SEBI finfluencer clampdown likely to force them to find alternative revenue streams

Experts believe that the guidelines will impact the stock market and trading finfluencers who heavily rely on income from brokerage platforms.

Since 2023, the relationship between the Securities and Exchange Board of India (SEBI) and financial influencers or ‘finfluencers’ has taken several twists and turns. With unsolicited financial advice flooding social media platforms, SEBI, on August 25, 2023, introduced new regulations aimed at enhancing investor protection and strengthening the financial system's integrity.

These rules prohibit registered entities from partnering with financial influencers for promotions or collaborations and restrict the sharing of private client information with these influencers.

It also mandated that finfluencers registered with SEBI, stock exchanges, or the Association of Mutual Funds in India (AMFI) must prominently display their registration number, contact details, and investor grievance redressal helpline.

Fast forward to 2024, SEBI remains concerned as unregulated finfluencers continue to persuade investors to buy or sell stocks with misleading claims. Consequently, SEBI has introduced a new rule stipulating that brokers and mutual funds may only partner with finfluencers strictly involved in investor education and regulated according to SEBI guidelines.

Previously, many finfluencers earned substantial passive income through these commissions, often promoting brokerage services via affiliate links in their content. However, with SEBI's new regulations, which restrict the promotion of SEBI-regulated products, including stock trading and brokerage accounts, these finfluencers must now reconsider their revenue strategies.

Some brokerages have already ceased offering affiliate income for new dematerialisation (DEMAT) accounts opened through influencers, with potential implications for existing arrangements.

Sharan Hegde, finfluencer and co-founder of 1% Club, a socio-finance community, explains that the new SEBI guidelines provide clarity on many assumptions, especially regarding the bans for finfluencers.

He explains that finfluencers are broadly categorised into three categories: those focusing on financial education, such as personal finance and general money management; stock market influencers; and trading influencers. The guidelines will particularly impact those in the stock market and trading sectors who heavily rely on affiliate income from brokerage platforms.

“Moving forward, compliance with SEBI guidelines will be crucial for finfluencers looking to sustain their careers in the industry. Ultimately, while these guidelines pose initial hurdles, they also present an opportunity for finfluencers to adapt and promote financial literacy responsibly in accordance with SEBI's regulatory framework,” says Hegde.

Alternatives?

Not only do finfluencers collaborate with brands, but they also offer courses and create membership groups on various channels. Influencers such as Ankur Warikoo, Sharan Hegde, Rachana Ranade, and Pranjal Kamra share insights and sell financial courses online as an alternative method of income.

Ritesh Ujjwal, co-founder of Kofluence, an influencer marketing agency, says that when it comes to finfluencers selling courses online, SEBI’s regulations have clearly distinguished between informational content and financial advice.

For instance, influencers who define or teach financial concepts through courses, webinars, or other content can continue to do so without falling under regulatory scrutiny.

The guidelines "specifically target those who provide direct financial advice, such as recommendations on which stocks to invest in or which financial products to buy, ensuring they adhere to higher standards of transparency and credibility. Additionally, SEBI's exemptions allow influencers to secure funding through approved platforms, keeping the industry dynamic and accessible. This could encourage unregistered influencers to register, boosting their credibility," he notes.

Aditya Gurwara, co-founder of brand alliances at Qoruz, another influencer marketing agency, adds that many finfluencers are already monetising through mediums other than brand integration, such as selling courses on how to become a financial creator.

He emphasises the importance of adhering to the guidelines under all circumstances. “There is also some misinterpretation that finfluencers receive deals only from fintech and mutual fund companies. No. They receive deals from brands in other sectors as well, including loans, financial services, or taxation,” he says.

Agencies such as Kofluence, Savin Communication (a creative and PR network active in the influencer marketing vertical with its platform WTI Space), and iCubesWire, (an adtech platform), have collaborated with several influencers.

Kumar Saurav, founder and managing director of Savin Communication, states that the agency conducts a thorough background check on influencers before officially onboarding them.

“When an influencer approaches us to discuss content creation, partnerships, and campaigns, we first review their profile to see which categories they have worked in and for whom. If we find that the finfluencer has engaged in inappropriate activities or content not suitable for the public, we reject the proposal immediately,” he notes.

Ujjwal adds that Kofluence maintains active communication with the Advertising Standards Council of India (ASCI) to navigate the regulatory landscape effectively. “After initial vetting, we continuously monitor the activities of finfluencers to ensure ongoing compliance and content quality through regular reviews. We also maintain open communication with them, providing feedback and suggestions for improvement to ensure their content remains accurate, relevant, and compliant with regulations,” he states.

Ad and marketing spends of fintech brands

The new SEBI regulations are likely to result in significant adjustments to fintech brands’ advertising and marketing strategies, with brands reallocating their budgets towards more compliant advertising channels and methods.

Sahil Chopra, founder and CEO, iCubesWire, suggests that these implications may include increased investment in educational content, traditional advertising, and partnerships with verified and credentialed influencers.

Additionally, there may be a heightened need for expenditure on legal and compliance checks to ensure all marketing activities comply with the new regulations.

“While this could lead to higher initial costs, it can ultimately foster a more transparent and trustworthy relationship with consumers,” he says.

On the other hand, Anirudh Sridharan, co-founder and head of product and growth, HashFame, an open community platform where brands and agencies can directly call or chat with verified influencers, believes that following the regulations, the cost of finfluencers will rise. Wherever the fintech brands will go, they will see a limited pool of influencers registered with SEBI who wield influence in the market.

“I see it as a supply-driven market where the cost of financial influencers will increase at least in the short term. With that being the case, I think brands will also be okay to spend money because they know that these are the set of people they can partner with,” he says.

Cognisance while onboarding finfluencers

Background checks, evaluating audience demographics, reach, and content style are some of the necessary measures taken by agencies before partnering with finfluencers.

Ensuring compliance begins with a clear understanding of these regulations, emphasising the importance of quality over quantity. Agencies are prioritising a rigorous vetting process to ascertain the credibility and reliability of financial influencers.

Gurwara is pleased that these rules are reinforcing accountability. He says that at the end of the day, when it comes to agencies and influencer marketing in general, there are quite a few grey areas that agencies encounter.

“Since there is not enough information out there and sometimes people are unable to understand the material available, it becomes quite a concern, especially in the finance segment. When people advise on investing, that is where things get tricky because they talk about hard-earned money from small to large scale. It is important to understand the agency and influencers that you are working with,” he remarks.

Saurav notes that SEBI has introduced a certification or membership for finfluencers to obtain. Without this membership, brands won't collaborate with them for endorsements.

“Brands and agencies need to take note of the level of finfluencer’s expertise and experience in the category as experience is a vital factor in the financial segment. Agencies also should check whether a finfluencer’s focus is on educating people or just promoting the product,” he conveys.