Financial Advice From Social Media Influencers: Scam Or Legit?

Influencer marketing can reach receptive audiences and resonate with individuals on a personal level. Social media influencers in the financial sector wield significant influence over our daily lives, offering intriguing insights and unique perspectives on personal finance. According to a survey by Rakuten, around 72% of Indians aged 25-34 follow at least one influencer over any social media platform¹.

However, it is advisable not to trust them unquestionably. For instance, amidst the plethora of content promising overnight millionaire status without any initial investment, it is essential to approach such claims with scepticism. How could such rapid wealth accumulation be remotely feasible? Despite this, content creators often use enticing hooks and impressive figures to lure viewers into investing in the latest market trends without proper due diligence.

Ultimately, it is up to individuals to evaluate the relevance and value of influencers, considering their objectives and target audience when assessing their content.

Who Are Financial Influencers

Financial influencers, or finfluencers, are social media personalities with significant followings. Finfluencers use their platforms to share advice on personal finance, including tips on saving, investing, and managing debt. These influencers, often bloggers or YouTubers, offer insights based on their personal experiences. They may or may not be legally qualified to impart financial advice.

Some influential professionals in the financial sector are certified financial planners (CFPs), who help their audience make informed financial decisions. They may be a better fit for specific individuals who lack education or experience in personal finance.

Can Influencers Be Your Financial Advisors

Finance influencers in India influence the array of financial products available on social media platforms. However, determining the number of finance influencers accurately can be challenging. Most influencers specialise in specific niches to tailor their content effectively, which can complicate the decision-making process regarding whom to trust.

Furthermore, India's finance minister has cautioned against relying solely on advice from finance influencers². While some finfluencers may possess valid qualifications to serve as financial advisors, their interests may not always align with those of their audience, potentially leading to conflicts of interest.

Why Are Social Media Influencers Not Qualified to Advise You

• Lack Of Expertise: Despite having a large social media following, influencers may not possess expertise in financial markets.
• Biased Advice: Influencers may promote products or services based on financial incentives rather than their actual merit.
• Lack Of Transparency: Financially struggling influencers may conceal their true financial situations, presenting a facade of wealth.
• Outdated Advice: Financial trends evolve rapidly, and influencers may struggle to keep pace with the latest developments.
• One-Size-Fits-All Approach: Personal finance is not a “one-size-fits-all” concept. A piece of general advice may work for one but not for others. Finance influencers do not provide custom-tailored advice for individual goals.
• Lack Of Accountability: Unlike professionals in the financial industry, influencers are not held accountable for the outcomes of their recommendations.

Regulations For Finfluencers 

In August 2023, the Securities and Exchange Board of India released a consultation paper on the Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers) to regulate finfluencers. Accordingly, finfluencers must register with the SEBI before providing investment advice³. 

Additionally, they must prominently display their names, credentials, and registration numbers when sharing such advice. Influencers are also subject to specific requirements for providing other types of financial advice, including holding a company secretaryship, being a chartered accountant, or obtaining a license from the Insurance Regulatory and Development Authority of India (IRDAI). Furthermore, influencers must adhere to all disclosure requirements established by financial sector regulators.

These regulatory measures were prompted by a notable case involving YouTuber and options trader P.R. Sundar. On May 25th, 2023, SEBI penalised Sundar for allegedly violating rules for investment advisors, resulting in a one-year trading ban and significant financial penalties⁴.

How to Avoid Taking Financial Advice from Unqualified Influencers

Before considering any suggestion from influencers, always conduct primary due diligence and consider the following aspects to mitigate the risk of losing your money:

• Research The Influencer's Background: Research their background and credentials like a website or a LinkedIn profile that showcases their expertise, experience, and achievements. Look for professional certifications or education that may indicate their expertise in financial matters. 
• Look For Independent Sources: Always look for independent sources that can verify an influencer's claims. This can include financial experts, industry publications, or government agencies. Seek multiple viewpoints and research credible sources to get a more comprehensive understanding of the topic.
• Consider Your Needs: Before implementing any financial advice, consider your needs and goals. What works for one person may not work for another, so it is essential to take a personalised approach. Seek suggestions that are tailored to your circumstances and financial goals.
• Understand The Risks And Benefits: Any financial decision comes with risks and benefits. Before making any investment, understand the potential risks and rewards. Research the financial product or service, and consider the potential impact on your overall financial situation.
• Seek Professional Advice: If you are uncertain about a financial decision, seek advice from a professional. Financial advisors have the expertise and experience to provide personalised advice tailored to your circumstances. 
• Invest Through Regulated Platforms: Always invest through regulated, transparent online investment platforms to ensure sound investment decisions based on reliable data.

Conclusion

While seeking financial advice from influencers may seem easily accessible, it carries inherent risks. Certified financial influencers can offer valuable insights that complement traditional advice. Nevertheless, individuals should conduct thorough due diligence before acting on any influencer recommendations, aligning them with their financial circumstances and goals. 

Taking personal responsibility for financial planning and seeking professional advice when necessary is essential to making informed investment decisions that align with individual financial objectives. Therefore, individuals should actively participate in their investment journey and carefully select opportunities that align with their goals. Explore Grip Invest to stay updated with financial trends and achieve your financial goals.

References:

1. Statista <https://tinyurl.com/drxj77d4>
2. The Economic Times <https://tinyurl.com/2efxy29r>
3. Securities and Exchange Board of India (SEBI) <https://tinyurl.com/348hmb4h>
4. CNBC-TV18 <https://tinyurl.com/yc8ampft>

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