NEW DELHI: With social media flooded with information, it is no wonder people get carried away by advice which is easily available. Whether it is YouTube, WhatsApp, Facebook or Twitter, there’s a race to become a social media influencer, and people in all hue and colour give advice on anything under the sun including investment tips.
Many of these influencers have gained huge social media followers and credulous people take their words very seriously. Also come to be known with the moniker – Finfluencers, or financial influencers – their popularity has become a nightmare for regulators, who keep warning credulous people from blindly following these influencers.
The concern among the authorities over the mushrooming brigade of finfluencer and its likely ill-effect on retail investors was visible when Finance Minister Nirmala Sitharaman recently had to warn against easily available financial solutions on the internet.
People taking investment or financial decisions based on tips from internet need to know the following:
Motive of financial influencers
While asking people to exercise caution before putting in their hard-earned money on someone’s advice on social media platforms, the finance minister said that seven out of the 10 financial influencers are driven by their own motives or to promote fraudulent schemes.
Yes, many of these influencers get paid to promote financial products, which even they may not purchase or invest in. But since they are paid in huge amounts, they would try and sell products that may not at all be suitable for you.
In the past, several crypto exchanges roped in celebrities and financial influencers to promote trading of cryptocurrencies like bitcoins. Many people lost their money as it is a volatile and an unregulated sector. There is no redressal mechanism if someone is duped of money. Despite this, financial influencers promoted crypto trading.
Recently, Bollywood actor Arshad Warsi among others were banned from participating in India’s share market after SEBI’s (Securities and Exchange Board of India) investigations found that they were involved in price manipulation.
Many YouTube channels share false and misleading information about certain stocks to encourage investors to buy them.
They accept paid promotions and make illegal gains by making scams. According to SEBI, while Arshad Warsi made R29 lakh, his wife earned a profit of R37 lakh.
Legality of social media investment tips
Not all the WhatApp and Telegram groups churning out stock tips are doing it legally.
The Sebi barred three people who were the administrators of a Telegram channel named @bullrun2017 from entering the market. It imposed a fine of Rs 5.68 crore on them for providing “misleading recommendations” on specific stocks in the app. They would first buy stocks of a particular company and then recommend the subscribers to buy those stocks.
They booked huge profits by selling those shares at inflated prices after the subscribers would buy the recommended stocks on their recommendation. In March 2022, SEBI had unearthed a major racket of stock price manipulation through social media and chatting apps. SEBI had also carried out search and seizure operations at multiple locations in Gujarat, Madhya Pradesh, New Delhi etc.
According to S Ravi, former BSE Chairman and Founder and Managing Director of Ravi Rajan & Co, in order to address these issues, regulators should consider implementing guidelines and regulations to ensure greater transparency and accountability in influencer marketing. They should disclose their financial relationships with the companies and that they are being compensated for promoting a good or service.
“Regulators should consider implementing stricter standards for the products and services that influencers are promoting. Companies should be required to ensure that their products are safe and effective before enlisting the help of promoters to use,” Ravi said.
Regulatory grey areas
Unfortunately, there are no concrete guidelines, as of now, to be followed by financial influencers. However, in November last year SK Mohanty, SEBI’s whole-time member, had said that the regulator would come out with guidelines for financial influencers. He said stock tips were flowing on social media without regulations. Chartered accountant Rachana Ranade, who is a financial influencer, welcomes the idea of government regulation for financial influencers. “Financial influencers have the ability to influence people’s financial decisions, and therefore, have a responsibility to provide accurate and unbiased information. If it’s a paid promotion, then they must disclose it.”
Influencers should adhere to the guidelines framed by advertising standards council of India. “Investors should look at the qualification and the experience of influencers who are discussing about any stock,” she said. When asked whether influencers should also register with the SEBI, she said that influencers are different from the portfolio managers. People should use their common sense before acting on someone’s advice, she added.
Without regulation, some financial influencers may take advantage of their position and provide false or misleading information in order to profit from their followers. Regulation can help ensure that influencers are transparent about their sources of income and any conflicts of interest that may arise. This can help consumers make informed decisions about the advice they receive from influencers. It is very important for consumers to be cautious while investing and to thoroughly research any investment options before committing their money.