How often do you come across posts on social media that say "you can double your money if you invest in XYZ stock" or "you can see your money grow 2x by investing in this scheme" while you scroll through your daily feed?
And some of these are a cause for concern. There has been sharp rise in the number of unregistered investment advisors or "financial influencers" giving unsolicited "finance tips" on various social media platforms, and it has market regulator Securities and Exchange Board of India (SEBI) worried.
SEBI is now putting together rules to govern this growing base of "finfluencers", a top official said.
“We are working on the guidelines,” Moneycontrol quoted SK Mohanty, whole time member of the SEBI, as saying on the sidelines of an event on corporate governance in Mumbai last month.
But who is a "finfluencer"?And why does SEBI want to regulate them? Let's find out.
Who is a Finfluencer?
One glance at Pranjal Kamra's YouTube (which is the preferred social media platform choice of these advisors) channel is enough to surmise why people are flocking to finfluencers in droves.
For one, whether it's a 20-minute video or a 20-30 second Youtube Short they are expertly produced and edited, and offer graphics and other helpful aids to guide a viewer.
Essentially, what Kamra and other "finfluencers" are doing is churning out content on finance, a complex and often boring topic, and breaking it down for consumption into a format where it is enjoyable and can be comprehended by those who aren't well-versed with financial jargon.
Case in point: A video uploaded by him on his YouTube channel about the best mutual fund for 2023 has already garnered 7.3 lakh views.
Kamra, along with others like Ankur Warikoo, Sharan Hegde, Rachana Ranade, Akshat Shrivastava, and more others are part of a growing community of finfluencers who have gained prominence.
They are different from other influencers, in terms of the area/segment they operate in. While influencers operate in segments such as beauty or lifestyle, finfluencers operate in a very niche area — finance.
They give advice on an array of financial topics ranging from stock market trading, personal finance, to mutual funds.
Why are they Gaining Popularity?
A simple reason behind why finfluencers are gaining a substantial audience might have to do with the very nature of the videos and the content they put out.
As mentioned earlier, they refrain from using financial jargon, and are available in a mix of regional languages and English, which makes it easier to understand.
Another reason that can possibly explain the rationale behind this is India's low financial literacy rate. The financial literacy rate is 27 percent, according to the National Centre for Financial Education’s 2019 survey.
As Nehal Mota, co-founder of Finnovate Financial Services, told The Quint, "Money and health are two areas of our life that have a lot in common. In both, the gap between what we know and what the experienced practitioners know is very vast. And to cover up this gap, we often turn to information online - videos, or articles written by either websites or self-described experts."
For most finfluencers, their choice of social media is YouTube.
How Big is The Audience for Finfluencers?
To give a peek into the kind of following they command, it is essential to look at the number of suscribers they have on social media platforms, specifically YouTube.
While Pranjal Kamra is at the top of the list with 47,90,000 subscribers, Rachana Ranade is behind with 41,60,000 subscribers, Mukul Malik's Asset Yogi has 35,00,000 subscribers, followed by Ankur Warikoo at 24,50,000.
Why Must They Be Regulated?
"Finfluencers are to financial advice what health websites are to managing illness. They are good to consume as long as one is not treating oneself based on the advice one receives online," Mota adds.
She, however, says, "Because of a lack of regulatory oversight in the internet and social media world, anybody can give advice, which makes the world of finfluencers a mixed bag, ranging from the unqualified to the super experienced, but consumers are left to figure out for themselves which is which," said Mota.
SEBI-registered entities on the other hand, Mota pointed out are like trained doctors. They have experience and have got a certificate to practice after a rigorous evaluation process. SEBI’s proposed move to regulate Influencers is like asking all health writers to get at least a basic medical qualification, she explained.
"Yes, the advice might still vary from person to person, but at least consumers know that the person is qualified to provide advice. This is the reason this proposed move by SEBI to regulate finfluencers is welcome. It protects the consumer," added Mota.
Renu Maheshwari, a SEBI-registered investment advisor, and co-founder of Finscholarz explained to The Quint how the lack of financial literacy is how finfluencers are able to fill the vacuum.
"Common people reach out to the internet to get information about products, market outlook, and free advice. Little do they know that nothing comes for free. Most of the consumers who follow free advice do not understand the money that flows around these kinds of recommendations. It is the small investor who burns their fingers. Crypto mania followed by the crash is one example. We always advise people to check the credentials of the blogger before listening to their advice."
Elaborating further, Maheshwari said that financial literacy is the need of the hour. In the absence of proper financial literacy courses at school level and college levels, she pointed out, finfluencers have occupied the space. Unfortunately, their motive to recommend certain products or dole out free advice is not transparent at all, she added.
"Financial blogs attract the highest prices on net. While an 'advisor' advising individuals needs qualifications, experience and license to 'advice', no credentials are needed to advise to masses. This makes it important that SEBI regulate the finfluencers," she added.
What Should The Guidelines Specify?
"Finfluncers definitely need to be regulated. In 2013-14, when the regulations for registered investment advisors (RIA) were brought in, its main purpose was to regulate the medium through which advice was doled out. Ten years ago, financial advice was mostly doled out offline. Nowadays, people mostly turn to social media for such advice, and if that medium is not regulated in some manner, then the purpose of regulation for RIAs also becomes meaningless and will not be fair on them," Pranjal Kamra, told The Quint.
He pointed out as to how regulation for influencers can be a bit tricky. "With registered RIAs, stockbrokers, since KYC is carried out and there is a contractual obligation, it is easy to know who the consumer is. But for finfluencers they operate in a more gray area as there is no mechanism to know who is consuming their content and if the regulation is too strict their content maybe flagged for violating freedom of speech," he explained.
Need for a Self-Regulatory Body
According to him, there are two ways to regulate finfluencers and maintain transparency: by creating a self-regulatory body or by setting up a SOP.
"The creation of a self-regulatory body will ensure there is better content created under peer pressure. Also, a standard operating procedure (SOP) needs to be followed on what all needs be disclosed while creating financial content (if the content is sponsored or promotional, etc)."
Elaborating on how social media has no entry barrier by default, he explained that if regulation is very strict in terms of minimum educational qualification and networking requirements "what will happen is people will find other ways to dole out advice like for example by opening another account using a different VP, thereby defeating the purpose.
"Instead an SOP should be laid out, where the finfluencer has to mandatorily disclose if he/she is paid to promote the product. Those flouting the SOP will be automatically singled out."
He also said that SEBI's guidelines should specify what constitutes financial advice and financial education. "Under the guise of financial education, a lot of them are doling out financial advice. But that should not be the case. The guidelines, he said, should differentiate clearly between the two. If a finance teacher who is teaching macroeconomics is regulated under the proposed guidelines it won't be fair, he reasoned, which is why we need a comprehensive set of rules.
Maheshwari also said that the finfluencer should disclose his / her identity, qualifications and profession. There should be a qualifying criterion.Any conflict of interest / vested interest should be declared.
Do Other Countries Have Regulations for Finfluencers?
The Australian government said in April that creators who offer financial advice without a license can face five years in prison.
In an information sheet released in March the Australian Securities and Investments Commission (ASIC) warned that influencers who continue to offer unlicensed financial services can be penalized with hefty fines and up to five years of jail time.
Singaporean and Chinese regulators also have guidelines for finfluencers.
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