FinFluencers are regular people who use social media platforms (and generally have a large follower base) to share advice on all things related to finance like investing, loans, stocks, mutual funds, etc.
More than 99% of these content creators or FinFluencers are not licensed. They also don’t have a registration with SEBI to give out investment advice.
And that is the biggest problem.
FinFluencers generally make money by getting eyeballs and monetizing the views of their digital profiles. Quite often, they promote sponsored content and push investment products via a loose talk that has no regard for viewers’ suitability for the product. Also, there is absolutely no onus on the part of these content creators to disclose whether they actually have the competence or the license to portray themselves as financial advisers at all and whether they are being paid behind the doors to push these products to their followers.
To be fair, FinFluencers have played a big role in simplifying finance for the new generation who is hooked on social media for everything. And learning about financial topics isn’t exactly that exciting for everyone so FinFluencers have tried to make it fun and glamorous.
But the size and influence of many of these FinFluencers have become so large, and there have been hundreds of cases where small gullible investors have lost money due to ‘being influenced by these FinFluencers’, that the Indian regulator SEBI has decided that something needs to be done.
The Securities and Exchange Board of India (Sebi) has said that it is now working on a set of guidelines for Financial Influencers (FinFluencers) on social media and other platforms.
While increasing financial literacy is one thing, according to Sebi, there has been an exponential rise in the number of unregistered so-called advisors giving unsolicited stock investment tips on social media platforms like Twitter/Facebook/Instagram, sites like YouTube and apps like WhatsApp/Telegram groups. Armed with lakhs of followers, many of these have the power to manipulate stock prices (read stock tip frauds) or boost new fund offerings.
Note – There might be other sites/apps being used that I am not aware of.
Lack of regulatory oversight in the internet and social media led to anybody (many of whom have questionable intentions and are only there to make money for themselves and have no regard whatsoever for their followers) and everybody portraying themselves as financial experts and giving advice.
So, while it would be quite difficult to curb unregulated and unregistered advisory fully given the scale of people on the internet, I am quite happy to see that SEBI has acknowledged the need to come out with a guideline for Financial Influencers.
By the way, India won’t be the first country to do something like this.
As per this news article (link) – in 2015, the UK’s Financial Conduct Authority released norms to regulate financial promotions on social media, describing any activity that “invites or induces” participation in financial activity, as “financial promotion”. Even China’s ministry of culture and tourism, state administration of radio and television, released a code of conduct mandating influencers to prove they have the necessary qualifications before talking on topics like medicine and finance.
With so much money at stake, it is only logical that social media should be subject to some degree of regulatory oversight to limit its hold over the market and to make people accountable and protect small investors, many of whom still don’t know how easily they are being influenced into taking financial decisions by the FinFluencers.
This opinion piece (link) also voices the need for some guidelines to reign in the influencer economy when it comes to dealing with financial topics – It cannot be denied that social media has an unpredictable, occasionally dangerous effect on market integrity and transparency. The pervasiveness of misinformation, unscrupulous influencers and herd-mentality has irrevocably changed how markets operate, sometimes with highly detrimental exogenic effects on companies and investors.
Never take any ‘financial advice’ on social media at its face value. There’s a lot of information out there and most of it is not suitable for you. Many finfluencers may promise you the wonderland or to get rich quick
If you are influenced sufficiently and are considering taking action on the advice of finfluencers, then take a pause and think again.
While few well-intentioned finfluencers might have the expertise and might be providing valuable information, most others may not have the required expertise, or license and may be promoting products or services for their own financial gain. And many frauds actually go and impersonate and create fake profiles to fool the general public!
When it comes to investing or personal finance, there’s a world of difference between really good advice and advice that only sounds good. It might not seem obvious at first, but there is. And it’s in your interest to understand how to decipher between the two.
All said and done, while regulator SEBI is doing its bit to protect investors, the onus is finally on the individuals themselves to NOT be ‘influenced and blinded’ by what they hear from these content creators or Finfluencers.
It is your hard-earned money and these finfluencers, in most cases, have no experience or knowledge or license to give investment advice.
Note – Please don’t get me wrong. I am not against content creators. Many of them are doing a good job actually. But the problem is that there are quite a few who give out unaccountable investment advice (stock tips, F&O calls, etc.) without getting registered with SEBI. Investors are taken for a ride and end up becoming victims of rampant mis-selling and pushing of unsuitable financial products and stock tips and what not. And that is not right.
To be honest, money management and investment advisory is a serious business and giving financial advice should not be open to anyone and everyone who has social media popularity.
So, what can you do?
Or rather, what should you do?
If you have to listen to finfluencers to gain knowledge, then that’s fine. But don’t take any action based on what you hear from these financial influencers without truly understanding what the product/strategy is and why they are promoting it. Conflict of interest is something that you should understand when it comes to the financial world!
Don’t trust Finfluencers or Financial Influencers BLINDLY!
Either learn things on your own (and become DIY investors) or take investment advice only from real SEBI Registered Investment Advisors / SEBI RIA (the regulator SEBI maintains a list of current RIAs here on its website). Or if you want to invest in only mutual funds and need basic incidental advice alone, then you can also check with mutual fund distributors who are AMFI registered.
In fact, even in the past the Indian regulator SEBI has made it abundantly clear that investors should take financial advice only from SEBI Registered Investment Advisor. There has been a SEBI directive that clearly asked investors (here) to deal only with SEBI Registered Investment Advisers (RIAs).
Do read about the Benefits of Fee-Only Investment Advice to understand why it works best for you.