Speaking at the Association of Stockbrokers and Financial Advisers conference this week, Financial Services Minister Jane Hume noted the rise of TikTok influencers giving advice on stocks and crypto assets.

The global reach of people on social media and the ability of consumers to invest instantly through online platforms can be worrying for those in the investment industry, but ultimately the minister believes it is all key to “removing friction makes the economy much more productive”.

“With lower costs and easier access, retail investors with limited technical knowledge and experience will continue to enter the financial markets,” Ms Hume said.

“Now sometimes they can make bad investment decisions. And they can sell at the first sign of losses, speculative bubbles - and it doesn't matter if it's in tulips or stocks - [they] are corrected in time. While it's frustrating for investment professionals to watch, at some point we have to let people make their own decisions.

"We need to support Australians to be sensible enough to make their own judgments about where and whether to put their hard-earned money into high-risk assets."

But RMIT senior finance lecturer Angel Jong objected to Ms Hume's permission to invest in influencers with concerns.

In Australia, giving financial advice without a license is illegal, with penalties ranging from up to five years in prison to fines of up to about $133,200.

"Hume said that an influencer giving financial advice is like a guy in the pub who wants to tell you all about the really cool company he's just invested in, only louder." But they are not really the same – social media influencers are able to reach a significantly larger audience,” said Dr. Jong.

“The guy at the pub doesn't make a profit by telling you about the great company he's just invested in. On the contrary, social media influencers generate income based on the views of their content. There is also the possibility that the influencer has a vested interest in the company, ETF or other investment products they recommend.”

Dr Zhong also warned that social media influencers are promoting risky behavior such as day trading and get-rich-quick schemes.

"Many videos and posts also encourage investors to borrow money to invest in a cryptocurrency that suffered a huge loss in the recent crypto crash," she said.

Michael Duffy, director of the Corporate Law, Organization and Litigation Research Group at Monash University, added that the recent declines in bitcoin mean looming challenges for governments and regulators.

“Legal regulation of digital currency as an investment product is plagued by uncertainty, but digital currencies carry significant investment risk – given that they are not linked to underlying assets,” Dr Duffy said.

“Their value is based on trust in the currency itself, ultimately as a medium of exchange. This confidence can be very variable.

Ms Hume also commented that although cryptocurrency is a volatile asset, she expects it to grow in importance to Australia's economy.

More than 4,000 cryptocurrencies now exist.

“Cryptocurrency is not a fad. This is an asset class that will grow in importance. Financial market participants, including advisers and stockbrokers, are now starting to venture into cryptocurrency in response to customer interest,” Ms Hume said.

“But I want to say to Australian users that if you want to invest in Dogecoin, I'm not going to stand in your way. Personal opportunity and personal responsibility are two sides of the same coin.

“We have safety nets to catch people when they fall, but we're not going to stop them from failing to climb the mountain. To create a society that is innovative, forward-looking and constantly improving, we must allow people to take risks.

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting mainly on banking, financial services and wealth.

Prior to joining the team in 2018, Sarah worked in commercial media and produced stories for a current affairs program on public radio.

You can contact her at [email protected].