The finfluencer winter: How Sebi is tightening the leash on new-age financial influencers

It was a long time coming. Financial influencers, or ‘finfluencers’ in market parlance, had been under the scanner for a while. Government officials and regulatory bodies—across the globe—had thought long and hard on ways to regulate the actions of these individuals as some of them had assumed cult status with millions of followers on social media platforms.

Besides, the regulators had to act fast to ensure that unsuspecting investors would not end up losing money because of biased or unfair advice or recommendations.

Finally, capital markets regulator Securities and Exchange Board of India (Sebi), on May 25 sent a strong signal to finfluencers. It barred P.R. Sundar, a finfluencer with over a million followers on YouTube, from the securities markets for a year for allegedly providing advisory services—daily stock investment/trading calls—without registering with the regulator. He was also directed to disgorge the fees that he had taken—along with interest—that amounted to Rs 6.08 crore.

Simply put, a finfluencer is a person who influences the financial investment decisions of his/her followers by doling out advice or recommendations. Such advice could be for stock investment, financial planning, or just about anything related to the manner in which one should invest his or her money.

Cult Status

The Sebi order assumes a great deal of significance as the past few years—starting from 2020—have seen finfluencers attain cult status with some of the most popular ones boasting of followers in the millions.

Take for instance Pranjal Kamra, who has 5.22 million followers on YouTube. Similarly, Pune-based Rachana Ranade, a chartered accountant by training, has 4.41 million followers.

Mukul Malik, Parimal Ade, Ankur Warikoo, Sunil Minglani, Praveen Dilliwala and Nitin Bhatia, among others, also feature among the top finfluencers on YouTube, even though some of them have veered towards providing broader life lessons and motivational videos as well, rather than restricting themselves to dishing out investment advice.

Interestingly, the number of followers of some of the well-known finfluencers even dwarfs the numbers of followers of some of the biggest broking houses on platforms like YouTube and Instagram.

In this backdrop, the Sebi order is expected to send a strong signal to finfluencers, many of whom spotted an opportunity to cash in on the millions of new investors that have flooded the equity market in the past few years.

“Many financial influencers are operating in a grey area and Sebi should bring in checks and balances,” says Malik, who features among the top finfluencers in the country, with a following of 3.64 million on YouTube through his popular channel called ‘Asset Yogi’.

“The past couple of years have seen many influencers popping up and making videos along with brand deals, etc. The problem is that such instances (Sebi barring Sundar from the securities markets) give the whole community a bad name. I believe it will lead to many finfluencers taking Sebi registration, which, in turn, will only add to their own credibility,” says Malik, who is registered as a Research Analyst with Sebi.

Incidentally, Sebi Chairperson Madhabi Puri Buch had recently highlighted the fact that regulators across the globe are considering ways of creating a regulatory framework for finfluencers.

“This is a problem that every regulator across the globe is facing. When we met at IOSCO (International Organization of Securities Commissions), it was a very hot subject. I think we are all trying to find the right approach,” Buch had said last December.

Tread with Caution

More recently—on May 30—she sent a cryptic warning to finfluencers when she said, “there is something cooking in the oven”, when asked about the way Sebi is trying to rein in unregistered investment advisors.

The gravity of the situation can be gauged from the fact that even the Union finance minister recently advised caution when considering the recommendations of

the vast majority of influencers, who may be motivated by other considerations.

“Social influencers and financial influencers are all out there, but a strong sense of caution is required in each one of us to make sure we double check, counter check, don’t go as a flock into something...,” Finance Minister Nirmala Sitharaman had said in April.

Meanwhile, the important takeaway from the latest development, especially from an investor’s perspective, is that one should do a basic background check and ensure that the advisor has all the requisite regulatory approvals—an easy task actually, since Sebi’s website lists all registered intermediaries.

@ashishrukhaiyar