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After Sebi fined YouTuber and well-known options trader PR Sundar INR 6.5 crore and banned him from the market for a year for violating investment advisor norm, the debate whether finfluencers should don the advisory cap has heated up once again. The ban on Sundar was the
first case of action against any finfluencer by the market regulator. Further, Sebi has also decided to come out with a discussion paper to formulate guidelines for regulating influencers who offer investment advice to the public.
Who is a Finfluencer?
Financial influencers or Finfluencers are influencers who make content on financial topics on social media channels such as Instagram, Twitter and YouTube. Lately, there has been a surge in influencers, some even amassing millions of followers. Finfluencers like Rachna Ranade, Pranjal Kamra and Asset Yogi are some of the famous influencers with their subscriber base even surpassing the ones of brokers like Zerodha, ICICI Direct, Motilal Oswal etc. Take for instance, famous finfluencer Rachana Ranade that boasts of 4.47 million subscribers on YouTube, while Mukul Malik who runs Asset Yogi has 3.68 million subscribers. Another finfluencer Praveen Dilliwala has 3.59 million subscribers, while Akshat Srivastava and Sharan Hedge have over 1 million subscribers. Sunil Minglani, and Nitin Bhatia are other popular names in the category of finfluencers.
“While some finfluencers are indeed doing a commendable job of educating people about finance, the problem often lies in the potential bias and limited scope of the information
they present. Finfluencers sometimes oversimplify complex financial topics, leading to misinformation or misinterpretation among their followers,” says Gaurav Sharma, Vice-President, IndMoney.
In the last couple of years, the BFSI (banking, financial services and insurance) sector has added finfluencers to drive engagement and generate leads both online and offline. Many brokers, BNPL (buy now pay later) brands, banks, non-banking financial companies, wealth management companies and mutual fund apps also deploy influencers in their marketing.
Sebi also wants such entities to stop dealing with unregistered finfluencers. “Usually influencers are not transparent about their affiliations or the potential conflicts of interest that may influence their advice. This lack of accountability can lead to unethical practices. Some finfluencers use persuasive marketing tactics that can manipulate people’s financial decisions without considering their individual circumstances or long-term goals,” adds Sharma.
Regulatory warnings around the world
When it comes to regulations, India is not new. The Australian government is already cracking down on creators offering financial advice without a federal license. In 2022, the Australian Securities and Investments Commission (ASIC) released an information sheet warning
that unregistered financial influencers could face hefty fines and up to five years in jail for offering unlicensed financial services. In the US, the Securities and Exchange Commission (SEC) charged eight Twitter influencers for using social media platforms Twitter and Discord to manipulate exchange-traded stocks in a $100 million pump-and dump scheme. European regulators are also concerned over the growth of finfluencers. The Cyprus financial market regulator raised concerns over the growing number of influencers and their impact on young investors.
Favourite with GenZ
They appeal most to the GenZ who see the information provided by them as easy to understand, easily accessible, and in many cases, free (or low-cost), compared to traditional financial advice.
Why are they under the Sebi Scanner?
If influencers are so popular with GenZ, then the big question is: why are they under the Sebi scanner? To understand this, we need to know what kind of content these influencers are dishing out. While some influencers share everyday budgeting tips or educational content in a short video format, the others are using their platforms to promote investing in certain stocks or assets and promising their followers lofty returns.
Useful for information but not for advice
Most of the experts feel that finfluencers can be referred to understanding the complex
topics on finance but not for investment advice. “SEBI’s decision to bring guidelines for finfluencers is a welcome move as they wield enormous influence. Due to this many people are misled into believing that advice coming from them is good,” says Suresh Sadagopan, MD & Principal Officer, Ladder7 wealth planners.
What should ivnestors do?
Since influencers are not regulated, they are not accountable for their advice gone wrong. For Financial Advice, SEBI has mandated a class of advisers who come under the IA REgulations 2013. They are Registered Investment Advisers (RIA). They need to comply with all the requirements specified in the IA Regulation in terms of education, experience, certification, compliance etc. and act in the client’s best interests. As per the law, only they can provide financial advice.
“Financial influencers have done a great job to make retail investors aware of personal finance. However, some influencers have also mis-sold financial products. That would happen mostly for the lack of full understanding of the product. In some cases, there are intent issues as well. In the case of small/ micro influencers, these issues run deep as they operate with a smaller audience base, without much scrutiny. Therefore, SEBI should form a robust regulatory framework for financial influencers to make their campaigns more transparent and objective. I believe most top influencers will welcome such a move. The only worry they could have is over-regulation,” Ajinkya Kulkarni, Co-Founder and CEO, Wint Wealth.
Before paying heed to the advice of an influencer it is important that one should do basic background check and ensure that he has all the requisite regulatory approvals. “Financial influencers do not produce personalized content, unlike RIAs, who create investment plans based on their clients’ earnings, financial goals, and other nuances. Therefore, investors should do due diligence before investing,” adds Kulkarni.
Agrees Adhil Shetty, CEO, BankBazaar.com, “It is important to remember that, like medical doctors, not everyone is qualified to advise on someone’s financial health either. An unsound diagnosis and prescription can cause damage to one’s financial health and, in the worst case, even wipe out entire family savings. So, to avoid any potential dangers associated, it’s essential that individuals critically assess the advice they receive, verify information from multiple reliable sources, and consult with certified financial advisors when making significant financial decisions.”
Says Sharma, “Finfluencers can be a valuable source of financial education. It’s crucial for followers to approach their advice with a critical mind, and consider seeking professional advice when needed.”