper last month outlining the changes she is considering to financial advice regulations. It included a proposal to stop regulating “general advice” as a financial service after widespread complaints and consumers’ lack of understanding about the term.

Under her proposal, general advice – where providers can recommend financial products without taking an individual’s personal circumstances into account – would remain subject to consumer protections provisions, such as laws against misleading or deceptive conduct.

But consumer groups say the proposal would remove some important consumer protections, including the licensing requirement for those providing general advice and consumer access to the Australian Financial Complaints Authority.

CHOICE chief Alan Kirkland said licensing was a powerful tool for ASIC when trying to rein in the burgeoning finfluencer sector.

“The licence itself brings a lot of extra protections if someone loses money through bad advice,” he said. “The requirement to have a licence means ASIC is able to stop unlicensed people making recommendations that millions might follow.”

Kirkland noted ASIC could still take action if a finfluencer said something misleading or deceptive, but it was “a pretty weak protection to rely on when people have the risk of losing all their retirement savings”.

The Financial Planning Association, which has welcomed the review proposals, said it was concerned about situations where, under current definitions, personal advice was being disclaimed by some as general advice, and general advice was being provided as “information”.

“Consumers have never understood what general advice is, and the consumer protections around it have largely failed over the last 20 years,” a spokeswoman said.

“Ensuring a way of making it clear that, when you know something about the client, it is advice, offers much better consumer protection than the current grey spectrum of a regime.”

The Financial Planning Association said regulators had many tools to “protect consumers from dodgy product manufacturers and the FPA has long called for them to use the powers the government has given to them”.

The financial planning industry has broadly welcomed the proposals for attempting to reduce red tape.

One of the other major changes suggested by Levy is a proposal to create an obligation for financial advisers to provide “good advice”, which would replace four current obligations, including the best-interest duty.

She said this would focus attention on the consumer and the quality of the advice, rather than the provider and process for formulating the advice.

The Financial Services Council said Levy had listened to stakeholders and got the balance right between protecting consumers and finding ways to make financial advice more affordable and accessible.

But Kirkland said the more they read the paper in detail, the more concerned they had become.

“There are some really significant proposals in there that don’t seem to have been properly thought through,” he said.

The review, is due to report to government by December.

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