Finfluencers, referrers and discussing financial products online

In this article, we take a look at the key issues arising when AFS licensees work with referrers and finfluencers to distribute their products or services.

Who are referrers and finfluencers?

Referrers are known by different names, depending in part on the specific industry they’re in and the nature of the relationship – these include affiliates, referral partners and also include social-media influencers (or “finfluencers”) in different forms.

ASIC recently issued Info Sheet 269, setting out its views on finfluencers, their relationship with AFS licensees and their legal obligations.

Further, last year, ASIC noted in its Young People and Money – Survey Snapshot that about a third of 18-21 year olds follow a financial influencer on social media and that 64% of young people reported changing at least one of their financial behaviours as a result!

Legal issues surrounding referrers and finfluencers are therefore more relevant than ever.

How do referrals work?

Referral arrangements take various forms.  For example:

  • some AFS licensees may incentivise referrers to promote their products via different channels, such as social media, video streaming and podcasts;
  • some AFS licensees may use third-party websites or mobile apps to display pop-up or banner ads about their products or services;
  • some AFS licensees engage referrers to display or forward their marketing collateral to consumers.

There are countless other examples.

Regardless of which model an AFS licensee may be using, AFS licensees often set up affiliate/referral links unique to each referrer.  They usually give monetary rewards to the referrers based on successful referrals measured by click-throughs or sign-ups via those unique links.  A key risk in all of these arrangements is that the referrer may be providing a financial service and may not be authorised to do so.

Risks of referrers providing financial product advice

The Corporations Act 2001 requires that a person who carries on a financial services business in Australia must hold an Australian financial services licence, or be a representative of an AFS licensee, unless an exemption applies.  Those financial services include providing financial product advice.

But what constitutes financial product advice?  The Corporations Act 2001 definition states that ‘financial product advice’ means a recommendation or statement of opinion, that is intended to influence a person in making a decision in relation to a particular (or an interest in a particular) financial product or class of financial products, or could reasonably be regarded as being intended to have such an influence.  That’s a very broad definition and further still, the courts have taken a very broad approach when interpreting the definition of financial product advice.

It’s very easy for a finfluencer to cross over into providing financial product advice.  For example, if a finfluencer says that a financial product “provides a great trading experience”, this is likely to constitute financial product advice.

ASIC states their view in Info Sheet 269 that, if the referrer or finfluencer receives benefits or payment for their comments in relation to financial products, they are more likely to be providing financial product advice, as it indicates an intention to influence the audience.

Pop-up or banner ads can also include or constitute financial advice, depending on the context in which they are displayed.

Risks of referrers arranging to deal in financial products

Referrers and licensees also need to consider whether they’re providing a financial service by “arranging” to deal in a financial product.

Arranging refers to the process by which a person may bring into effect, a dealing in a financial product (e.g. an issue, variation, disposal, acquisition or application).  Courts have taken a broad approach when interpreting “arranging” and what is meant by arranging.

Relevantly, ASIC provides an example in Info Sheet 269, in which they believe a finfluencer is likely to be arranging:

You promote a link for your followers to access an AFS licensee’s trading platform to trade financial products. It’s a unique link that can’t be accessed anywhere else. You receive a payment from the licensee for each click-through resulting in use of the platform. People that access the link also receive a benefit when buying the products because of your unique link.

Your products might be set up differently to this, but in summary, no matter what referral arrangements are in place, it is always important for AFS licensees to assess whether their referrers are providing financial services.

You’ll also need to ensure you’ve considered conflicted remuneration laws and what this means for your model.

And once you’ve thought about conflicted remuneration, you’ll also need to consider secret commissions laws.

Monitoring and supervision of referrers

You should take steps to monitor referrers and finfluencers that you have dealings with.

Some key considerations when designing monitoring and supervision policies include:

  • a due diligence process. Consider the following:
    • AFSL authorisations that the referrers have/do not have;
    • the referrers’ credibility, including their track record;
    • the referrers’ communication or distribution channels with end customers;
    • whether the licensees and the referrers’ values align.
  • consider how referrers will comply with design and distribution laws, when distributing your financial products. How will you make sure that finfluencers are only promoting the product to the target market?
  • whether financial product advice is provided by the referrers. If so, is the advice provided on behalf of an AFS licensee?  Have they been appropriately authorised?
  • How will you keep track of referrers, their activities, and the messaging they’re providing to consumers about your products?

Where to from here?

If you’re an AFS licensee and product issuer, chances are you have some existing arrangements in place with affiliates, introducing brokers, finfluencers or other referrers.  Some of those arrangements may have been in place for a very long time.

If you’re trying to have a peek under the bonnet and see what your competitors are doing, it’s probably going to be impossible to know exactly how their model works and whether they’ve taken all of the above into consideration.

So, there is a benefit to taking a step back and having a look at your existing arrangements and giving some thought to how your model works, how it relates to the rest of your business the risks associated with all of this.

If you have any questions on this topic or want to discuss further, speak to our team of financial services lawyers who can assist.

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Authors: Michael Mavromatis (Partner) and Jake Huang (Previously a Lawyer at Holley Nethercote)