The market regulator has prohibited regulated entities from engaging with financial influencers, or ‘finfluencers’. Akshata Gorde delves into the world of finfluencers, the rationale behind Sebi’s crackdown, and its implications for investors
l What are finfluencers?
FINANCIAL INFLUENCERS, POPULARLY known as “finfluencers”, provide retail investors with information and advice on an array of financial investment areas, such as stock trading, personal finance and mutual funds. They mainly operate through social media platforms, particularly YouTube, offering content in Hindi, English or regional languages. The target audience is usually less knowledgeable investors from smaller towns, often attracted by the low-cost or free nature of the advice. Many a time, they have faced flak for misguiding investors or resorting to unethical practices. However, with rising retail interest in stock markets and enamoured by the idea of making quick money, people have been flocking to them for stock market tips. Many of these finfluencers command fan followings in the millions. Finfluencers are not registered with the Securities and Exchange Board of India (Sebi) or regulated by any other government authority, making them a risky segment of the capital markets.
l What has Sebi done?
SEBI’S NEW REGULATIONS create a distinct separation between qualified financial advisors and unregulated online influencers. Regulated entities such as brokers, mutual fund houses, research analysts and financial advisors are now prohibited from associating with unregistered finfluencers. This ban includes partnerships for marketing purposes, sharing client information, or receiving financial benefits from their activities. Sebi is also establishing a secure payment system for registered investment advisors (IAs) and research analysts (RAs) to collect fees from their clients. This ensures that investor payments are directed only to authorised professionals, making it easier for investors to distinguish between registered IAs/RAs and unregistered finfluencers.
However, Sebi is still allowing such finfluencers to offer investor education, as long as they do not offer specific advice or promise guaranteed returns.
l Why did Sebi crack the whip?
FINFLUENCERS ARE TYPICALLY not formally qualified or registered with any regulatory body. This lack of regulation can lead to biased or inaccurate information given in order to attract followers or promote specific investment options. Such misinformation can result in poor investment decisions by followers. Some finfluencers make exaggerated claims of guaranteed returns or high profits, setting unrealistic expectations for investors. Moreover, unregulated finfluencers often lack transparency regarding their qualifications and experience, and their advice may be influenced by conflicts of interest. Many finfluencers work on commission, which may not align with the best interests of their audience.
Additionally, these influencers have been linked to discount brokers, driving up trading activity and often misleading investors with false profit claims on platforms such as YouTube and Telegram.
l What does this mean for finfluencers?
THE REGULATOR’S ACTIONS address the growing alliance between market intermediaries and dubious influencers. The restrictions on regulated entities will curtail the distribution of financial products through unregistered social media influencers. All regulated entities and Sebi-registered market intermediaries will now have to work with influencers registered with Sebi as investment advisors or those who have a professional finance background for promotion of financial products. Regulated entities cannot have any association — transaction involving money or money’s worth, referral of a client, IT services, etc., — with unregistered influencers. The framework aims to hold finfluencers accountable for the advice they provide investors. They can continue to educate investors but not give stock tips of buy, sell or promise returns on investment.
l What is the impact on investors?
THE MEASURES ARE intended to create a safer environment for investors and protect them from falling prey to misleading advertisements and promised returns. The new payment mechanism for registered IAs and RAs, once implemented, will help them stand apart from unregistered finfluencers. Investors will be directed towards verified financial advisors without the fear of falling prey to a scam. This platform, facilitated by the stock exchange and mutual fund utility, will onboard RAs for a fee and ensure safety of investors interest. Sebi’s measures to curb unregulated finfluencers will also ensure more transparency from registered finfluencers regarding their registration number, contact details, investor grievance helpline, and appropriate disclaimers on their posts.
