Finfluencers’ earnings: Who bears the real cost?

To be sure, finfluencers amass followers on social media by sharing their insights, knowledge, and opinion on various financial topics such as investing, budgeting, and personal finance. Market regulator Sebi categorizes content creators having at least 1 million followers on any of their social media handles as celebrities. This includes, but is not limited to, influencers on sites such as Instagram, Facebook, Youtube, and Twitter.

Experts who spoke to Mint said the finfluencer industry started off with just a few people talking about personal finance and investments on Youtube. The pandemic, and the resultant lockdowns, provided the perfect environment for the finfluencer industry to bloom. That was the time when people confined to their homes turned to the online medium to understand the financial markets. The Youtube videos came in handy. A large audience was thus captivated and began trading in the markets.

Personal finance content from finfluencers began to flood social media platforms. There was both demand and supply for financial advice. There was a frenzy of investors dabbling in stocks and cryptocurrency and the markets rebounded sharply from its covid lows.

This heightened interest in the stock markets can be seen by the record opening of demat accounts in fiscal 2021. An increase in demat accounts, used to store financial securities like stocks and bonds, is widely seen as a proxy of investor interest in the markets.

It was around this time that finfluencers added another stream of income to their earnings: brand partnerships. Companies paid exorbitant sums to popular social media handles to promote their products or services. Earlier, content creators earned only through YouTube advertisements, affiliate links, and by selling online courses.

“During the pre-covid period, there were hardly any brand sponsorships," said Pranjal Kamra, who runs Finology, a Youtube channel that has more than 5 million subscribers.

Most brands that partnered with content creators were venture fund-backed fintech companies. It was the era of easy money. Central banks around the world cut interest rates to stimulate the economy during the pandemic. This led to a boom in the startup funding ecosystem and the money trickled down to the finfluencer community.

“Now though, a substantial part of earnings for influencers comes from brand tie-ups," said Kamra. To be sure, the number of brand promotions has come down in the past six months from its peak in 2022. This was due to the onset of the funding winter on the back of high interest rates and biting inflation.

 

From a company’s point of view, partnering with finfluencers provided unique opportunities. Firstly, influencer partnership has a high conversion rate compared to Google or Facebook Ads. “The effectiveness of finfluencer campaigns was much higher than Google or Facebook ads," said a fintech employee who deals with finance content creators for marketing. Finfluencers already had a niche audience eager to test investment products and fintech startups were vying for these new investors.

Secondly, partnering with Youtubers enabled companies to explain their products in detail and gain customer trust, as against using television ads. Youtube hosted longer format content, while television ads lasted only a few seconds.

“Our products are literally unknown to the market, so we needed somebody to explain these in detail to the users. We cannot gain customer trust from a 30-second TV advertisement," said the above-mentioned fintech employee who works with social media personalities for brand promotion. “Finfluencers were the perfect match. They can explain our product’s use case on Youtube, and they do a good job of it."

Experts say it is difficult to explain to a layperson the businesses of new-age fintech firms, such as Smallcase, Cred, Wint Wealth, etc. And, if people don’t understand the concept, they can’t be convinced to buy the product. “So, 50% of our active users came through finance content creators," said the fintech startup employee who did not want to be named.

The finfluencer industry was booming. There was just one shortcoming. It was operating in a regulatory vacuum. While Sebi-registered individuals and entities are heavily regulated, there is no regulatory body that oversees the conduct of financial content creators. Needless to say, there are concerns around the rise of finfluencers, so much so that Union finance minister Nirmala Sitharaman issued a word of caution against them last month. “If there are three or four people giving objective advice, there are seven others driven by other considerations," said Sitharaman.

Affiliate links

Most finfluencers earned a substantial revenue from affiliate links. These are weblinks shared in the description of their videos and allow followers to click on them to open trading accounts.

Pranjal Kamra (5.18 million subscribers), Rachana Ranade (4.4 million), Labour Law Advisor (4,13 million), Asset Yogi (3.64 million), FinnovationZ by Prasad (2.16 million), Akkshat Srivastava (1.64 million) are among the list of top finfluencers who use such affiliate links.

A Mint investigation revealed that brokers pay commission to finfluencers for accounts opened by investors using the affiliate link. YouTubers also get a commission from intraday trading (buying and selling stocks on the same day) and from futures & options trades made from these accounts.

According to a report by Sebi, the number of individual traders in index and stock options went up nearly eight and five times, respectively, in the past three years. It also noted that in fiscal 2022, 89% of traders in index options and 82% of traders in stock options incurred an average loss of ₹77,000 and ₹66,000 respectively. The percentage of loss-makers was 74% and 67% for index futures and stock futures, respectively, with an average loss of ₹96,000 and ₹2.1 lakh, respectively.

An executive of a Sebi registered research analyst firm said that finance content creators made a killing out of these affiliate links. They don’t usually solicit investment advice directly but often comment on IPOs, sectors and stocks and this influences people to open accounts.

“The next logical thing for the audience is to start using the trading account to buy and sell financial securities," said the executive who didn’t want to be quoted. “But most people are unaware that content creators earn an income when they open a new account and also whenever they trade."

Top brokerages, such as Zerodha, Uptstox, Angel One, and 5paisa, besides a host of unregulated crypto trading platforms are known to have such income-sharing arrangements with content creators.

Zerodha told Mint that it gives 10% as brokerage on the amount generated through accounts opened with the affiliate links Questionnaires were sent by Mint to Upstox, Angel One, and 5paisa, but they declined comment.

Brand sponsorships

 

When the investment frenzy seen in the stock and crypto markets died post the pandemic, the finfluencers gravy train came to a halt. That’s when they shifted focus to brand partnerships. And that was equally beneficial to the fintechs.

Companies typically pay an upfront fee to finfluencers where it concerns brand sponsorships. In some cases, the firms put in a fixed component and performance-linked variable pay structure and so the content creator also gets a bonus based on the performance of the video.

There are rumors that finfluencers are even offered equity stake by some fintechs but Mint could not immediately verify this.

The brand sponsorship model hasn’t been without its share of controversies. Many people have criticized it for giving individuals and entities a free hand to endorse unregulated investment products. This has come to Sebi’’s notice.

According to a 6 May Reuters report, the regulator is planning to limit the use of finfluencers by brokerage houses and mutual funds for promoting their products. Even if this proposal materializes, there is still a host of unregulated companies that don’t come under the ambit of Sebi regulations. One example of this is the firms dealing with crypto.

A case in point: In 2021, prominent finfluencers vouched for a company called ‘Vauld’. The company hired Ankur Warikoo, PR Sundar, Akshat Srivastava, and Anish Singh Thakur of Booming Bulls to promote their product.

These finfluencers pitched the product as a safe fixed deposit scheme offering high-interest rates using crypto holdings. As of May, these content creators had a combined subscriber base of about 7.17 million.

“In rupee terms, this can go as high as 14%, which is incredible and perhaps one of the best investments you can make, because it is almost equal to the stock market return," said Warikoo in a video promoting the now bankrupt Vauld. “And it is guaranteed, isme koi risk nahi hai (there is no risk).

Content creators put out detailed videos explaining the product and even invested their money in it as proof of their commitment. However, the fintech failed and has been unable to pay its depositors.

Many subscribers who invested in Vauld cried foul after the company defaulted.

“None of the investors will come out in public as they are embarrassed about admitting to the fact that they lost money," said a broker who did not wish to be named. “I personally know people who have invested more than ₹40 lakh after watching these videos."

The incident, though, has had no bearing on other unregulated firms dealing with crypto. For instance, ‘Gosats’, a crypto fintech startup which rewards investors with bitcoins for paying credit card bills using its app, has been partnering with top Instagram handles. These include the handles of Instagram celebs Sharan Hegde (2.22 million followers), Anushka Rathod (818,000 followers), Ujjhwal Pahwa (692,000 followers), and Shreya Kapoor (668,000 followers).

“For every transaction, you get 2% as money back in the form of bitcoin. You can also win up to one whole bitcoin by trying out their lucky wheel," said Sharan Hegde on his Instagram account while promoting Gosats. “I have personally tried this out, and found that this makes payments super-exciting, and fun."

Hegde, who runs ‘Finance with Sharan’, told Mint that he personally invests in cryptocurrencies. I personally believe it is a good source of value and that is why I promote cryptos."

Hegde said that he explicitly asks investors to not put more than 2-3 % of their portfolio in cryptos. The Instagram influencer claimed he receives on an average 200 requests for brand promotions through emails every month but works with only about four after checking their credibility.

Paid courses

For the most part, finfluencers are dependent on online and offline courses—classes aimed at promoting financial literacy of those interested in investing the markets—for their constant source of income in the form of fees.

Some finfluencers are just children who are teaching option strategies to their followers. But many are also known to run telegram channels, and offer what they claim to be useful tips to bet on stocks. These stock tippers, as they are known in market parlance, even take part in live trades without a Sebi license.

“They exploit the uninformed by showing off their luxury lifestyle and fake screenshots of their accounts showing crores of rupees," said another Sebi registered research analyst who, too, spoke on the condition of anonymity. Needless to say, most online investors do not verify these accounts.

The unbridled growth of finfluencers has been a matter of grave concern.

Last month, Sebi came out with advertisement guidelines for Sebi-Registered Investment Advisors (RIAs). The regulator mandated that they take approvals from a Sebi-approved entity, BASL, for any advertisements issued by them and pay a fee upwards of ₹3,000. The definition of advertisement is wide-ranging in the circular. However, no such rules exist for influencers.

Kamra is among the few content creators who also holds an RIA license. He believes that finfluencers should be regulated as they have become the prevalent medium of spreading financial advice.

“RIA regulations were meant to regulate the prevalent medium of investment advice," said Kamra. “The online medium is now widely used for giving financial advice and it is important to regulate the finfluencers."

Hegde told Mint that the word finfluencers has a negative connotation and that he should not be clubbed into this category. He said there is a need to differentiate between stock tippers and those who make generic personal finance videos.

Meanwhile, many investors continue to be swayed by the financial advice they are getting online. Many have already become victims to wrong financial advice, losing their hard-earned money in investments that have gone bad or firms that have collapsed.

For now though, there is not much being done to curtail the activities of finfluencers. Many market participants say it is time for Sebi to act. Consumer protection is paramount.