Moneycontrol Mutual Fund Summit | Regulations the way forward for ‘finfluencers’ community? Experts weigh in

Speakers at the financial influencers segment of the event

The mutual fund industry, like several other sectors, has had to deal with a completely new breed of ‘advisors’ in recent times – financial influencers or ‘fin’fluencers, who dispense investment advice through social media platforms.

While their USP when they started out was breaking down seemingly-complex financial concepts for end-users – retail investors – in simple terms, some now face allegations of generating sponsored content and advice without requisite disclosures. Post the crypto crash, some have had to face backlash from their followers on cryptocurrency-related advice given when the going was good.

Moneycontrol’s Mutual Fund Summit sought to address this contentious issue during a panel discussion on the subject. Kalpen Parekh, MD and CEO, DSP Mutual Fund, Harsh Roongta, Founder, Fee Only Investment Advisers LLP and financial influencer Pranjal Kamra, Founder, Finology Ventures joined Moneycontrol’s Kayezad E Adajania, Assistant Executive Editor – Personal Finance to share their views on the topic: ‘Financial influencers – democratisation or dilution of financial advice?’

The secret sauce of ‘finfluencers’ success

‘Finfluencers’ constitute a growing tribe of individuals, whether qualified to offer financial advice or not, who have millions of followers and subscribers queuing up to lap up information and advice they put out through their social media channels. Not all the advice is free – a lot of content is promotion too.

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In fact, mutual fund houses, too, have engaged with some financial influencers. “I look at this as any other advertisement. But what is the intent? What are the internal guidelines? We have a checklist on which influencers we want to engage with and we are clear about the messaging,” said Parekh.

According to Kamra, financial influencers have tasted success because they could plug the need-gap left unfulfilled by traditional financial advisors. “We were telling consumers about the side of financial products that no one else did. That is how we built trust because traditional participants weren’t telling them enough,” he said, in response to Adajania’s question on why fin-fluencers have gained in popularity. For instance, higher commissions in life insurance policies versus lower cost of investing through mutual funds.

Adajania pointed out that traditional, qualified registered investment advisors probably yielded ground to fin-fluencers who communicate with retail investors in simple language rather than affluent investors that the former always focussed on.

“Financial influencers brought in democratisation, took finance to the masses. It is very difficult to catch the attention of 20-24 year-olds when it comes to finance. If that has been achieved, there are definitely lessons which we ought to learn,” said Roongta.

The risk of paid advice

On the flipside, however, the space is also fraught with the risk of motivated, paid advice that may not necessarily work in customers’ favour. For instance, the crypto crash has delivered a blow to many a fin-fluencer’s reputation. Yet, the lack of regulation means that many may not face the kind of penal actions that regulated entities would have had to contend with.

While Kamra’s Finology is a SEBI-registered advisory firm, many other fin-fluencers are not regulated by any entity, which works to their advantage but at the same time, could be detrimental to end-users’ interests.

“Almost all finfluencers are unregulated. When you are unregulated, you are not bound by the same rules and compliance requirements (that the regulated financial advisors are). It gives you leeway to play around. There is a lot of content that is consumed. If you sell bite-sized packets of entertainment packaged as finance, it will have reach. Someone who has nothing to lose can take the risk of being on the wrong side of regulations,” Kamra said.

Regulations key to ensuring responsibility, transparency

This is why, he felt, SEBI’s discussion paper around regulating financial influencers is important. If a consumer ends up buying an unsuitable mobile phone due to wrong advice peddled by an influencer, the loss will be limited to the cost of the phone. However, if a wrong policy is bought, the person’s family could be ruined. So, we need to be regulated,” he said.

“I am a health and wellness enthusiast, but I am not a doctor. If I am giving advice, then it is incumbent upon me to tell people that I am not qualified (and they should consult their doctors before following the suggestions). This is where regulations help, as they bring in credibility,” said Roongta.

Disclosures will help influencers’ followers make informed decisions. “If I am taking supplements and have a lot of followers, I could approach a supplement-manufacturer and make a pitch to promote their products. If I am doing this and do not disclose, then it is plain wrong because conflict of interest is a very powerful thing. To some extent, it can be mitigated by disclosures,” said Roongta.

Parekh of DSP Mutual Fund feels mutual fund houses who engage with financial influencers ought to have strong guidelines in place regarding the communication. “We have to be responsible about the messaging. We have to get the best out of both – messaging cannot be only responsible but boring or only entertaining but oversimplified, without putting out all facts,” said Parekh.