The Securities and Exchange Board of India has acted strictly against a section of ‘finfluencers’. These are investment experts who use social media to push investment advice. Sebi’s recent orders’ primary concern is that such people provide advisory services without requisite registration. It is somewhat like prescribing medication for health conditions without certification. In the medical world, such people are called ‘quacks’. If you follow any unregistered advisor’s advice and incur losses, you have no recourse. Sebi can act against those who are registered intermediaries immediately. To act against an unregistered individual or entity, Sebi has to conduct a lengthy investigation process.
Sebi settled an ongoing investigation against PR Sundar, a YouTube influencer with over a million followers. The regulator barred Sundar from the securities market for one year and asked him to repay fees paid along with interest of Rs 6 crore to clients. From a regulator’s standpoint, a logical endgame is to punish those involved in violating rules. It is unclear from the Sebi order if people were misinformed or lost money due to the advice put out. It is not easy to establish fraudulent transactions or insider trading activities despite having a digital footprint for all actions in the stock market system. The problem happens with the issue of the ‘intent’ of such actions. Those are subjective matters, and very difficult to prove in court that the intention was to defraud or cheat anyone.
The Sebi action is similar to that of regulators in other countries. The Securities Exchange Commission in the US also came down hard on social media influencers in December 2022. Even in the US SEC’s case, these are still indictments. An outcome is awaited.
What it means to you
As an investor, you need to educate yourself against any misinformation. That is the only way you can protect your wealth. If you do not safeguard your interests, nobody else will. It is an era of information and data. There is so much of that on the internet that you cannot put up an excuse for not knowing anything. Just like you do any other activity regularly, you need to train your mind to read or learn something about personal finance. You do not need to dive deeper into the world of finance.
There are certain basics that you need to know. That would help you ringfence your interests in some way. Regulators like the Reserve Bank of India, Sebi, IRDA and the government are constantly putting out information on ways to keep your money safe. When it comes to action, you must take professional help. Personal finance advice is provided by those who are registered with Sebi or RBI, or IRDA.
Independent financial advisors must clear examinations and score enough to be registered financial advisors. These professionals help you with financial planning. You can sit with them regularly to identify your financial goals and determine the correct asset allocation. It is essential to have a professional guiding you at every step. However, when you choose such a person, you must ensure they are registered with regulators.
A good professional advisor is helpful to you only if you take an interest in your finances. For that, you must regularly read up about factors influencing your investments. You must ask the right questions to your advisor to make the most of the time you spend with them. If you control the conversation, that will go a long way in helping you create a robust investment portfolio.
However, if you are the type who asks the financial advisor to tell you the right thing to do, you will barely cover the basics of investment. When you meet your financial advisor next, you must prepare well. Instead of talking about ‘what and where’ to invest, focus on a conversation about ‘why and when’. Investing needs you to have a team. You must engage a professional advisor for advice but make informed decisions on your terms.
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)