The Financial Markets Authority (FMA) recently came out with some guidance for 'finfluencers' around how to talk about money online.
More and more people are talking about money on social media - and that in itself isn't a bad thing! We're all for people discussing money matters and making the topic of personal finance less taboo.
However, sometimes conversations can cross the line into the territory of financial advice, and in New Zealand, you're required to have a license to offer financial advice to people.
So what does this mean for you?
We’ve got some tips on what to look out for when you’re online, and how to make sure you know what information you’re accessing and what to do with it.
To do this, we enlisted the help of Louise Nicholson, Director of External Communications and Investor Capability at the FMA. The FMA monitors and supervises financial service providers to make sure they comply with the law. Louise helped draft the guidance for finfluencers, so she's one of the best people to talk to about this topic.
Here's what she had to say.
We're all familiar with influencers - social media personalities with large followings who are known for promoting products and services on various platforms.
'Finfluencers' are a specific type of influencer who focus on money-related topics.
"The key is that you have a substantial number of followers or a following online and that you’re talking about money and investing. It's a combination of those two things", says Louise.
These could be people who talk about their personal journeys to buying their first home, getting rid of debt, or reaching some other financial goal. They might be on their own journey towards financial wellbeing and encouraging others to do the same.
There may also be social media influencers who normally share content about completely different topics, but decide to start talking about investing.
There's nothing wrong with talking about money - in fact, it's really important. "We’re not trying to stop people talking about investing and money online, but there are some boundaries", clarifies Louise.
There's been a huge increase in the number of people investing, particularly in newer products such as micro-investing platforms and even cryptocurrency.
Our research into micro-investing and technology in New Zealand revealed nearly 40% of Kiwis over 18 currently use, have used, or plan to use micro-investing platforms (e.g. Sharesies, Hatch and Stake).
The FMA's 2021 Investor Confidence Survey also indicated that more New Zealanders are now investing in shares, particularly through these online investing platforms.
"More New Zealanders are investing now, and they’re accessing information being provided by a whole range of people," acknowledges Louise.
As a result, some social media influencers may blur the lines between financial advice that is regulated (for example giving advice about investing in the shares of a particular company) and a general opinion that is not (for example, sharing a view about shares as an investment more generally).
"Most of those people who are out there providing general information and tips on stocks would not be categorised as a financial adviser or financial advice provider in the NZ marketplace and regulated by the FMA."
But that doesn't mean that 'finfluencers' are malicious scammers trying to rip you off.
Most of the time, "they’re well-intentioned, and they’re new to this, they’ve become enthusiastic investors recently. Because they’re loving what they’re doing they’ve become evangelists and just need to know the bounds."
Louise finds it promising that most Kiwi 'finfluencers' have welcomed the FMA's guidance and asked a lot of questions about what they are and aren't allowed to do, and she's quick to clarify that this guidance isn't about cracking down on 'finfluencers'; it's about making sure people know the boundaries.
On social media, anyone can post a video talking about a topic and profess to be an expert. However, if you're after financial advice, it's best to get it from someone who is authorised and qualified to provide it to you.
"There’s not a problem with someone talking about shares and stocks and investing online, and we wouldn’t want to try and stop people from doing that," Louise points out. "Our concern is where we see potential harm."
"At the most extreme end, our concerns are around someone giving advice when they're not qualified to, because they might cause harm to somebody if they follow that advice and lose a lot of money."
"There's also the potential for them to verge into the territory of market manipulation and insider trading."
Here are some general tips for navigating the world of money on social media:
1. Don't base your financial decisions solely on social media conversations
You have likely had discussions about finances at some point in your life, whether with your family, friends or colleagues. As more people begin to talk about this topic, it is, although still quite taboo, certainly becoming more common.
You might take on board what they say, but you wouldn't (or at least you shouldn't!) invest in a company or buy something purely on the basis of what one person recommends without doing your own research or talking to an expert.
The same thing applies to what you hear from a social media influencer, or 'finfluencer'.
"Be really careful if you're making a decision based on a discussion in social media," says Louise.
If you're reading a post or watching a video a 'finfluencer' has made about what they personally do with their money, and it makes you consider your own choices, that's fine. But before making any decision, do your own research or consult a professional adviser so that your decision is informed.
2. Listen to the language being used
Some 'finfluencers' might provide a disclaimer of sorts up front or at the end of their video, podcast or post that clarifies that they are not a financial adviser. This is helpful, as it tells you the information they're providing is just their own opinion and not financial advice.
Sometimes, however, it will be unclear.
A good way to tell is by the language that is being used. If a 'finfluencer' is talking about what they have decided to do with their money, that's just their opinion.
However, "once someone gets into the realm of 'you should absolutely be investing in this stock', then that would be in the category of financial advice."
In this instance, the financial advice may be regulated, which would mean they're not actually allowed to be talking in this way unless they're qualified and authorised to.
3. Don't take advice from someone who isn't aware of your personal situation
Any decision around your finances is unique to you. You will have different needs and goals to your family members, colleagues, or your best friend.
Therefore, Louise says that if a social media influencer is offering advice on what particular stock or product you should be putting your money into, "they should take account of your financial situation and your needs."
Someone who tells every single one of their thousands of followers to invest in cryptocurrency is not taking into account each of their followers' needs, and should therefore be taken with great caution.
It's perfectly okay to continue to listen, read and watch information about money online, as long as you are aware of the risks and ensure you make careful, informed decisions.
But where should you be turning if you're after specific advice on what to do with your money?
"A good place to start would be the FMA website," says Louise, "where they provide suggestions for reputable sources for information."
We've also got a list of some helpful money resources that you can use as a starting point.
What about if you're interested in getting into investing, and want to know which companies you should put your money into?
"If you are interested in investing in a company, go to the source," says Louise.
"Look at a company’s website, their annual reports, their profit statements and any kind of market announcements they’ve made. Do your own due diligence that way."
In a nutshell? Do your own homework, just as you would when making any other big decision.
Our research also indicates that those who seek professional financial advice are better off, and that there are many benefits of enlisting the help of an expert.
A financial adviser, regulated by the FMA, can assist you in deciding where you should put your money and how you can manage it better. They are professionals who can take a look at your individual situation and make recommendations that are based on your financial goals, life stage and needs.
Here is some helpful advice on where to go to get help with your finances.
The online world is a fantastic space for accessing information, however there are some things to be wary of. Be careful when you're navigating social media and online resources and make sure you do your own research or enlist the help of an expert when making any financial decisions.
Best of luck out there!
You can read the FMA's guidance for 'finfluencers' here.
This information is general information only. It is not intended to constitute financial advice and does not take your individual circumstances and financial situation into account. We encourage you to seek assistance from a trusted financial adviser or other professional advice. The links that are provided or names of third parties are additional resources that you access at your own risk and the FSC takes no responsibility for any third party content. The FSC and its employees make no express or implied representations or give any warranties regarding this information and we accept no responsibility for any loss, damage, cost, or expense (whether direct or indirect) incurred by you as a result of any error, omission, or misrepresentation in this information. 20 July 2021.