Rise Of The “Finfluencers”: When Marketing Becomes Financial Advice
With an 18.8% annual growth in value from 2021 to 2022, it is undeniable that the influencer marketing industry is a growing, profitable industry. In 2021 the industry was valued at $13.8 billion, and by the end of 2022 the industry was valued at $16.4 billion. Thus, it is a powerful industry, and with great power comes even greater responsibility. Unfortunately, responsibility is not always taken.
Financial influencers, also known as “finfluencers”, market financial services, or even share financial advice and insights. The financial advice and insights shared are often related to forex and contract for differences (“CFD”) trading. In South Africa, forex and CFD trading, as well as the authorised brokers, are regulated by the Financial Sector Conduct Authority (“FSCA”). There are a number of legislative instruments administered by the FSCA, one of them being the Financial Advisory and Intermediary Services Act, No. 37 of 2002 (“FAIS”).
The FAIS Act regulates the rendering of certain financial advisory and intermediary services to clients. The Act provides that only authorised financial service providers, or appointed representatives of authorised financial service providers, are allowed to carry on business by rendering financial services to clients.
In terms of Section 1 of FAIS, “financial service provider” means any person, other than a representative, who as a regular feature of the business of such person, furnishes advice, and/or renders an intermediary service. In turn, “advice” means any recommendation, guidance or proposal of a financial nature furnished to a client in respect of the purchase of, or investment in any financial product, or on the conclusion of any other transaction in respect of any financial product.
Furthermore, Section 36 of the FAIS Act sets out offences and penalties regarding violations of the Act. Violations of certain provisions could potentially lead to civil, or even criminal charges. A person found guilty of an offence in terms of the Act will upon conviction be liable to a fine not exceeding R 10 million, or imprisonment for a period not exceeding 10 years, or both such fine and such imprisonment.
Finfluencers need to exercise great caution in financial marketing. Their marketing must be structured in such a way that it does not meet the definition of advice, nor that they misrepresent to be authorised financial service providers. As soon as the Rubicon is crossed from marketing to financial advice, it could have potentially detrimental financial consequences for the consumer, and even worse consequences for the finfluencer.
For legal advice relating to financial advisory or intermediary service matters, contact Hanekom Attorneys Inc. at firstname.lastname@example.org for a consultation.