Speaking at the Stockbrokers and Financial Advisers Association Conference this week, minister for financial services Jane Hume noted the rise of TikTok influencers spruiking stock tips and crypto assets.
The global reach of individuals on social media and the ability for consumers to invest instantly through online platforms could prove concerning for those in the investment industry, but ultimately the minister believes it all is key to “removing the friction makes the economy far more productive”.
“With lower costs and easier access, retail investors with limited technical knowledge and experience will continue to enter financial markets,” Ms Hume said.
“Now, sometimes, they may make bad investment decisions. And they may sell at the first sign of losses, speculative bubbles – and doesn’t matter whether it’s in tulips or in equities – [they] do correct themselves in time. While it’s frustrating for investment professionals to watch, at some point, we have to let people make their own decisions.
“We have to back Australians to be sensible enough to judge for themselves, where and whether to put their hard earned money into high risk assets.”
But RMIT senior lecturer in finance Angel Zhong has countered Ms Hume’s allowance for investing influencers with concerns.
In Australia, giving financial advice without a licence is illegal, with penalties ranging from up to five years’ imprisonment to fines up to around $133,200.
“Hume said an influencer giving financial advice is similar to the bloke down at the pub who wants to tell you all about the really great company he just invested in, but just louder. But they’re actually not similar – social media influencers are able to reach a significantly larger audience,” Dr Zhong said.
“The bloke at the pub does not make profits from telling you about the great company he just invested in. On the contrary, social media influencers generate income based on the views of their contents. There is also a possibility that the influencer has a vested interest in the company, ETF or other investment products that they recommend.”
Further, Dr Zhong warned social media influencers have encouraged risky behaviour, such as day trading and get-rich-quick schemes.
“Many videos and posts have also been encouraging investors to borrow money to invest in cryptocurrency, which suffered a huge loss in the recent crypto crash,” she said.
Michael Duffy, director of Corporate Law, Organisation and Litigation Research Group at Monash University added the recent falls in bitcoin convey looming challenges for governments and regulators.
“Legal regulation of digital currency as an investment product is beset by uncertainties, yet digital currencies come with considerable investment risk – given that they are not linked to underlying assets,” Dr Duffy said.
“Their value is based on confidence in the currency itself, ultimately as a means of exchange. That confidence can be highly variable.”
Ms Hume also commented that while cryptocurrency is a volatile asset, she expects it will grow in significance for Australia’s economy.
There are now more than 4,000 cryptocurrencies in existence.
“Cryptocurrency is not a fad. It’s an asset class that’s going to grow in importance. Participants in financial markets, including advisers and stockbrokers, are now beginning to venture into cryptocurrency in response to client interest,” Ms Hume said.
“But I want to say to Australian consumers that if you want to invest in Dogecoin, I’m not going to stand in your way. Personal opportunity and personal responsibility are two sides of the same coin.
“We have safety nets to catch people when they fall, but we will not stop them from having a crack at climbing the mountain. To create a society that is innovative, forward looking, and constantly improving we must allow people to take risks.”
