SEBI guidelines and finfluencer dilemma: To curb or to promote?

Not everyone, but a large chunk of people want quick-fix solutions, higher returns, and schemes where they can double their money in two-three years. This drives finfluencers to create content which promises a lot more than it should. (Image by Monstera via Pexels)

As per the 'Guidelines for Influencer Advertising in Digital Media' released by Advertising Standards Council of India, 'influencer' means "someone having access to an audience and power to affect such audiences' purchasing decisions or opinions about a product, service, brand or experience, because of the influencer's authority, knowledge, position, or relationship with their audience". Finfluencers are a subset of these influencers who talk about financial topics. Three of the most common platforms they use for this are YouTube, Instagram, and Twitter - now X. Since these are free for users to participate in, the reach of a finfluencer can easily be in crores. It is not uncommon to see some videos / tweets reach millions of views. And with this reach, comes great power. The power to influence people’s buying decisions. SEBI is trying to ensure that the power is used responsibly. And it can be a challenge because people are greedy.

Although I am not strictly a finfluencer because I do not have enough reach, I have been paid by brands to promote their offerings on my YouTube channel and my X account. I consume a lot of content online as well. So, I sort of understand the stuff that people want to watch. Not everyone, but a large chunk of people want quick-fix solutions, higher returns, and schemes where they can double their money in two-three years. This drives finfluencers to create content which promises a lot more than it should and entices viewers to buy products or services which might be unnecessary if not harmful. The risks are often not spelled out properly. The affiliations to brands are not properly disclosed. The fact that a tweet is sponsored is not given out loud. When greed and perverse incentives meet, it can be the perfect recipe for disaster. There have been enough instances of people losing money that SEBI cannot sit at the sidelines anymore.

Something needs to be done. But there is another bigger objective of SEBI: To make Indians more financially aware. All their campaigns on investor-awareness pale in comparison to what these finfluencers have achieved since the Covid-19 pandemic. I have been saving and investing my money for 15-plus years but the boom that I have seen in the conversation around me in the last three years about financial products is unparalleled. Finfluencers have played a significant role in that. I would argue that the rise of finfluencers is a net-positive in the Indian financial ecosystem. And if you hear the SEBI press conferences, or read the PDFs they put up on the website, you will realize they want to promote this aspect. Even in the latest ‘Consultation Paper on Finfluencers’ SEBI has mentioned that “some of them may be genuine educators”.

So now comes the question, how do you control it? Finfluencers are not registered with SEBI. They cannot cancel their licence because there isn’t one. Anyone can be a finfluencer, which is scary and beautiful at the same time.

So what does SEBI do? It goes after the money. These finfluencers, especially the bad-faith actors, make a lot of money via referrals / commissions from entities that are registered with SEBI. SEBI is now telling these registered entities that you cannot work with finfluencers. These entities form a significant chunk of revenue for a lot of finfluencers. While it will not wipe out their entire business model, it does put a significant dent on the top line for a lot of the finfluencers. Specially, the big ones. The ones with millions of followers who promoted risky crypto-based products with misleading names like fixed deposits.

What do the finfluencers think about it?

I spoke to Anshuman, who runs a finance-based YouTube channel with 2 lakh-plus subscribers. He had this to say: “Regulations will ensure that only qualified individuals can talk about personal finance, which is totally fair because finance is an extremely sensitive domain. However, currently SEBI has no certification for financial education and they have also tightened the registered investment adviser (RIA) licence rollouts because of a few bad agents who misused the licence in the past. Currently there are only 900 active RIAs in the country for the same reason. It would be great if SEBI came up with a financial educator licence so that content creators can continue to collaborate with brands and keep educating their audience without charging them anything.”

SEBI has invited comments on the consultation paper that it has released on August 25, on Association of SEBI Registered Intermediaries / Regulated Entities with Unregistered Entities (including finfluencers). Comments / suggestions may be forwarded by email to consultationMIRSD@sebi.gov. in latest by September 15, 2023. Let's all go through the actual paper on the SEBI website and participate in the process. Hopefully, with these steps, SEBI will be able to curb the bad practices in the finfluencer ecosystem and make it better for all market participants.