In recent years, many financial advisors have emerged, not from the banks, stockbrokers, or mutual funds, but from social media channels like YouTube, Instagram, and Telegram. They are called “Finfluencers” and they mainly provide quick stock tips, Crypto predictions or money-saving advice. With time, their popularity grew, and now millions of people follow them, and the risk to the accuracy and intent of their content rises. In response, the Securities and Exchange Board of India (SEBI) has begun examining whether these influencers should be brought within the regulatory framework that governs investment advisers.

Introduction: Rise of Finfluencers in India

“Finfluencer”[1] is short for “financial advisor.” It refers to a person or organization that mainly helps investors choose the best financial products and services so they can make an informed investment decision.

They like to tell retail investors what to do by posting videos on YouTube. These finfluencers help Gen Z investors learn about stocks and securities by sharing financial content that is both interesting and useful. The number of finfluencers in India is also growing, along with the number of people who follow them[2].

There are three main groups of finfluencers: (1) Influencers on personal finance (2) Influencers on the stock market (3) Influencers on trading CFA’s report “Finfluencer Appeal: Investing in the Age of Social Media” lists a number of reasons why Gen Z is interested in content posted by the finfluencer community. Some of these reasons are that they don’t know much about money, they like to look things up online, and they can’t talk to, interact with, or connect with registered financial advisors. Finfluencers are changing the way information about the stock market works, which changes how prices are found, how people trade, how companies act, and how policies are made.

SEBI’s Role and the Investment Adviser Regulations

The principle regulatory body of India, known as SEBI (Securities and Exchange Board of India) is responsible to oversee and safeguard of all Indian investors in the Stock and Securities market. It was established in 1922 under the SEBI Act[3]. Its main function is to establish the transparency and accountability in the financial market. Nowadays, its regulatory scope is more important due to increasing Demoralisation and de centralization.

In the year 2013 SEBI introduced Investment Adviser (IA) regulations[4] to define the legal boundary of financial advisers. Accordingly, any individual or entity engaged in investment advice, must be registered with SEBI. They must possess specific educational qualifications such as professional degree in finance, accounting or related fields, or certifications from NISM.

Registered Investment Advisers (RIAs) must follow strict obligations, including acting in clients’ best interests, disclosing conflicts, and separating advisory from distribution services. However, many finfluencers bypass this regulatory framework, raising concerns about unregulated advice reaching inexperienced investors.

What Exactly Finfluencers do

Finfluencers are basically digital content creators on various digital platforms like Instagram, twitter(X), YouTube, Telegram etc. Such content includes mutual funds reviews, various stock recommendation, crypto currency trends, personal finance tips etc.

Sometimes they are engaged in affiliate marketing also, such as promoting credit cards, investment apps and paid collaborations. If any post or video followed by large, retail driven audience, can lead to price movement in stocks or crypto assets. In some cases, this influence can distort market behaviour leading to herd investment, pump and dump investments. Report by NASSCOM (2013), the social media has become the main source of financial education for over 65% of country’s new investors, most of whom are below the age of 30.[5] According to SEBI’s 2022 investor survey, nearly 1 in 4 young investors admitted to acting on influencer content without verifying it from credible sources.[6]

In the absence of clear regulatory oversight, much of the financial advice shared by finfluencers goes unchecked. This becomes particularly dangerous when influencers present their content as expert analysis or guaranteed strategies, rather than clearly stating that it is a personal opinion or a paid promotion.

The Supervisory Framework: Rules for Finfluencers

The Monitoring Framework of SEBI:

 SEBI is very important for stopping dishonest behaviour and keeping investors safe from false information. On August 25, 2023, SEBI launched a consultation document to keep an eye on registered intermediaries and manage businesses with unregistered financial influencers, also known as “finfluencers.”

2. A safe and easy way to collect fees:

SEBI wants to make it safe for registered intermediaries to get financial advice. It also makes sure that investors’ payments only go to registered Investment Advisors (IAs)[7] and Research Analysts (RAs)[8], which keeps unregistered groups like finfluencers out of the closed ecosystem.

3. Stopping the flow of money:

SEBI is keeping an eye on unregistered finfluencers. It is always keeping an eye on the income model of unregistered Finfluencers who are marketing financial products or services by giving biased financial advice.

4. Finfluencers:

How to Register and Follow the Rules Finfluencers must register with the governing authorities and obey the rules. These rules can say that they have to show their registration number, contact information, and a number for investors to call if they have a problem on their social media sites.
More rules say that all posts from them must have a complete disclosure and disclaimer.

5. The Advertising Standards Council of India (ASCI) has rules for finfluencers:

According to ASCI[9] rules, finfluencers must mark all of their posts as ads.
If there is a real link between the marketer and the influencer, they should be open about it. But if there is no such link and the person merely talks about a product or service they bought and appreciated, this would not be an advertisement and would not need to be disclosed.

6. Certifications and Qualifications:

People who work in the Banking, Financial Services, and Insurance (BFSI) sector as financial influencers must have the minimum qualifications and certifications needed to give advice to customers about the pros and cons of a certain product. In BFSI, which deals with stocks and investments, they need to make sure they are registered with SEBI. Their name, qualifications, and SEBI registration number should all be recorded down. If these influencers are giving other types of financial advice, they need to have qualifications like an IRDAI insurance license, a CA, or a CS. They should also follow all the rules for disclosure that are set out by the rules in the financial industry.

Finfluencers have definitely changed the way financial education works in India, especially for young people who use technology a lot. They have easy-to-understand and interesting content, but because there are no rules, misinformation and conflicts of interest can thrive. There are serious concerns about protecting investors as more and more people, especially those who don’t know much about money, rely on these kinds of influencers.

SEBI’s recent actions, such as releasing a White Paper[10] and adding Tech tools like the FCCI[11] initiative, are a step in the right direction toward reducing non-compliance and increasing transparency. But just having regulatory oversight isn’t enough. There is an urgent need to improve financial literacy among the general public through widespread awareness campaigns, especially on platforms that are popular with Gen Z.

It’s not useful or practical to have blanket bans, but it’s important to take strong action against people who break the rules over and over again to keep the financial system honest. Encouraging people to get professional advice instead of relying on unverified online content and encouraging influencers to be open about their work can help close the trust gap.

Ultimately, investors need to be careful when getting digital financial advice, even though regulation and technology can help a lot. The best way to protect people from the dangers of unregulated influencing is to have a well-informed public and proactive regulation.

Author:– Adeeb Akhtar,  in case of any queries please contact/write back to us at support@ipandlegalfilings.com or   IP & Legal Filing.

[1] Business Today

[2] Business Standard

[3] SEBI Act, 1922

[4] SEBI (Investment advisers) Regulation, 2013

[5] NASSCOM, Digital Trust and Financial Literacy Report, 2013

[6] SEBI, Investor Risk Perception Survey, 2022.

[7]  SEBI, Investment Advisors, Regulations, 2013

[8] SEBI Research Analysts, Regulations, 2014

[9] Advertising Standards Council of India (ASCI)

[10] SEBI, Consultation Paper on ESG Disclosures, Ratings and Investing,2022

[11] SEBI, Foreign Venture Capital Investor) Regulations, 2000