Finfluencers on song

Millions of people worldwide experienced increasing economic uncertainty during the pandemic. People had more time to look at their finances due to the lockdown. Influencers in personal finance, often known as “finfluencers”, rose as a result of it. Importantly, despite the pandemic’s fading effects, social media punditry hasn’t stopped.

Finfluencers are people who use their social media platforms to share advice, opinions, and personal experiences regarding money management, financial trends, budgeting, student loans, and investments.

According to a 2022 Bloomberg story, a 25-year-old Tennessee TikToker who gives advice about Wall Street investments earns more than $500,000 annually. Humphrey Yang, the most well-known international “finfluencer,” has 54.3 million followers, likes, and subscribers.

The emergence of finfluencers has sparked discussion about their accountability, influence, and any potential overlap between their insightful guidance and potential manipulation.

Regulations updated

The Advertising Standards Council of India (ASCI) recently updated its regulations for “finfluencers,” requiring them to be registered with SEBI in order to provide investment-related advice. As a result, SEBI proposed a list of measures to curb the association of regulated agencies such as mutual funds and brokerage firms with unregulated entities like finfluencers. Finfluencers who are not registered with the applicable financial sector regulator may lack the necessary credentials or subject-matter competence, and they may not declare any potential conflicts of interest, according to SEBI.

Some attempts have been taken elsewhere as well. The US Securities and Exchange Commission issued an investor alert about social media and investment fraud; the Australian regulators provided guidance on advertising financial products and services, emphasising compliance with consumer protection; and the UK financial services regulator, the Financial Conduct Authority (FCA), published a consultation paper to update its guidance on social media financial promotions.

In January, the Centre released the endorsement guidelines for celebrities and social media influencers, which mandate compulsory disclosure of the monetary or material benefits of a product or brand they are promoting through their social media platforms.

Why do people ever listen to the (f)influencers in the first place? Is the “power” of the internet the main factor here?

An “influencer” is “someone having access to an audience and power to affect such audiences’ purchasing decisions or opinions about a product, service, brand or experience, because of the influencer’s authority, knowledge, position, or relationship with their audience”.

Finfluencers, for instance, have garnered a sizeable audience primarily due to the simplicity with which they break down complex financial advice and structures for people. However, the National Centre for Financial Education’s 2019 survey shows that India has a low financial literacy rate of 27 per cent, which partly helps to explain why the finfluencers’ 10-20-minute videos are so popular.

The psychology of influencer marketing was examined in a 2019 Forbes article by Bradley Hoos, who came to the conclusion that it works well because it capitalises on our most natural tendencies, emotions, and desires. Influencer marketing is word-of-mouth at a large scale, where people pay attention to the opinions of those they trust and of skilled storytellers. When we examine the psychological underpinnings, we discover that natural emotions, fear of missing out, and relationship-building manifest themselves digitally.

All of these responses are natural, human, and hardwired into all of us. The internet has discovered a means to access interpersonal relationships. The more you desire, you are more susceptible to being influenced.

The writer is Professor of Statistics, Indian Statistical Institute, Kolkata

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