SEBI released decisions made in its board meeting on June 27th 2024, which will significantly impact the income of finfluencers.
The circular says: 1.1 The persons regulated by the Board and the agents of such persons shall not have any association, like, any transaction involving money or money’s worth, referral of a client, interaction of information technology systems or
any other association of similar nature or character, directly or indirectly, with any other person who, directly or indirectly, provides advice or recommendation or makes any implicit or explicit claim of return or performance, in respect of or related to security or securities unless permitted by the Board to provide such advice/ recommendation/claim.
We have highlighted the words in bold to signify the definition of a finfluencer. Is freefincal a finfluencer according to this definition? Yes, because we review mutual funds and provide recommendations on them. We have a list of handpicked mutual funds (Plumbline). However, we do not associate with any market players and, therefore, are unaffected by these rules.
How will this rule affect finfluencer income? A SEBI-regulated entity will hire a social media management firm whenever it wants to push a new product or service. This firm will then research suitable finfluencers to contact to promote the product or service. We receive 3-5 such emails weekly and say “no, thank you” to each. This can be a simple promotion or via an affiliate link (common from brokers). The most popular example of this is the “mutual funds sahi hai” campaign on Twitter.
The amount demanded by the finfluencer to create articles, videos, shorts, social media posts, email newsletters, etc., depends on the volume of their following and is negotiable with the marketing firm. It can be a huge amount (several Lakhs a year) for popular influencers. This type of association is no longer possible and will result in lower finfluencer income.
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If the regulations are implemented as is, then all ongoing agreements and payments must also end.
The circular also goes on to say:
“1.2 However, the above restriction shall not apply to persons regulated by the
Board or their agents for their association –
1.2.1 with persons who are exclusively engaged in investor education and do
not, directly or indirectly, provide advice/ recommendation/ claim of return
or performance.
1.2.2 through specified digital platform, which has a mechanism in place to take
preventive as well as curative action, to the satisfaction of the Board, to
ensure that such a platform is not used by any person for providing advice
/ recommendation /claim of return or performance, unless permitted by
the Board to provide such advice/ recommendation/claim.”
This means the SEBI-regulated entity can engage a firm/influencer involved only in investor education and bring “awareness” about their products via interviews with the regulated entity (fund managers, brokers, advisors), etc.
So if finfluencer wants to continue earning money from SEBI-regulated entities, they must stop “directly or indirectly, provide advice/ recommendation/ claim of return or performance” at least from the date of implementation of these rules (which is unclear from the circular).
They are unlikely to do this as it will significantly reduce traction to their channels, profiles or websites.
Will this curb mis-selling? Hopefully, yes, to some extent. SEBI-regulated entities can still promote their products by paying news media houses. Finfluencers can now “promote” insurance products, bank products, or any product not regulated by SEBI. Then there is honest mis-selling many influencers misguide their followers because they are misguided themselves. Nothing can be done about this.
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