Will Finfluencers Be Prosecuted?

Dutch regulator AFM published their research report a few months ago stating:

· Finfluencers make investing more accessible, however the interests of their followers is not always a priority

· There are few neutral followers and transparency is often lacking

· Risk of investment advice without permit is around the corner

· Sometimes risky investments are recommended

In the past 2 years we have published several times about the flight to return mostly caused by a combination of lack of interest on your Dutch savings account and wealth tax based on an assumed higher return than you actually get. Especially in 2020 this was exacerbated from June onwards as lockdowns prevented money being spent on leasure so much of excess cash was diverted into home improvement and investing. This phenomenon was not exclusive for the Netherlands; it happened almost everywhere.

In parallel social media interactions exploded. This also boosted entrepreneurial activity. Social media influencers tested areas not restricted to lifestyle demonstrations and advice. One area concerns investments.

In the first 12 months from May 2020 the only way was up on many stock exchanges. You really had to be unlucky to pick the wrong horse. So if an influencer said he or she made a really good return on investment soandso it was probably right (almost all winners around). But this fuelled both credibility and interest; two mutually reinforcing emotions as we all know. The compliments from followers having achieved the same create the feeling there is more wisdom to be spread. Free for those wanting to take it.

In the Netherlands advising a specific investment product is restricted to qualified professionals. Qualification is randomly checked by AFM. Are market developments actively followed and is there independent evidence of that effort. Official diplomas are kept up to date in regular intervals (varies in 1-3 year periods). Staying up to date, delivering tailor made investment advice and delivering solutions fitting clients’ situations and known goals cannot be done free of charge. Art does not come free, nor do lunches. So explicit product advice should in our view be forbidden and punished if not delivered by qualified advisors.

Australian advisor groups have decided not to put up with “cowboys behaving badly” and have started populating an Unlicensed Advice Register with influencer activity which they intend to put in front of their local regulator, possibly for prosecution purposes. We think the idea is worth replicating. We recommend influencers focus on different themes than specific investment advic