The curious case of finfluencers

New Delhi: In a world where TikTok dances, Instagram filters, and YouTube pranks dominate the online landscape, a new breed of influencers has emerged—financial influencers, or "finfluencers," as they’re affectionately or as some would say, infamously called. 

These digital gurus, these financial falcons, armed with catchy content and seemingly endless market insights, are supposedly guiding millions through the complex maze of personal finance, investment strategies, and the occasional crypto hype. But let’s cut the proverbial crap, shall we?

The Birth of Financial Literacy Influencers

Let’s face it, our schools and colleges have done a stellar job at teaching us how to solve quadratic equations and memorize historical dates, but when it comes to the practical application of money, they’ve missed the mark to put it mildly. 

The result? A vast population grappling with financial ignorance, clueless about how to manage their money, invest wisely, or even read a balance sheet. Enter: the finfluencers.

These savvy content creators have stepped in to fill the financial literacy void, offering advice on everything from budgeting to stock picking, often simplifying complex concepts with relatable analogies and digestible content. The rise of finfluencers isn’t just an Indian phenomenon; it’s a global trend. But the numbers tell a particularly interesting story in India. 

According to a study, there was a 300% increase in the viewership of financial content on social media during the COVID-19 pandemic, a period that saw more people at home, glued to their screens, and increasingly interested in securing their financial futures .

The Business of Being a Finfluencer

Now, Finfluencers make their earnings through a variety of channels. The most legitimate ones often earn from brand partnerships, affiliate marketing, and sponsorships. For instance, they might promote a financial product, like a mutual fund or a trading platform, and earn a commission for every sign-up that comes through their referral link and that too after registering with regulators. Many also monetise their content directly via YouTube ads or paid subscriptions.

However, not all of these revenue streams are above board. Some finfluencers engage in dubious tactics to pad their wallets, often at the expense of their unsuspecting followers. For example, there’s the classic "pump-and-dump" scheme, where an influencer hypes up a particular stock or cryptocurrency, urging their followers to buy in, only to sell off their own holdings once the price has been artificially inflated. This leaves their followers holding the bag when the price inevitably crashes.

Another shady practice involves promoting unregulated or extremely high-risk investments without proper disclaimers. Some finfluencers have been known to push penny stocks, obscure crypto tokens, or even questionable investment schemes that promise outsized returns with little to no risk—a red flag for any seasoned investor.

These incidents underline a worrying trend: the ease with which misleading or outright fraudulent financial advice can spread online. From dubious crypto schemes to illogical day-trading systems promising overnight riches, the unregulated space of finfluencing has become a breeding ground for financial disasters.

SEBI crackdown: A Double-Edged Sword

Recognizing the growing threat, the Securities and Exchange Board of India (SEBI) recently initiated a crackdown on finfluencers, aiming to protect retail investors from fraud and misinformation. This move, while commendable, has not been without its controversies. In its zeal to clean up the space, SEBI's broad-brush approach ended up painting every financial entity with the same brush.

The crackdown has affected legitimate financial advisors and companies who operate with proper licenses and registrations. These professionals, who provide essential financial guidance to their clients, now find themselves lumped together with the "get-rich-quick" schemers and pump-and-dump artists. The lack of clear distinction between genuine financial advisors and fraudulent actors has created a climate of fear and uncertainty, both among content creators and their audiences.

Striking the Right Balance

So, where do we go from here? The solution lies in striking a delicate balance between encouraging genuine, impartial financial advice and curbing the spread of misleading content. Regulatory bodies like SEBI need to develop more nuanced approaches, distinguishing between licensed professionals and unscrupulous operators. Meanwhile, consumers must also become more discerning, learning to differentiate between sound financial advice and snake oil sales pitches.