In this new decade, we have entered into the new world of virtual reality. Today is the time when the new real world is social media. It is a splendid platform where huge influencers take enormous likes, comments, followers and definitely, funds- – YouTube, Instagram, and Twitter. And to say the least, the way they explain sounds like whatever they are mentioning is the word of doctrine.
If you still don’t understand and want to know how they can be impactful, it can be learned by the fact that their words have the power to create or ruin a film, or they can derail a product launch. In the financial sector, it can be concluded that they also have a firm grasp on retail investors and traders who are always looking for get-rich-quick tips.
Now, actual financial advisers, regulated by the SEBI, believe they are receiving a bad deal in which influencers talk excessively with little supervision while making much money. Many now believe that the government, consciously or accidentally, is swaying influencers’ favour.
It was the last month when these finfluencers (financial influencers) and the government were entangled in controversy. Or you can assert that it was a wake-up call for the general public. It was beset by controversy, beginning with a YouTube advertisement in a handful of daily newspapers portraying financial influencer Rachana Ranade. The ad was headlined “Trust only the real experts.” Aside from YouTube, the ad featured the Ministry of Electronics and Information Technology’s emblem and the words “Issued in Public Interest.” Ranade has almost 4.4 million YouTube subscribers alone.
The SEBI recently strengthened its grip on Registered Investment Advisors (RIAs). Its new coding has made advertising and engaging with a larger audience more difficult. Nonetheless, BSE Administration & Supervision Ltd (BASL) eventually provided explanations to alleviate some obstacles.
However, before producing any ads, RIAs must get approval and pay a charge. They cannot use superlative adjectives like ‘best’ or ‘leading’ to describe themselves or their performance. In addition, the rule prevents them from mentioning and applauding their prior achievements in their newsletters. And if you think this is it, consider the tedious task, time-consuming chore of passing tests at regular intervals. The YouTube commercial did not sit well with RIAs and revealed a potential rift between SEBI and the government.
Why is there a backlash between the influencers and the regulatory bodies?
When asked about influencers at a press conference on June 30, SEBI chairman Madhabi Puri Buch said the regulator has been examining the emergence of influencers internally and is working on a consultation paper on them, which is expected to be released in a month. The paper will have two parts. Puri Bach explained that regulated organisations, such as exchanges, brokers, mutual funds, and so on, would not engage in advertising, equity or profit sharing, or referral fees with unregistered entities.
As a result, they believe that if one has a regulated business, the partners or affiliates must also be regulated entities. According to her, this will be a key component of the next consultation document.
The regulatory body supports investor education and awareness. Still, stock and investment advice and claims of assured returns do not bode well and may draw action in the future. If someone is truly educating someone, that is wonderful since investor education and awareness are also the goal. But if someone asks one to trade and promises to make them a crorepati in two years, huh, that’s magic? That will never happen. Hence, these kinds of advice or claims will be considered an inducement in the system and fraudulent and misrepresentation/misleading behaviour.
SEBI’s view is shared by Nithin Kamath, CEO of Zerodha. He adds that the influencers were intended to teach, but portraying themselves as experts is inaccurate. It would be preferable if they registered as RIAs with SEBI and followed the laws that regulate them. Puri Buch also stated that SEBI does not plan to regulate every investor educator but that anybody who provides investment advice, stock or portfolio recommendations must be registered.
What is the monetary gain achieved by influencers?
Many influencers do sponsored advertisements on behalf of brokers, AMCs, and other financial services providers, and others, like Ranade, have a revenue-sharing plan with them. For example, Ranade has a revenue-sharing agreement with brokerage firms like Zerodha and Upstox, and her video descriptions include a link to register a demat account with these businesses. Her video description now includes links to Policybazaar, Ditto, and TradeCred. According to Mr Kamath, the agreement with Ranade and a few other influencers is now in place, but it will be reviewed if SEBI’s laws alter to that effect.
How does the connection run between Government and influencers?
Meanwhile, it appears the government invited roughly 50-odd influencers to discuss the digital media environment, as seen by several of these creators’ social media posts. Take, for example, the famous finfluencer Mr Akshat Srivastava shared on his social media but the same.
Ranveer Allahbadia, popularly known as the podcaster ‘TheBeerBiceps,’ welcomed ministers such as Piyush Goyal and many others, with whom he had many podcasts, which were labelled as “Co-presented to you by @MyGovIndia.” This has called into doubt the impartiality of such podcasters, who have a large following. Allahbadia has 5.64 million YouTube subscribers. He also spoke with Minister of External Affairs S Jaishankar, Minister of State for Skill Development and Entrepreneurship Rajeev Chandrashekhar, and Lok Sabha member Smriti Irani.
Apar Gupta, the lawyer and executive director of the Internet Freedom Foundation, who was among the first to point out the podcast’s government ties, also referred to a tender titled “Request for Empanelment for Selection of Influencer Marketing Agencies for Empanelment with MyGov” dated March 7.
This sparked a massive outcry on social media, with many accusing the government of misusing public funds and pushing pro-ruling party information and narrative to consumers. Meanwhile, the authorities attempted to quell the uproar, but the harm had already been done.
To settle this, the authorities mentioned that this is not an endorsement of any individual or social media network; @GoI_MeitY welcomes all digital platforms to raise awareness of a Safe, Trustworthy, and Accountable Internet and is supportive of all real campaigns/advocacy for this, but this is not an endorsement. This was quoted by none other than Chandrasekhar in response to a tweet on the given subject.
Given the risk of misinterpretation with these types of advocacy commercials, he has asserted more careful usage of government insignia in these campaigns by private platforms. While the correction was being provided, the outrage remained. Going forward, the government will most likely be more cautious.
Meanwhile, market players are dissatisfied with finfluencers who cross the boundary between education and suggestion. Some of their erroneous comments and promises made in the name of educating people have irritated asset managers, who are strictly regulated. Advisors must learn to talk within the scope of the law. Since of the fiduciary nature of the company, those who speak, even finfluencers, must be exposed to a regulatory framework since they are speaking about someone else’s money.
What is that to worry about?
This is to say that controlling finfluencers will be a difficult assignment for SEBI since their number has expanded tremendously in recent years. The problem is that unwary investors are frequently duped. People want engaging content and want to be entertained. The influencers were pressured to create new material, and competition among them was fierce. This has rapidly shifted from information/education to recommendations, a worrisome trend for individual investors.
The problems cover a broad spectrum, not only the finance one.
This is also true for many science podcasters, who regard themselves as guides rather than specialists, even though they are actual scientists. Brian Keating, a physicist who hosts a cosmology podcast, has interviewed and discussed some of the most important physicists, including Jim Simons, the founder of Renaissance Technologies, a hedge fund.
Another example can be taken from Michael Batnick and Downtown Josh Brown, two podcast influencers who host the Animal Spirit and Compound and Friends programmes. The shows here are centred on information. The format is casual, with occasionally amusing hosts offering insightful views on the markets. While the show is about knowledge, they make no claims to be consultants or experts. Throughout the presentation, there are warnings that listeners should not act on any information without first consulting with their counsel.
Similar is the case with health, where many influencers give excessive advice on exercise and supplementation. However, some influencers, such as The Liver Doctor, are becoming crusaders and debunking a lot of misinformation and pseudoscience.
Conclusion.
Even though there are no crusaders in money and markets, what Indian social media requires is honesty and openness. Through self-regulation, influencers should see themselves as entertainers rather than consultants. The regulator will be obliged to take harsh action if they do not.
As of today, it appears that influencers have gone too far, attracting the ire of stakeholders and the regulator. Many of these influencers have amassed fortunes in recent years due to the bull market and the cheaper and easier availability of cell phones and the Internet across the country. Their glory days appear to be over, as they should take accountability for their words.
Regulators have established guardrails to protect retail customers. Any violation committed by an individual for personal advantage should be firmly discouraged and dealt with strictly. RIAs work hard to create genuine credentials and should be appreciated. Every path cannot be seen as a fantasy game, and this is something the influencers need to comprehend.
