The rise of finfluencers: How are they gaining our trust?

Capital markets regulator SEBI, recently issued a set of guidelines for advertisements by investment advisers which influence investors. The idea being to strengthen the code of conduct of advisers and also prevent any misleading information from being acted upon by investors.

In doing so, SEBI has inadvertently sparked a debate on social media, around whether the ‘real’ influencers are getting missed out under the guidelines despite some evidence on how investors are being misled.

Finfluencers, as they are popularly known, create financial content on social media platforms like Instagram and YouTube. The substance of the content ranges from generic advice on money to very specific advice on where to invest. It’s the latter which is worrisome.

Finfluencers gained a lot of prominence during the pandemic, where working from home meant more time for trading and investing in financial securities. There were several who peddled crypto coins of all kinds and that didn’t end well.

Others who belted out recommendations for new age fintech IPOs, which were all duds within a year. Yet, despite all the obvious red flags, finfluencers rule the roost for young earners who lap up their advice without checking credentials.

A recent article on Livemint, Finfluencers earnings: who bears the real cost? , pointed out how finfluencers earn a kind of commission from brands and brokers for getting new clients on board through their content. Fintech platforms and brokers find it easy to use them to explain their products rather than slotting in 30 seconds for a television advertisement.

By now, it should start getting clear that the finfluencer you follow is not an objective third party educator who is teaching you about managing your money. In fact, it is someone being paid by either intermediaries or product manufacturers, to influence the way you invest your money, but to their benefit.

For intermediaries, once you are on their platform, the more you trade, the more revenue they make and of course for product manufacturers, your recall of product after listening to an influencer video is of high value.

Why are you lured?

Followers are latching on to the drama created around money rather than the utility of how to manage your money. Think about it, influencers who in boom times were showcasing crypto currency and IPO opportunities are now talking about public provident funds, fixed deposits and inflation.

However, they do the talking with as much animation, no matter what the subject. It’s easy on our ears. Studies have shown when we get this instant information, free of cost, in a brief instructive manner, it increases the production of dopamine in our brains. That’s the chemical released when we feel happy.

By watching and liking these short reels by finfluencers, we feel happy and we feel a part of the lakhs of other people who have watched and liked these videos. It’s a community.

There is also the herd mentality of following what others are doing. You watch a reel , say, which is promoting the use of a credit card to book your travel, because you will get an obscene amount of reward points. It sounds great and guess what, ten thousand other people have liked this reel and there are at least three hundred comments from people who have benefitted from following the advice, then why not you too. If so many thousands of people can agree with this finfluencer about credit card spending then you should too.

While on the one hand the constant scrolling of reels can dull our minds, on the other hand when you watch an overly excitable speaker giving out money advice and you see so many others following it, your brain gets excited too. You want a piece of that action.

The one thing reel makers will tell you is that at the end of any reel there should be an action takeaway. Which means that the person watching it should be able to act on what they are seeing. This act can be to become a follower or to buy a product or to open an account and so on.

You are excited, you keep going back to watch more and as you see the likes and comments, the validation of the accuracy of what is being said becomes automatic. You follow the advice, 90% of the time without doing the due diligence required while dealing with money matters. Since, the person talking to you is an expert across the recorded screen, you can’t even ask them any direct, real time questions.

It’s the easy, addictive, quick and entertaining format of content delivery that is really getting us hooked and luring us to take actions and decisions with our money which are not unique to our personal circumstances and requirements. It’s like the IPL in cricket.

The format lends itself to a quick form of entertainment, in which you feel validated for having watched a sport too. You keep going back for more, even though ironically this short form cricket doesn’t do justice to the sport’s origins and the erstwhile popular test format and as some argue, it’s ethos.

What should you do?

Personal finance is and should be personal. You may listen to tens of views and advice on social media, but ultimately you need to do what works for you. If you are in a salaried job, with a home loan whose EMI takes up 50% of your monthly salary, diving into the next IPO or the latest crypto currency, is not going to make you rich and take away all your money struggles.

Neither is putting all your surplus money in a 15 year locked in public provident fund going to help. You have to inform yourself of the options and then decide. Do you want flexibility, liquidity, transparency, low cost and so on or do you just care about the potential to get a high return without understanding the probability of that actually happening.

So listen to them if you are entertained by it, but take action only after speaking to a qualified professional or advisor. Someone who has actually in person helped others invest and create wealth. Someone who can suggest options according to your unique circumstances.