The need to regulate financial advisors on social media

Influencers have been in the news for several years now and it refers to those on social media with a large following giving them the ability to sway their followers’ decisions. They come in all shapes and forms, those with qualified opinions on matters related to their field of expertise to the other end of the spectrum who are known more for their pranks and less-than-benign antics. For most people with internet access, their primary source of skills, entertainment, news, money management and finance is social media.

More recently even Wimbledon roped in a bunch to push a line of clothing. Closer to home, e-commerce platforms have cashed in on their credibility to market their products and services ubiquitously called ‘Influencer Marketing’ brought about by stratospheric rates quoted by mainstream Bollywood/Sport or other endorsers rationale being many regular endorsers are equal to or more than a one-time celebrity endorsement.

Only, while getting advice on soaps, creams and fashion from influencers is all right, the same cannot be said for vital matters like healthcare or investments/finance. An unqualified opinion, to many people, given under the guise of either financial inducements or miracle cures, can result in harm to the public.

Also Read | In acting against finfluencers, Sebi can do more for investors

While health influencer scandals have been around for a while (dubious cures, faddy diets, questionable supplements etc.), the subset which has drawn regulatory ire are ‘finfluencers’ or financial influencers. Money, savings, and investment-related content appear in many different formats such as advertisements for financial products (declared or otherwise sponsored content), ‘personal’ anecdotes about the content creators’ (aka ‘influencers’) experience with a particular product, service or topic, or ‘knowledge sharing on budgeting, financial management, or investment.

Consumers /investors see the information provided by social media influencers as easy to understand, easily accessible, and in many cases, free (or low-cost), compared to traditional financial advice. This has led to the growing popularity of social media as an avenue to obtain finance-related information over recent years.

But matters came to a head with a YouTube campaign to promote one of their top influencers (much like “LinkedIn Top Voices”) except this one featured a full-page advertisement in national broadsheets along with some government departments. A full-blown public debate started on social media and off it.

The problem became acute enough for the incumbent Finance Minister to state, “If there are three or four people giving us very objective, good advice, there are seven others out of 10 who are driven by some other considerations”.

Finfluencers have been running amok, pedalling everything from pump-and-dump schemes, ‘derivative courses,’ get-rich-quick day-trading ‘strategies’, even calling themselves financial advisors. Not surprisingly Capital Markets regulator SEBI took note of this trend and took it up with ongoing actions against unregulated ‘Equity Advisors.’

Addressing questions from the media, SEBI Chairperson Ms Buch stated regulations will be released soon but her broad thinking is that regulated entities should only deal with other regulated entities and no one else.

So where does this leave the finfluencing ecosystem? For one advisors, fund managers or other financial intermediaries cannot hire influencers (including celebrities) or speak publicly outside of their regulatory remit or investor charters.

This does not mean the “influencer” will cease to exist. The industry does acknowledge the role played by influencers in furthering twin goals of financial inclusion and literacy. And rather than banning them, individual roles as financial educators are being defined and they will be regulated and held accountable for their content.

On the other hand, investors will be well advised to seek services from appropriately registered and regulated individuals or entities. For example, buy mutual funds from mutual fund distributors, seek financial planning or investment advice from SEBI-registered investment advisors. On matters of financial education, there is a dearth of quality content and with rapid financialisation of the economy, influencers may yet have a key role in promoting literacy.

(The writer is Managing Partner, Aryzen Capital Advisors)