There are dime a dozen investment advisors who call themselves finfluencers operating in the market giving unsolicited stock recommendations. The emergence of finfluencers (financial influencers or people providing financial advice through social media to their followers) has raised several serious issues for the companies in India. The “financial literacy rate is 6 % – 27 %, much below the global average, thus making a large section of the population vulnerable to fraudulent schemes, advertisements.
The market regulator, Securities and exchange Board of India (SEBI) has issued warning letters to around 20 unauthorised investment advisors since May.
The market regulator’s actions come at a time when it is trying to draw sharp lines between registered advisors and those giving stock recommendations without any authorisation. Sebi is doing so by restricting associations with unregistered advisors and opening a new fee-collection mechanism for advisors through exchanges.
According to Robins Joseph, who is a SEBI registered investment advisor, Sebi has approved norms to regulate misinformation through financial influencers or finfluencers by restricting association of its regulated entities with any unregistered person.
This ensures that mutual funds, stock brokers, research analysts, or registered investment advisors do not associate with finfluencers.
In recent years, finfluencers have drawn lot of flak for misguiding and exploiting gullible investors and traders. Some have resorted to practices that can be outright unethical or even illegal.
The regulator for the markets, Securities and Exchange Board of India (SEBI) effectively put finfluencers on notice. A year ago, SEBI, released a consultation paper on rules to limit the impact of ‘finfluencers’.
Essentially, the thrust was on disrupting the revenue model of such finfluencers by prohibiting any association, monetary or non-monetary, between Sebi-registered intermediaries/regulated entities and unregistered entities (including finfluencers).
It implies that anyone who gives investment advice or recommendations, even implicitly, cannot receive any money or have any association with stock brokers or trading platforms and other market participants or any Sebi-regulated entity
Whether SEBI will act against the finfluencers suo motto or against complaint is not clear.