Rise of ‘finfluencers’ sparks debate over influence and accountability

As SEBI takes steps to regulate digital financial gurus, questions arise about the thin line between insightful guidance and potential manipulation.

While some “finfluencers” solely make content in an attempt to educate their followers and prevent them from getting scammed, SEBI has raised concerns about those misleading the audience with their unsolicited opinions on investment and stock trading. | Photo Credit: filadendron/Getty Images

In a decisive move aimed at addressing the growing concerns over the links between financial entities and social media influencers, the Securities and Exchange Board of India (SEBI), in a consultation paper issued on August 25, proposed a list of measures to curb the association of regulated agencies such as mutual funds and brokerage firms with unregulated entities like finfluencers.

The consultation paper, the first formal step taken by the regulatory body, comes a week after the Advertising Standards Council of India (ASCI) revised its guidelines for “finfluencers”, making it mandatory for them to be registered with SEBI to offer investment-related advice.

Who are the ‘finfluencers’?

Finfluencers are people who use their social media platforms to share advice, opinions, and personal experiences regarding money management, cryptocurrency, financial trends, budgeting, and investments. SEBI has raised concerns about finfluencers misleading the audience with their unsolicited opinions on investment and stock trading. While some finfluencers solely make content in an attempt to educate their followers and prevent them from getting scammed, some have been under suspicion for endorsing certain products and companies out of personal benefits or dealings. A back-of-the-envelope estimate shows India has more than 80 million (8 crore) social media influencers and the number is only growing.

Finfluencers have garnered a lot of audiences primarily because of the ease with which they break down complex financial advice and structures for people. Industry watchers say this could also be due to India’s low financial literacy rate of 27 per cent, as per the 2019 Financial Literacy and Inclusion survey conducted by the National Centre for Financial Education.

The regulatory guidelines seem to emerge in the background of SEBI’s first case of action against P.R. Sundar, a YouTuber, and options trader. The Chennai-based influencer was penalised by SEBI on May 25 and barred from trading for a year over alleged violations of norms for investment advisors. He agreed to pay a settlement amount of Rs 46.8 lakh and disgorge Rs. 6 crore, which includes the profits earned from advisory services of Rs 4.6 crore and the associated 12 per cent interest.

SEBI penalised Chennai-based “finfluencer” and options trader P.R. Sundar on May 25 and barred him from trading for a year over alleged violations of norms for investment advisors. | Photo Credit: YouTube Screengrab

P.R. Sundar and his company, Mansun Consultancy, allegedly provided advisory services without obtaining the necessary registration. The finfluencer also offered various packages on his website to provide investment advice, the deals of which come under the purview of a registered investment advisory business. He was also accused of posting screenshots of profitable positions and denying the trades that went against him.

The guidelines seek to prevent potential consumer harm that could arise from inaccurate or misleading investment advice. Ensuring that only well-qualified experts, such as those registered with SEBI or relevant bodies, advice on specific products or promote themselves, ASCI believes, will prevent potential scams or misinformation.

What are the guidelines?

The ASCI’s updated guidelines are crucial to tightly regulate advertising in financial categories such as banking and insurance where incorrect advice can result in substantial financial losses for people. Commenting on the logistical feasibility of ensuring the application of its revised guidelines, Manisha Kapoor, CEO and Secretary General of ASCI, said, “The digital landscape is extremely dynamic, evolving rapidly, and needs constant monitoring considering the sheer volume of advertisements.”

SEBI, the national watchdog, has also proposed penalisation if any unregistered entity is found using the name of any SEBI-registered entity. The consultation paper stated, “SEBI registered intermediaries shall take active measures to dissociate themselves from any unregistered entity using their name, product, or service. They shall take necessary action to bring it to the notice of the enforcement agency concerned to take appropriate action, including filing a case under section 420 of the Indian Penal Code, 1860 for impersonation and fraud, etc. as may be applicable.”

Suresh Radhakrishnan, a finfluencer and a business coach, agreed with the intervention of regulatory bodies and said, “Most scams that happen here are financial scams. People tend to be misguided. When you do content, you’re automatically building up authority. You’re building up trust among the followers.”

Is ‘qualification’ really necessary?

The guidelines have not only made it mandatory for finfluencers to be registered with SEBI but also made it compulsory for them to display their registration number alongside their name and qualifications. The revised guidelines clarified that influencers who give financial advice must possess appropriate credentials such as a licence from the Insurance Regulatory and Development Authority of India (IRDAI) or be a qualified chartered accountant, etc.

Finfluencers are expected to adhere to all disclosure prerequisites stipulated by the financial sector regulators whenever required. Commenting on the qualification criteria mandated by the guidelines, Suresh emphasised that there is no point in qualification as the subject can be learned through the journey. Citing the example of a famous finfluencer Sharan Hegde (@financewithsharan on Instagram), he added, “Content is not created, only curated. You learn more when you do content.”

“Whatever the SEBI is trying to do is acceptable. It is a good thing and I agree with it. But the only problem is the experience of getting the registration number,” said Harish, a finfluencer by the name “financewithharish”. He explained that the registration would be easier for people who have a background in finance.

As a mechanical engineer himself, Harish pointed out that if the ropes needed to be tightened, why not go for standardisation instead of qualification? He emphasised that a level playing field must be created for the finfluencers, regardless of their educational background, with some standardisation like an exam to understand that financial literacy doesn’t necessarily come with a BCom or MBA, but through efforts and experience.

According to experts, social media, despite its many freedoms, continues to grow into a platform where people are misinformed, and finfluencers tend to influence and affect the decision-making criteria of their audiences in the crucial sectors of finance, which also raises the risks of potential scams and losses. While it is agreeable that their ropes need to be tightened, they need to be better verified, feel many of the experts. The SEBI guidelines are more than welcome; they need to be considerate and examine the existing pool of creators closely instead of framing them as frauds or reducing their content to scams, they say.