Finfluencers (financial influencers on social networks) are finding ‘creative’ ways to get around the market regulator Sebi’s increased scrutiny of unregistered investment advice. Besides renting a registration number, the finfluencers are running YouTube channels where the ‘buy’ and ‘sell’ calls are disguised in code, setting up companies as a partner of a registered analyst (RA) and more, a new report by Moneycontrol revealed.
Many times such finfluencers lack a proper educational or professional qualification to offer financial advice. Sometimes there is a kind of monetary transaction between the financial advisors and the share they are promoting. The followers and subscribers of such influencers give confidence to the audience, hence millions of people follow their tips.
Modus Operandi
A YouTube channel that has a few lakh followers uses a language that its followers understand, the report said.
For example, there is a channel that uses phrases with chai (tea) and phal (fruit). When they say, “hum chai pee rahe hain” (we are drinking tea), they believe that the index is about to fall. That is a sign that their followers should buy a put. To indicate the strike price, they keep their trading charts open and keep the cursor at the level they believe the index will move, the report added.
On the other hand, when they say, “hum phal kha rahe hain” (we are having fruit), they are signalling that the index will go up. Therefore, their followers will know that they should buy a call.
The report cited an example of another channel that says something like “machli mar gayi” (the fish died), then the followers understand that the price is about to fall. On the other hand, when they say, “murgi kha rahein hain” (we are having chicken), then they are expecting the price to go up.
A person who has been following these social-media channels closely told Moneycontrol that the content creators seem to have coached their followers on these phrases a few months ago.
“They have a few lakh followers but they get around 25,000-30,000 views. That is a big conversion rate, when you consider that channels with much bigger subscriptions see many a few thousand views per video on a regular day,” said this person, who did not want to be named.
“I have seen people pay them even Rs 10,000 on Superchat, for helping them make a few lakh in profit,” he added. Superchat is a feature on YouTube that allows people to pay the content creator while on live chat.
‘Partnership’ model
Another way people are planning to escape the regulatory clasp is by setting up companies by partnering with an RA.
If any investment advice is given, it has to be given in the name of a registered analyst. Therefore, with this partnership set up, the finfluencers are thinking of giving advice under the company’s name but messaging it differently in their social media channels.
“The finfluencer will tell his or her followers that they have formed a partnership with this particular RA. Then, he or she will tell his or her following that ‘to get more tips from our team subscribe to this Telegram channel”’”, the report quoted a finfluencer, who did not wish to be named.
When the finfluencer uses the word ‘our team’, his or her followers will understand that the tips or trading calls are coming from the finfluencer and not really the company.
Another influencer had tried a different tactic, by signing up as a marketing manager of an RA. While that looks innocuous–that is, using the reach of one to advertise the services of another–sceptics said that the arrangement would work differently in reality. That is, the advertisement will pull the finfluencers’ followers to the RA’s channel, but the followers will believe that the finfluencer–and not the RA–is giving the advice.
Sebi proposals
Moreover, the Securities and Exchange Board of India (SEBI) is planning to issue regulations for finfluencers, or financial influencers, who share investment advice on social media. The move comes amid concerns that some finfluencers are providing misleading or inaccurate information that could harm investors.
Under the proposed regulations, finfluencers would be required to disclose their qualifications and experience, as well as any conflicts of interest they may have. They would also be prohibited from making false or misleading statements, and they would be required to provide accurate and up-to-date information.
The regulations are still in the early stages, but SEBI is expected to release them in the coming months. The move is seen as a way to protect investors from the risks of unregulated financial advice.
The proposed regulations are likely to have a significant impact on the financial influencer industry. Fininfluencers will need to comply with the new rules in order to continue sharing investment advice on social media. The regulations are also likely to make it more difficult for unqualified or inexperienced individuals to enter the financial influencer industry.
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