My last article was about unregulated financial coaches. I explained why I personally wouldn’t feel comfortable being an unregulated financial coach. I also said I wouldn’t engage an unregulated financial coach or be comfortable with a close friend or family member doing the same.
There are some exceptions. For example, coaches who focus specifically on budgeting and limit themselves to this specific scope, or helping people who are struggling get into a position where they can start to think about investing. Ultimately, however, my point is that the consumer protection regulations set out in the Financial Conducts Markets Act (the FMCA) are there for a reason.
Now, let’s do a similar analysis on unregulated finfluencers and educators.
Finfluencers include bloggers (hi!), podcasters, Youtubers, and people who post on social media (such as Instagram, Facebook, Twitter, and TikTok). Educators include people or organisations who provide information services or courses to New Zealanders.
The FMA’s guide to talking about money online
In June this year, the FMA published A guide to talking about money online.
I think the guide is pretty weak, to put it politely.
It includes examples of money-related statements that “would be OK” to make, and contrasts them with statements that “would likely cross the line” and constitute financial advice.
I don’t think these examples clear up any ambiguity. The examples are obvious. In the table below I’ve included the FMA’s examples (in plain text), and added some of my own (in bold, in the third column).
|“This would be OK”||“But this would likely cross the line”||WHAT ABOUT???|
|“ABC Banks’ Credit Card has retail rewards points that earn you 10 points for every dollar you spend.”||“ABC Bank’s credit card with retail rewards points is the best credit card out there and you should get one.”||“ABC, XYZ, and XXX Banks offer the best credit cards out there for most people”, or “The Ts & Cs on credit cards offered by YYY and ZZZ are terrible”|
|“Rather than trying to pick individual shares, you can put your money into a managed fund that will be able to buy a range of investments.”||“ABC Finance has a great managed fund that buys shares from around the world, they have low fees, so take your money to them.”||“Rather than try to pick individual shares, or paying high fees for an investment manager to pick shares for you, you would be wise to put your money in a growth-oriented, index-based managed fund, like the funds offered by ABC or XYZ.”|
|“If you’re getting close to retirement, considering moving your KiwiSaver into a conservative fund could be a good idea.”||“ABC’s Company has a great conservative fund that has performed really well. I recommend moving your KiwiSaver to them if you’re getting close to retirement.”||“Since I’m nearing retirement, I switched my KiwiSaver funds into ABC’s conservative fund. If you’ve read this far, you’re probably in the same boat, so you might want to consider the same.”|
|“Governments are rolling out COVID-19 vaccines, so tourism companies and airlines could be good investments.”||“Buy ABC campervan shares now, the tourism boom is about to start.”||“If you think a particular sector is going to go well, why don’t you put your money where your mouth is, and invest in that sector? For example, if you think electric vehicles are the future, you could invest XXX’s electric vehicle fund.”
“Because [of X, Y, and Z reasons], I think buying shares in [this particular company] will be a wise investment.”
The examples in bold are my own. I’ve included them because it’s less clear whether they constitute financial advice compared to the anodyne examples given. My personal view is that they all cross the line and constitute “financial advice” as defined by the Financial Markets Conduct Act. But I could be wrong, and I’m not the regulator, so take my thoughts with a grain of salt.
What does the Financial Markets Conduct Act say?
Let’s go beyond the FMA’s guide and have a look at the Financial Markets Conduct Act (the FMCA), the legislation the FMA is tasked with enforcing.
Section 431F of the FMCA states that someone can’t give “regulated financial advice” to a retail client (most people) – unless they’re a financial adviser or nominated representative of a financial advice provider.
To simplify: you can’t give regulated financial advice unless you’re authorised to do so.
The FMCA doesn’t restrict this to advice that’s given one-on-one, or even to personalised advice that is tailored to a particular person. Advice is advice, regardless of its context. Advice can be given online, in article form, in audio form (such as a podcast), or on video.
This is to protect consumers. Similarly, when providing regulated financial advice, the people offering this advice have a duty to meet standards of competence, knowledge, and skill (431I), a duty to give priority to the client’s interests (431K), and to exercise care, diligence, and skill (431L). Etc. The potential fines associated with each of these obligations are pretty significant.
So, what constitutes “regulated financial advice”? The first thing to keep in mind that whether someone provides advice isn’t determined by the person giving the advice. You can’t just say “I’m not an adviser” or “this isn’t advice” and go on your way. “Regulated financial advice” is defined very specifically by the FMCA.
There are two parts to the definition. First, it has to constitute “financial advice”. If it constitutes financial advice, the next question is whether it’s “regulated financial advice”.
Section 431C of the Act defines “financial advice”. It includes one or more of the following:
- Making a recommendation, or giving an opinion about, acquiring or disposing of a “financial advice product”. This includes bonds, shares, managed investment products, insurance contracts, consumer credit contracts, and the like. It doesn’t include recommendations or opinions relating to non-financial products, such as direct property.
- Recommending or giving an opinion about switching funds within a managed investment scheme. For example, switching from “conservative” to “growth” with one provider.
- Designing an “investment plan”, purporting to be based on an analysis of someone’s current and overall financial situation, identification of that person’s investment goals, and including one or more recommendations or opinions on how to realise one or more of that person’s investment goals. Notably, when it comes to designing an investment plan, the recommendations or opinions aren’t constrained to financial products – it can relate to any sort of recommendation or opinion. Recommendations or opinions to “repay debt”, “buy property”, or even “try to earn more or spend less” are arguably caught by this definition.
Financial advice = opinions relating to financial products
For the purpose of this article, I’m not going to pay much attention to the “designing an investment plan” side of things. I did that when I spoke about financial coaches.
Instead, I’ll focus on making recommendations, or giving opinions, in relation to financial products, whether that relates to acquiring or disposing of a product, or making a switch within a managed fund.
In fact, let’s put “making recommendations” to the side, since recommendations are almost always opinions. And let’s assume that if an opinion is given, it relates to acquiring or disposing of a product, or making a switch. Simplifying in this way, the law is as follows:
A person gives financial advice if they give an opinion about a financial product.
It’s pretty broad. If you’re making opinions and recommendations in relation to financial products, you’re caught.
It’s OK to share factual information that describes a financial product’s features or terms and conditions. It might also be okay if you talk about a class of products – for example, managed funds, or types of personal insurance.
But if you give opinions about a specific product, you’re giving financial advice.
Regulated financial advice
Having said all this, the FMCA doesn’t strictly target “financial advice”. Most of the obligations and consequences are triggered in relation to regulated financial advice.
Section 431C states that financial advice is only “regulated financial advice” if it’s “given in the ordinary course of a business”.
This is another issue I have with the FMA’s guide to talking about money online. It doesn’t use the word “business” at all. Australia’s regulator, ASIC, published a similar guide a few months before the FMA. Australia’s financial services laws (mostly set out in The Corporations Act 2001) have a similar provision. In ASIC’s information sheet, it uses a variation of the phrase “carrying on a business” three times.
The FMA guide says that if you “[recommend] particular products or [tell] individuals what to do, that you may be giving regulated financial advice”. It then states that “[t]his applies to social media commentators, bloggers, and influencers – in fact to everybody!”
This is a weird thing to say, since regulated financial advice only applies in the course of a business. How can it apply to everybody?
Whether something is done “in the ordinary course of a business” is usually a question of judgement. If someone is talking about finance on a discussion group, or writing a blog for their own edification, then I’d find it hard to say they were conducting a business.
On the other hand, if someone is making money from finfluencing or educating, it smells like a business to me.
There is another way out for someone who is providing financial advice in the ordinary course of a business. They can be excluded from providing regulated financial advice under clauses 8 to 15.
In particular, if the person giving the advice meets all three of the criteria below:
- they’re a journalist, lawyer, accountant, real estate agent, tax agent, lecturer, or teacher; and
- they give the advice in the ordinary course of carrying on that occupation; and
- they give the advice as “an ancillary part of carrying on that principal activity of that occupation, being an activity that is not the provision of a financial service”.
You can’t just call yourself a “teacher” or “lecturer” and say the FMCA doesn’t apply to you. The FMCA refers to the Education Act 1989 when determining what a “teacher” or a “lecturer” is. A teacher needs to be in a teaching position at a registered school, early childhood service, or other institution operating under the Act. A lecturer needs to be employed to teach at a university, specialist college, college of education, or similar.
These exclusions are telling, since it shows that educators were specifically considered when the legislation was drafted, and there was a conscious decision to restrict the definition.
The Act does not refer to what a “journalist” is. But even if you argue that you’re a journalist, you have to also satisfy the requirement that giving regulated advice is ancillary to the principal role of being a journalist – as opposed to providing financial advice.
On top of the exemptions, you’re not protected from the NZ legislation if you’re outside of New Zealand. Section 387 of the FMCA states that these regulations relate to services received by someone in New Zealand, regardless of the location of the person providing the service.
But the FMA doesn’t seem to be doing anything!
There seem to be a few finfluencers and educators who make money in New Zealand despite what I’ve said above. I can think of a number reasons for this.
For one, my understanding of the law could be mistaken. I’m open to this possibility. On that note: this article doesn’t constitute legal advice, and I’m not relying on it myself – I’m authorised, so don’t need to worry about this issue. If I was concerned about this, I would dig into the matter in even more detail, and probably seek external legal advice to confirm my understanding.
Another possibility is that the FMA has decided not to enforce these laws. Like any other organisation, it is resource-constrained and may have decided that it has bigger fish to fry.
If this is the case, it bothers me. But perhaps that’s just me – I’ve long thought that our financial services laws should be enforced more aggressively. ASIC was roasted in the recent Australia’s Royal Commission on financial services for not being more aggressive, but what do I know.
Instead of making milquetoast representations about what people can and can’t say, which aren’t accurate (since they ignore the “business” part) and do little towards clearing up ambiguity, I believe the FMA should take a clearer and more aggressive stance in relation to the law.
There may be good finfluencers and educators out there. But so long as the FMA turns a blind eye to good ones, it paves the way for terrible ones who are unscrupulous or sincere-but-dangerous.
It also creates a context that is similar to Australia, where people who have been unknowingly skirting the law without consequence for a long time take umbrage because the regulator decides to stop the party later than it should have. (ASIC got a lot of heat for releasing its information sheet earlier this year, even though it was simply stating the law as it had been in place for two decades – since the inception of The Corporations Act 2001.)
These regulations are in place to protect consumers
If you want to say I’m writing this article for personal gain, I can see why you’d say that, since I’m authorised to do so and it’s a barrier to entry to people doing similar things to me.
The truth is, however, that I am already way more busy than I want or need to be. I’m also super supportive of people making stuff available online, especially if the material is good and the intentions are good.
I’ve also been vocal in terms of ensuring that barriers to entry to providing advice aren’t unreasonably high. (Click here or here, for examples.)
I’m just the messenger. I didn’t write these laws. I simply think that if our elected representatives make laws, they should be enforced. This might be unfair to some finfluencers and educators. But from a fairness perspective, it also seems pretty unfair that there are lots of people who spend time and resources applying to be authorised, and committing to meeting their obligations, when others are making money who should be doing the same.
If the FMA is spending resources to regulate the people who have put their hand up to do the right thing, but not those who are skirting the law in the first place, then that is pretty egregious.
If you’re sharing opinions about financial products, in whatever forum, and you’re making money from doing so, then I think consumer protection laws should apply to you. I think you should play on the same field, according to the same rules, as everyone else who provides regulated advice.