Affiliate marketing for financial products just got harder

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Social media influencers are trusted by Millennials and Gen Z followers. They discuss personal finance and often promote financial products. If so, they engage in affiliate marketing and are called ‘Finfluencers’.

The trading model that many use is to recommend stocks or EFTs (Exchange Traded Funds); and/or provide affiliate links to stockbrokers and fund managers, who pay them a commission for each referral.

The Australian Securities & Investments Commission (“ASIC”) regulates financial products for the protection of the public. ASIC put finfluencers informed that they must comply with the law when recommending or giving advice on investing in financial products on social networks. For ASIC, complying with the law means holding a financial services license and ensuring that no misleading information is provided.

They focused on finfluencers because we trust them.

According to the ASIC press release 22-054MR (March 21, 2022):

“In 2021, ASIC’s Money and Youth Survey found that 33% of 18-21 year olds follow at least one financial influencer on social media. The survey found that 64% of additional young people said they changed at least one of their financial behaviors after following a financial influencer. »

ASIC released Information sheet 269 (INFO 269) which contains guidance advice for social media influencers when discussing financial products and services online or promoting affiliate links.

This article contains a summary of the factsheet, ASIC tips, and examples. It is followed by a marketing commentary from a marketing consultant, Michael Field.

Question #1 What is advice on financial products?

Advice on financial products is A recommendation or a statement of opinion induce a person to buy, hold or sell a financial product such as shares or an investment fund. It’s not about sharing factual information – financial education.

Examples of recommendation and advice:

“I’m going to share with you five long-term stocks that will do well and that you should buy and hold.” [a recommendation]

“ETFs will give you a guaranteed positive return.” [an opinion]

Examples of factual information:

“You can invest by buying shares – that means you are investing in a company…

On the other hand, ETFs can track different asset classes…but the ETF provider holds the shares or assets on behalf of the members of the fund. [educational information]

“You can save money each week by making your own homemade lunches for work, instead of eating out.” [a tip]

Question #2 Is this a financial service?

A financial service causes someone to buy or sell a financial product. Affiliate marketing links, i.e. the sharing of a hyperlink that allows subscribers to access a platform to trade or conduct investment transactions, is a form of financial service called “deal by organizing”. Unlike health influencers, who may provide affiliate links if they reveal the link is sponsored, finfluencers are not protected by disclosing that the affiliate link is sponsored.

Example and advice on the deal by arranging:

“You are promoting a link for your subscribers to access an AFS licensee’s trading platform to trade financial products. This is a unique link that cannot be accessed anywhere else.

You receive payment from the Licensee for each click resulting from the use of the Platform.

People who access the link also have an advantage when purchasing the products because of your unique link. [the active involvement in the transaction makes it dealing by arranging]

Example of no deal by arranging:

“You are providing the names and contact details of Australian Financial Services (“AFS”) licensees who have a platform for trading financial products.” [simply providing the names and details of a third-party platform or financial firm, without being involved in the transaction is not a breach of the law]

Question #3 Is this misleading advice?

Is the overall impression given by the advice statements misleading or misleading? Predictions regarding future return or level of risk must be based on reasonable (substantiated) grounds. Otherwise, predictions can be misleading.

Examples of misleading statements:

“Holding this stock for the long term will generate significant returns and is like depositing your money in a bank! [‘significant returns’ is unsubstantiated, ‘like a bank’ gives a misleading impression of safety]

“Trading this derivative is a risk-free way to make a quick profit on the side – I made $$$$ trading these alone.” [‘risk free’ is unsubstantiated, the $$$$ must be true]

Example of a non-misleading statement:

“ETFs offer good diversification across different asset classes, although there are always risks that the market or sector the ETF is tracking may lose value.”

General ASIC Tips and Comments

Influencers should avoid giving financial product advice when posting investment content on social media, unless they hold an Australian Financial Services License (AFSL) or are an authorized representative of a licensee (i.e. they are properly trained and supervised) or are exempt because they are media commentators or (in some cases) provide “no financial advice”.

Holding an AFSL will provide protection for issues #1 and #2, but not for issue #3. An AFSL will not protect against misleading advice.

If the influencer receives a commission or sponsorship, they may need to disclose that the post is sponsored content.

Not only the influencer comply with the law, but the provider of financial products must ensure that influencer complies with the law. In particular, to ensure that they do not provide unlicensed financial services. And if the financial product has design and distribution obligations, it can only be promoted to consumers in the target market.

ASIC’s approach is to warn finfluencers of the law.

ASIC Commissioner Cathie Armor warns: “ASIC monitors online financial discussions selected by influencers who feature or promote financial products for misleading or deceptive representations or unauthorized advice or transactions.” If we see damage occurring, we will take action to enforce the law.

“Law enforcement action” refers to “corporate law that imposes significant penalties, including up to five years in prison for an individual and multi-million dollar financial penalties for a corporation. “.

Marketing commentary from Michael Field from Partners EvettField

The origins of “influencer marketing” are in the mainstream advertising celebrity endorsement.

For example, a top athlete may be paid by a brand to endorse a breakfast cereal or multivitamin products. In this example, there is a credible correlation between the celebrity’s expertise as an elite athlete and the importance of a healthy, nutritious breakfast or vitamin supplement.

Celebrities who engage in these types of product sponsorships are often called ‘Brand Ambassadors’. There is generally no problem with these arrangements, as long as the brand ambassador does not make any false or misleading statements about the product.

The relatively new concept of ‘online influencers‘ has radically changed the landscape of brands and their marketing activities. The rapid adoption of smartphones, coupled with the meteoric rise of social media and the democratization of the tools necessary for content creation such as low-cost video production and editing tools have changed the definition of influencer to “anyone who has a large following online, regardless of their credentials”. This redefinition of the influencer based on their following is probably harmless in non-harmful categories such as beauty, beauty products and fashion. However, it poses a risk of harm to consumers in critical categories such as health, Medication, nutrition and financial tips.

2019 was a turning point for online ad spend. According to Forbesadvertisers spent $129.34 billion on digital ads versus $109.48 billion on traditional advertising: including all non-digital options, such as TV, magazines and newspapers.

Brands flocked online influencers target the interests of consumers, regardless of the caliber, credentials or qualifications of the spokesperson. This contrasts sharply with older consumers who held higher regard for authority, mainstream media, large organizations and government. Young consumers are much more likely to trust a celebrity – an actor, model or singer than an authority.

ASIC’s research which showed that 64% of young people changed at least one of their financial behaviors after following a financial influencer, is a resounding endorsement of the changes ASIC is implementing. Financial services brands and their marketing teams should heed the warning and review all of their brand ambassador, influencer, and endorsement agreements to ensure they comply with the new guidelines.

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