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Financial influencers are not advisors: Significant damage without regulation?

Digital innovations - Tax-optimized investments - Individual consulting

The role of finfluencers in financial advice

Financial influencers have a significant impact on young investors with their financial recommendations. The German Federal Financial Supervisory Authority (BaFin) has clarified that they are not considered investment advisors and are therefore not subject to strict regulations. This assessment is criticized by Hubertus Münster of the German Private Equity and Venture Capital Association (BVK), who warns against unregulated financial advice on social media.

Social media channels allow influencers to reach millions of people, especially young people. Financial influencers, who operate in the financial sector, serve as a significant source of information on investments and insurance. For many in the younger generation, social media are reliable sources of information on financial matters. The role of financial influencers is the subject of controversial debate from both financial and regulatory perspectives.

BaFin recently published an updated information sheet on investment advice, which sheds light on the regulatory classification of finfluencers.

What is meant by investment advice?

According to Section 1 Paragraph 1a Sentence 2 No. 1a of the Banking Act (KWG), the financial service of investment advice is defined as follows: It is the "provision of personal recommendations to clients or their representatives relating to transactions with specific financial instruments, provided that the recommendation is based on an examination of the investor's personal circumstances or is presented as suitable for them and is not made available exclusively through information dissemination channels or to the public (investment advice).".

Features of investment advice

Investment advice is provided when:

A personal recommendation is given, relating to transactions involving specific financial instruments.
The recommendation is made to the customer or their representatives.
The recommendation is based on an examination of the investor's personal circumstances or is presented as suitable for him/her.
The recommendation is not made known exclusively through information channels or to the general public.

A recommendation exists when an investor is advised to take a specific action, regardless of whether that recommendation is actually implemented. Conversely, providing only general information without concrete suggestions for portfolio changes does not constitute a recommendation.

Examination of the investor's personal circumstances

A crucial criterion for BaFin is that the recommendation must be "personal." This is specified by the requirement that the recommendation either be based on an assessment of the investor's personal circumstances or at least be presented as suitable for the investor. BaFin explains that an assessment of the investor's personal circumstances is already considered to have taken place if the client informs the service provider generally about their financial situation and the service provider then makes recommendations for transactions with specific financial instruments. In this case, the recommendation is considered to be based on an assessment of the investor's personal circumstances if the service provider takes the information received into account when making its recommendation.

Alternatively, according to BaFin, it is sufficient if the service provider merely presents the recommendation as "suitable for the investor." This means that the client must assume that the recommendation is based on consideration of their personal circumstances – even if this is not the case in practice. It is enough that the service provider gives the impression of having considered the investor's personal circumstances when making the recommendation.

Finfluencers and the giving of personal recommendations

According to BaFin, so-called "finfluencers" generally do not meet the criteria for investment advice. This is because they typically have no direct contact with their followers and therefore do not provide "personal recommendations to clients." Furthermore, their recommendations are not based on an "assessment of the investor's personal circumstances" nor are they presented as "suitable for them.".

Furthermore, according to BaFin, investment advice is often ruled out because finfluencers usually announce their recommendations "exclusively via information dissemination channels or for the public" instead of addressing them individually to individual investors.

Information dissemination channels and public

According to BaFin, a recommendation disseminated solely through information channels or made public does not constitute investment advice. A recommendation is not considered investment advice if it is disseminated through channels designed to reach the general public or an unidentifiable group of people. This applies in particular to advice given in the press, on radio and television, on the internet, or at public events.

This exception generally also applies to advertising measures. However, a recommendation that is not directed at the general public, but only at individuals or a specific, pre-defined group of people, is considered not to be publicly disclosed and could therefore fall under the definition of investment advice.

BVK position

The German Association of Insurance Brokers (BVK) has sharply criticized the German Federal Financial Supervisory Authority's (BaFin) assessment. According to BaFin, this assessment is based on the fact that finfluencers do not issue individual recommendations and have no direct contact with their followers, and therefore are not subject to the strict regulations for investment advisors. Michael H. Heinz, President of the BVK, puts it this way: "This interpretation by BaFin falls short and fails to recognize the actual influence finfluencers have on the investment decisions of investors, especially young ones. It cannot be that professional insurance and financial advisors are subject to strict regulations, while finfluencers influence millions of investors with often questionable recommendations without any oversight. BaFin is missing a crucial opportunity to better protect consumers."„

The decision to exempt financial influencers from providing investment advice creates a regulatory loophole that could have dangerous consequences for inexperienced investors. Without adequate oversight, there is a risk that financial influencers will give unqualified or even misleading advice, which could lead to significant financial losses.

The European Parliament also plans to introduce a definition and stricter regulation of financial influencers as part of its Retail Investment Strategy (RIS). The aim is to subject financial influencers to appropriate supervision in the interest of consumer protection, ensuring that investors receive reliable and well-founded information on social media and are protected from potential misjudgments.

The BVK will advocate for consumer protection in the virtual sector as well, ensuring that consumer protection is guaranteed and that the "Equal Level Playing Field" demanded by the EU also applies to finfluencers.