Is your finfluencer trustworthy? Sebi's new rules will help you decide

Have you ever followed someone online recommending stocks or investment strategies? These are "finfluencers," and regulators are now taking steps to make sure their advice is trustworthy.

The Securities and Exchange Board of India (Sebi) is cracking down on unregulated financial influencers  who might be giving misleading investment advice. These finfluencers often work on commission and might not have your best interests at heart.

Why regulate Finfluencers?

Finfluencers often operate outside the realm of traditional financial advisors. They may not be formally qualified or registered with any regulatory body. Additionally, their advice can be clouded by conflicts of interest, particularly if they're working on a commission basis or promoting specific products.

 

Here are some key concerns surrounding unregulated finfluencers:

Misleading Information: Finfluencers might present biased or inaccurate information to attract followers or promote certain investment options. This could lead investors to make poor decisions based on faulty information.
 

Unrealistic Promises: Some finfluencers might make exaggerated claims of guaranteed returns or high profits, luring investors with unrealistic expectations.
 

Lack of Transparency: Unregulated finfluencers may not be transparent about their qualifications, experience, or potential conflicts of interest.

Here's what's changing:
 

Sebi's new regulations address these concerns by creating a clearer line between qualified financial advisors and unregulated online influencers.

Restricting Associations with Unregistered Entities: SEBI-regulated entities, such as brokers and financial advisors, will no longer be allowed to associate with unregistered finfluencers. This means they cannot partner with them for marketing purposes, share client information, or receive any financial benefits from their activities.

Closed Ecosystem for Fee Collection: SEBI is creating a secure system for registered investment advisors (IAs) and research analysts (RAs) to collect fees electronically from their clients. This ensures that investor payments only reach authorized professionals.

Differentiating Registered Professionals: The new framework aims to make it easier for investors to identify registered IAs and RAs. By restricting unregulated entities from accessing the closed fee collection system, SEBI is creating a clear distinction between qualified advisors and unregistered individuals.

Good Finfluencers Welcome: Don't worry, this doesn't mean all financial influencers are bad. Sebi is still allowing people to educate others about investing, as long as they're not giving specific advice or promising guaranteed returns.

What this means for you:

• Be cautious of online investment tips, especially from people you don't know or who are not registered with Sebi
• Do your own research before investing in anything.
• If you're unsure about an advisor, check if they're registered with Sebi
• By taking these steps, SEBI aims to create a safer and more reliable environment for investors in India.

Finfluencers have significantly impacted their followers' financial decisions in the last few years and thus Sebi's regulatory framework can make them accountable and responsible for the advice they provide.