Are ‘finfluencers’ trustworthy?

Sebi ‘unhappy’ with unregistered financial advisors, offering stock tips on platforms such as Telegram, Instagram, WhatsApp, Facebook, and YouTube.
"Tis breed is simply known as ‘finfluencers.’ Be it Facebook, Instagram or any other social media platform, we come across innumerable links teaching how to analyze company’s financials and invest in the stock market." [Representational Image]
"Tis breed is simply known as ‘finfluencers.’ Be it Facebook, Instagram or any other social media platform, we come across innumerable links teaching how to analyze company’s financials and invest in the stock market." [Representational Image] Pxhere [Creative Commons]

In the last couple of years, we witnessed the world of the stock market undergoing a huge transformation. In fact, the transformation phase still continues as the market hustle bustle has become the order of the day.

All of us are aware about the havoc let loose by the Covid-19 pandemic on human habitations, leaving millions dead during this never-seen-before health emergency across the globe.

However, it was unusual to witness our financial markets booming in the mayhem triggered by the virus. During the period, the stock market hit a record-breaking level after millions of first time investors boarded the market and foreign investors too invested in billions. This rush of new investors kept the market busy and trading of shares hit new highs.

Amid this huge influx of new (raw) investors in the stock market, a breed of professionals emerged on the scene where they started selling their stock market tips on social media platforms.

Tis breed is simply known as ‘finfluencers.’ Be it Facebook, Instagram or any other social media platform, we come across innumerable links teaching how to analyze company’s financials and invest in the stock market.

Today, we have some big names in the world of ‘finfluencers’, which is growing by leaps and bounds. Now it seems that there is a mad rush of  so-called financial advisors who take to social media platforms to sell their ‘advices’ to ordinary investors, especially the new comers in the world of stock market.

The ‘finfluencers’ have created a sort of enthusiasm on the social media platforms by talking in lucid language about financial matters such as share market news, share trading, investments in various financial products etc.

A Twitter report published some two months back has identified the rise of ‘finfluencers’ as one of the top trends in India. There has been a 185% increase in discussions around financial literacy, it said in the report titled Twitter Trends 2022. Precisely, as per the Twitter report “finance goes social” figures among the must-know trends over the two-year period.

The growing space of ‘finfluencers’ is attributed to the low level of financial literacy in the country and the raw investors, especially first-time investors, who mostly hail from far-flung towns and cities, are drawn to these ‘finfluencers’. Notably, these ‘finfluencers’ use slogans such as “How to buy your first share”, “How to generate income from gold without selling it”, “How to create wealth out of nothing” etc. to lure the investors to their social media channels.

There is a section of popular ‘finfluencers’ who have become a brand name in the trade. Leaning on the back of these social media finfluencers, many leading broking firms, especially the new-age broking firms have engaged them for their own brand building.

If reports and surveys covering the influence of these ‘finfluencers’ are taken into account, these social media stars (finfluencers) have millions of subscribers. This huge following has resulted in a stream of income for them from Google advertisements, alliances and partnerships.

However, there is a section of these ‘finfluencers’ who don’t have professional acumen to advise investors on investment matters in the stock market. In fact, an investor is not in a position to judge the genuineness of ‘finfluencers’.

One has to be very careful while banking on the market tips of ‘finfluencers’ and should not weigh their credibility for having millions of subscribers or likes on social media.

If a ‘finfluencer’ talks extensively about positives of a product or service and doesn’t mention about the risks associated with the investment, the investors should immediately ignore his tips. Ethically, he has to talk about risks as well. 

Who is a finfluencer?

As already stated above, a finfluencer is a person who disseminates a series of investor information among a wide range of audience using social media platforms to reach them. At the same time, the financial influencer dishes out his advice on a wide range of topics on investment matters. Usually you will find them discussing stock market movement on a regular basis and their target audience is mostly the raw investors, who are basically first-time investors in the stock market, from small towns and rural areas. Notably, YouTube is the most popular communication channel used by these finfluencers to reach their audiences.

It is also noteworthy that seamless internet connectivity coupled with affordable smartphones and cheap data plans have helped these finfluencers to grow exponentially.

How good or bad is it for investors, especially the first-time investors to bank upon finfluencers?

What matters is the content which these finfluencers create and disseminate to their audience. There is a section of such advisors who push investors into trading of shares on a daily basis. They tailor a high risky content encouraging an investor to place all eggs in one basket. They aggressively promote most risky financial products such as cryptocurrencies, non-fungible tokens (NFTs) and other high risky financial products that otherwise require a high level of market expertise.

You will also find finfluencers advocating long term investment plans. They are risk-averse in nature and promote long-term investing to help people to get out of debt and deal with ever increasing cost of living. These financial influencers bank upon their own research of the market and share the findings based on case studies with the audience.

In the end it’s the wisdom of an investor to follow his choice of finfluencer. Those having an appetite for taking high risks and earning quick bucks through day trading will find the former finfluencers suitable for their investment strategy. A risk-averse investor will always back upon the latter category of finfluencer.

What precautions should one take while coming across finfluencers?

Never take any ‘advice’ on social media at face value. There’s a lot of information out there. And lots of influencers promising overnight riches, crypto scams, copycat fake accounts, and MLM schemes. These can be difficult to spot when people who seem credible are urging their followers to get involved. And don’t trust anyone promising you a ‘get rich quick’ scheme.

Remember, experts warn that the way social media works, you are exposed to certain types of opinions, rather than the full picture. It’s a bubble.

What are Securities and Exchange Board of India guidelines for finfluencers?

While taking serious note of an exponential rise in the number of unregistered financial advisors, offering stock tips on platforms such as Telegram, Instagram, WhatsApp, Facebook, and YouTube, the Securities and Exchange Board of India (Sebi) on Thursday said it is working on a set of guidelines for financial influencers, or finfluencers, giving unsolicited financial advice on social media platforms.

The guidelines will also cover the act of companies approaching these influencers, with considerable following on Instagram, Twitter and Facebook, to endorse their stocks.

DISCLAIMER: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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