Affiliate Marketing

Affiliate marketing for financial products just got harder

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

The business model many use is to recommend shares or EFTs (Exchange Traded Funds); and/or to provide affiliate links to stockbrokers and funds 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 has put finfluencers on notice that they must comply with the law when recommending or giving opinions upon investing in financial products on social media. For ASIC, complying with the law means holding a financial services licence and making sure no misleading information is provided.

They have focused on finfluencers because they are trusted.

According to ASIC Media Release 22-054MR (21 March 2022):

“In 2021, the ASIC young people and money survey found that 33% of 18-21 year olds follow at least one financial influencer on social media. The survey found a further 64% of young people reported changing at least one of their financial behaviours as a result of following a financial influencer.”

ASIC has issued 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 Information Sheet, ASIC’s advice and examples. It is followed by marketing commentary from a marketing consultant, Michael Field.

Issue #1 What is financial product advice?

Financial product advice is a recommendation or a statement of opinion to influence a person to purchase, hold or sell a financial product such as shares or an investment fund. It is not sharing factual information – financial education.

Examples of a recommendation and an opinion:

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

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

Examples of factual information:

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

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

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

Issue #2 Is it a financial service?

A financial service is arranging for someone to buy or sell a financial product. Affiliate marketing links, i.e. sharing a hyperlink for followers to access a platform to trade or transact for investments is a form of financial service called ‘dealing by arranging’. Unlike health influencers, who can provide affiliate links if they disclose that the link is sponsored, finfluencers are not protected by disclosing that the affiliate link is sponsored.

Example and advice on dealing by 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.” [the active involvement in the transaction makes it dealing by arranging]

Example of no dealing by arranging:

“You provide the names and details of Australian Financial Services (“AFS”) licensees that have a platform to trade 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]

Issue #3 Is it misleading advice?

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

Examples of misleading statements:

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

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

Example of a non-misleading statement:

“ETFs offer good diversification across different asset classes, though there are still risks that the market or sector that the ETF tracks will fall in value.”

ASIC’s advice and general comments

Finfluencers need to avoid giving financial product advice when posting content about investing on social media, unless they hold an Australian Financial Services Licence (AFSL) or they are an authorised representative of a licensee (i.e. are properly trained and monitored) or are exempt because they are media commentators or (in some cases) provide a “not financial advice” disclosure.

Holding an AFSL will provide protection in relation to Issues #1 & #2, but not in relation to Issue #3. An AFSL will not protect against giving misleading advice.

If the finfluencer is being paid a commission or sponsorship, they may need to disclose that the post is sponsored content.

Not only must the finfluencer comply with the law, but the financial product provider must ensure that the finfluencer complies with the law. In particular, to make sure that they are not providing 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 Armour warns: ‘ASIC monitors select online financial discussion by influencers who feature or promote financial products for misleading or deceptive representations or unlicensed advice or dealing. If we see harm occurring, we will take action to enforce the law.’

The ‘action to enforce the law’ is a reference to ‘the Corporations Act which imposes significant penalties, including up to five years’ imprisonment for an individual and financial penalties into the millions of dollars for a corporation’.

Marketing Commentary by Michael Field from EvettField Partners

The origins of ‘influencer marketing’ are in traditional advertising celebrity endorsement.

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

The celebrities who engage in these types of product endorsements are often referred to as ‘brand ambassadors’. There is generally no issue with these arrangements, providing the brand ambassador does not make any false or misleading claims about the product.

The relatively new concept of ‘online influencers’ has dramatically changed the landscape for brands and their marketing activities. The rapid adoption of smartphones, coupled with the meteoric rise of social media and the democratisation of the tools required to create content such as low-cost video production and editing tools has changed the definition of influencer to ‘anyone who has a large following online, regardless of their credentials’. This redefinition of influencer based on their following is probably harmless in non-harmful categories such as beauty, cosmetics and fashion. However, it presents a risk of harm to consumers in critical categories such as health, medicine, nutrition and financial advice.

2019 was a tipping point for online advertising expenditure. According to Forbes, advertisers spent $129.34 billion on digital ads vs. $109.48 billion on traditional advertising: including all non-digital options, such as television, magazines and newspapers.

Brands have flocked to online influencers to target consumer interests regardless of the calibre, credentials or qualifications of the spokesperson. This is in stark contrast to older consumers who had a higher regard for authority, the mainstream media, large organisations and the government. Young consumers are much more likely to trust a celebrity – an actor, model or singer than a n authority.

The ASIC research that showed 64% of young people had changed at least one of their financial behaviours after following a financial influencer, is a ringing endorsement for the changes ASIC is implementing. Financial services brands and their marketing teams must heed the warning and review all of their brand ambassador, influencer and sponsorship arrangements to ensure they are compliant with the new guidance.

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