Under the proposal, finfluencers need to be registered with Sebi and adhere to specific guidelines. Also, it has been proposed to ban unregistered finfluencers from partnering with mutual funds and stockbrokers for promotional activities
The rise of financial influencers or finfluencers, who charge as high as Rs 7.5 lakh for a post on social media, introduced a new way for people to access and interpret financial information, and now they will soon come under the regulatory purview as Sebi proposed measures to curb their mushrooming numbers.
The proposed move by Sebi not only ensures that investors receive accurate and unbiased information but also helps in preserving authenticity and reducing fraud, Anand Rathi Wealth Deputy CEO Feroz Azeez told PTI.
Under the proposal, finfluencers need to be registered with Sebi and adhere to specific guidelines. Also, it has been proposed to ban unregistered finfluencers from partnering with mutual funds and stockbrokers for promotional activities.
While many finfluencers provide valuable insights, there has been a growing concern over the potential risks associated with unregulated finfluencers who might offer biased or misleading advice. They usually work on a commission-based model.
"Finfluencers charge as little as Rs 10,000 to as much as Rs 7.5 lakh for an individual post, excluding tax. Influencer marketing agencies quote as much as Rs 20 lakh for a campaign, plus taxes, to entice their followers," Azeez said.
In addition, many of them make money from referral fees or profit sharing for promoting the product, channel, platform, or services or get compensation directly from social media and other platforms.
To address the risk associated with finfluencers, Sebi floated a consultation paper late last month proposing to restrict the association of registered intermediaries or regulated entities with unregistered influencers.
In an era where financial advice is increasingly disseminated through social media, the line between credible advice and misleading information can become blurred.
By requiring finfluencers to register with Sebi and adhere to specific guidelines, the regulator is setting a standard for accountability and expertise in the sector, Sonam Srivastava, Founder and Fund Manager at Wright Research, PMS, said.
"The regulatory move to address the role of financial influencers, or finfluencers in the financial sector is undoubtedly significant in enhancing investor protection and promoting transparency in the industry," Anand Rathi Wealth's Azeez said.
Also, the capital markets regulator has proposed measures on disrupting the revenue model for unregistered finfluencers and ensuring that they adhere to proper disclosure and disclaimer practices. This will help create a more accountable and reliable environment for investors seeking financial guidance, he said.
Finfluencers have significantly impacted their followers' financial decisions in the last few years and thus Sebi's proposed regulatory framework can make them accountable and responsible for the advice they provide, Tejas Khoday, Co-founder and CEO of FYERS, said.
Further, finfluencers registered with Sebi or stock exchanges or AMFI are expected to display their appropriate registration number, contact details, and investor grievance redressal helpline, and make appropriate disclosure and disclaimer on any posts.
Khoday said that the new regulations could help prevent conflict of interest and recommendation bias, which usually overlooks their followers' risk profiles. However, it is also essential to balance regulation and innovation.
"The proposed rules should harness the power of digital media to increase the overall financial awareness of the population fairly and transparently without compromising the far-reaching social media penetration so far," he added.
Also, the regulator has proposed to create a closed ecosystem for fee collection by Sebi-registered Investment Advisers (IAs) and Research Analysts (RAs) from their clients.
This ecosystem will help investors ensure that their payments are reaching only registered IAs and RAs. This would also help investors identify, isolate, and avoid unregistered entities, who would be unable to access this closed ecosystem.