Vantage | Going for online stock tips? Think again

In the digital age, the path to becoming an expert has evolved significantly. Traditional notions of expertise often involve obtaining a degree or years of rigorous research. However, today, the landscape is changing rapidly with social media accounts and a good phone camera being all it takes to claim the title of an expert. These modern-day experts are known as influencers, but what happens when their influence extends to matters as crucial as health or finances?

Consequences of misleading influence

Recent developments in India shed light on the challenges and consequences associated with financial influencers. Indian regulators have initiated a crackdown on these individuals aimed at curbing misleading practices and protecting the interests of the public.

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Case of Mohammed Ansari

One influencer who recently faced the consequences of his actions is Mohammed Ansari. Ansari operated a popular YouTube channel known as “Baap of Chart”, boasting approximately 4,50,000 subscribers along with 83,000 followers on Twitter. However, Indian regulators have banned him from accessing India’s securities market and imposed a hefty fine of Rs 17 crore (around two $2 million).

Deceptive practices unveiled

Ansari’s crime was not simply being an influencer; it was the deceptive practices he employed. While claiming to offer valuable financial advice, he misled his followers by promising profits of 20 to 30 per cent. In reality, Ansari had incurred significant losses since 2021, totalling around Rs 3 crore. What made matters worse was that his stock recommendations were disguised as educational courses1 for which he charged his audience resulting in regulatory scrutiny.

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Not an isolated case

Ansari’s case is not an isolated one. Indian regulators have been cracking down on multiple financial influencers including PR Sundar who also provided investment tips on social media. The consequences of his actions included a one-year ban on securities trading and fines amounting to Rs 6 crore.

Legal perspective

The reason behind this stringent regulatory action lies in the legality of these financial influencers’ activities. Not everyone can provide formal investment advice to the public such as recommendations on stocks or assets. Only registered entities like stockbroking firms and mutual funds have this privilege. The financial influencers in question are not registered making their advice illegal according to Indian regulators.

Vested interests

One might wonder about the distinction between influencers and well-intentioned friends or family members who share financial advice. The critical difference is that influencers may have a vested interest in the advice they offer. They might receive commissions from brokerage firms, referral fees or other undisclosed incentives, which could cloud their objectivity. Furthermore, the educational qualifications and experience of these influencers remain largely unknown leaving followers at a disadvantage.

Impact of manipulation

These influencers are suspected of promoting stocks in exchange for personal gains, which, if true, is illegal and can manipulate the markets. With millions of followers, the potential impact of their recommendations on stock prices is significant. Consequently, Indian regulators are proposing that financial influencers register themselves, eliminating the possibility of commissions or kickbacks.

Influence of educational content

However, not all influencers are pleased with these regulatory measures. Some argue that they are merely educators providing valuable information on topics like taxes or the stock market. They assert that they should not be lumped together with those engaged in deceptive practices.

Role of personal responsibility

Ultimately, the responsibility does not lie solely with the government’s regulation. Individuals must exercise caution and scepticism when considering financial advice from influencers. It is crucial to conduct independent research, read extensively and critically analyse online content. Each person should ask themselves whether the advice makes sense and aligns with their financial goals.

While a social media presence and a good phone camera may enable someone to become an influencer, credibility in financial matters still depends on traditional sources of expertise. Education, experience and official recognition remain crucial elements in determining who can be trusted to provide sound financial advice. As users, it is our duty to be vigilant and discerning, not solely relying on government regulations to protect our financial interests.

Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.

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