Financial influencers or ‘finfluencers’ are the widest source of misinformation and have become the evil that they started out to defeat, said Pranjal Kamra, cofounder of Finology Ventures, a legal and financial consultancy firm.
Kamra, himself a financial influencer, identified venture capital investments in the financial technology (fintech) sector as the key reason for corruption in the space of finfluencers.
“We are corrupt because what has happened is that VC money has flowed into the fintech sector,” Kamra said during a discussion on financial influencers at the Moneycontrol Mutual Fund Summit. “When that money flows into fintechs, it eventually comes to us, and that amount is huge.”
Finfluencers are largely unregulated and have gained prominence over the past two years with millions of retail investors following them for advice on matters ranging from insurance, savings and mutual funds to stock tips. Registered investment advisors have raised questions about finfluencers’ accountability and highly risky investment advice on aspects such as crypto assets.
“People started trusting us because we were telling them a side of financial products (misinformation) that no one else was telling. Also, back then, maybe four years, as a group we were not being incentivised. So in fact, we have become the evil that we started out to defeat in a way and we will be as long as financial incentives are this huge. I think the worst financial advice is the one which includes product promotions,” said Kamra.
Norms neededOn upcoming guidelines for finfluencers by the Securities and Exchange Board of India, the cofounder of Finology said one clear way would be to ensure there are standard operating procedures on disclosing incentives.
“Almost all finfluencers are unregulated. I’m one of the very rare regulated ones. And when you’re unregulated, you don’t play by the same rules, you’re not bound by the same disclosure requirements as registered entities. That gives you a lot of leeway to play around. Also, a lot of content that’s consumed in the name of finance is actually creators providing entertainment. Saying things like, instead of buying a Royal Enfield, invest in the stock,” said Kamra.
According to Kamra, the onus on financial influencers is more than in any other category of influencers, which is why Sebi’s plan to frame guidelines is a great step. “We should be regulated,” he said.
During the discussion, Kalpen Parekh, chief executive officer of DSP Mutual Fund, said one should be practical about regulations for financial influencers.
“We should be realistic about what can be done and what’s possible, and more so in the world of investing, which is multi-dimensional and has hundreds of variables. Drawing that line is a challenge and creating boundaries through just regulation alone is not easy. I welcome the point that… some broad regulations do harmonise the rules of transparency. If I’m never going to put my own money and I’m still advising, then that is where the risk starts coming in,” Parekh said.