Can You Trust Investment Advice from Financial Influencers? SEBI’s Crackdown Reveals the Risks

From readily available resources on stock trading and mutual funds to understanding market sentiment, financial education is more accessible than ever. However, the line between education and investment advice has blurred with financial influencers, or 'finfluencers', running amok.

These are individuals who create content on social media platforms like YouTube, X (formerly Twitter), and Instagram, offering guidance on personal finance and investments.

Many finfluencers, despite not being remotely qualified to give investment advice, often exaggerate their success, boast about impressive returns, or even promise guaranteed profits without fully disclosing the associated risks.

[Read: Using AI to Make Mutual Fund Investments? Read This First]

With high follower counts and strong engagement, they can appear credible, making it easy for investors to trust their advice without question.

Although some finfluencers may hold legitimate financial qualifications, their recommendations may not always be in the best interests of their audience. Many promote investment products or services based on financial incentives rather than genuine merit.

Blindly following their advice can lead to misguided investment decisions, potentially harming your portfolio. Recognising the risks posed by unchecked, unregulated financial advice, the Securities and Exchange Board of India (SEBI) has been actively taking measures to curb these practices.

One of its most notable crackdowns was in December 2024, when SEBI took decisive action against finfluencer Mohammad Nasiruddin Ansari, aka the Baap of Chart (BoC), and his associates. Nasir marketed himself as a stock market expert on platforms like YouTube and X, without being registered with SEBI in any capacity.

He lured investors into purchasing his 'educational courses' while also inducing them to invest in the securities market, promising profits with near-certainty if his recommendations or advice were followed.

SEBI received complaints alleging that Nasir misled retail traders with guaranteed returns, supported by evidence from WhatsApp groups where he shared buy recommendations for Bank Nifty options.

SEBI's investigation revealed that despite Nasir's claims of 95% accuracy for his recommendations, he had actually suffered a net trading loss of Rs 2.89 crore between January 1, 2021 and July 7, 2023. This exposed the misleading nature of his claims and the false sense of certainty he instilled in his followers.

[Read: SEBI Chief's Warning to Finfluencers! Here's What She Said....]

As a result, SEBI ordered Nasir and his associates to refund a staggering Rs 17.2 crore collected from investors and imposed market bans ranging from six months to one year on those involved.

Ansari, Rahul Rao Padamati, and their company, Golden Syndicate Ventures Pvt Ltd (GSVPL), were directed to repay the largest portion, amounting to Rs 16.89 crore, while the remaining sum was divided among four others.

SEBI's Measures Against Misguiding Finfluencers

Previously, through an October 2024 circular, SEBI had reinforced the restriction of direct or indirect association with another person who:

• Offers advice or recommendations, whether directly or indirectly, concerning a security or multiple securities, without being registered with or authorised by the Board to do so; or

• Makes any explicit or implied claims regarding returns or performance related to a security or securities, unless specifically permitted by the Board to make such claims.

Here, 'association' refers to any relationship involving financial transactions, client referrals, or shared technology systems (courses or sessions).

Note that the term 'another person' does not apply to individuals solely engaged in investor education, as long as they do not, directly or indirectly, participate in any activities mentioned in clauses (i) or (ii) above.

A SEBI circular dated January 29, 2025, further aims to tighten the noose on these finfluencers.

The market regulator has imposed restrictions on the use of live stock market data in educational content.

Under the new guidelines, stock market educators can only reference stock prices with a three-month lag, effectively curtailing the practice of providing real-time trading recommendations under the guise of educational material.

The aim is also to prevent impulsive investment decisions driven by short-term market fluctuations.

According to the circular, "A person engaged solely in education shall mean that such person is not engaged in any of the two prohibited activities. Such person should not be using the market price data of the preceding three months to speak/talk/display the name of any security including using any code name of the security in his/her talk/speech, video, ticker, screen share etc. indicating the future price, advice or recommendation related to security or securities."

Furthermore, SEBI has implemented stricter regulations on advertising practices. If any SEBI-registered firm fails to control ad placements, leading to an association with unregulated influencers, it will be considered a regulatory violation.

Any violations of these regulations from persons regulated by the Board or their agents can lead to penalties, suspension or cancellation of registration, debarment, and so on.

Things to Keep in Mind While Listening to Financial Influencers

Social media does offer a wealth of valuable resources for learning about finance and investing, with knowledgeable individuals willingly sharing their expertise and experiences.

It is an opportunity to engage directly with seasoned investors, global market participants, regulated fund managers, analysts, and credible financial advisors -- connections that may not have been possible in person.

However, to truly benefit from this access, it is essential to actively identify and filter out misleading content, focusing instead on genuine insights while avoiding the distractions of sponsored material.

Here are some red flags to watch out for...

• Guaranteed Returns - Be wary of influencers who claim their strategies provide consistent and guaranteed high returns. Legitimate financial professionals always acknowledge market risks and volatility.

• Pressure Tactics - Many influencers create a sense of urgency to purchase their courses by offering time-sensitive discounts, a common marketing strategy used to boost their earnings.

• Undisclosed Sponsorships - Some influencers promote financial products or instruments for monetary compensation. Always verify whether a recommendation is backed by genuine analysis or is simply a paid promotion.

• Complex Explanations - Content loaded with jargon and technicalities may give the illusion of expertise while confusing the audience. Misleading or overly complex explanations could lead to poor investment decisions.

Before following financial advice, always double-check the credentials of finfluencers.

[Read: Will Periodic Social Media Disclosures by Investment Advisors Help Investors?]

Registered Investment Advisors (RIAs) licensed by SEBI must meet specific educational and experience requirements to offer investment advice.

Therefore, a credible finfluencer should ideally at least be a finance professional with the necessary certifications and deep knowledge of capital markets. Remember that most social media influencers prioritise follower engagement, often producing catchy but generic content that may not suit your financial goals.

In contrast, SEBI-registered investment advisors offer unbiased investment advice and can help you build a diversified portfolio tailored to your goals, investment horizon, and risk tolerance.

To Conclude...

Enhancing financial knowledge through social media can be beneficial, but blindly following investment advice from finfluencers can have serious consequences, as evident from the Baap of Chart case.

While SEBI continues to take steps against potentially misleading and harmful advice, it is equally important for you, as an investor, to exercise caution and due diligence. If you are uncertain about any financial decision, it is always advisable to consult a SEBI-registered investment advisor.

Before relying on their guidance, verify their SEBI registration number and ensure they hold a valid registration certificate. Being informed and staying vigilant is crucial to making sound investment decisions.

Happy investing!

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.