Menace of Finfluencers

SPOUT INVESTMENT ADVICE on social media in the name of 'technical tools'. Garner followers through marketing hocus-pocus. Claim to give highly accurate tips and brag about the crores you made in the 'market' through your strategies. Et voila!

With all that, you can tout yourself as a stock market or financial guru, charge followers for webinars, workshops and courses bundled with exclusive tips to tackle the market daily. You can make it mandatory for 'followers' to subscribe to specific investment platforms, or buy software and third-party services to earn commission. You can also endorse brands in videos and get paid for promoting products — without any disclosure.

This is the typical modus operandi of India's self-proclaimed financial gurus, who run illicit investment advisory services online. The Internet is a confusing space already where glass glitters more than diamond because it has got more to prove. GenNext retail investors take more lessons from their WhatsApp and Telegram groups, YouTube channels and Twitter feeds managed by finfluencers than any other medium. While some information is free, most comes at a heavy price. The real trap is in "paid" privileges (tips), where online babas take advantage of the gullible. Once money is exchanged, customers have no recourse if wisdom fails to deliver. Why blame them, when the market is inherently risky, after all!

Sebi Crackdown

A classic case is that of relatively unknown Syyed Shujauddin who earned more than ₹12 crore by running three Telegram channels and giving stock market tips to paid subscribers from June 2021 to June 14, 2023, when Sebi released the order against him, his unregistered investment advisory company — Kabir Financials, and fellow director Farhat Perween. Sebi's June 14 interim order states: "The failure of noticees (Syyed and Farhat Perween) to respond to Sebi's communication has hampered the fact-finding process in examining the matter and, therefore, it is imperative that interim directions are issued against the noticees inter alia so that they cease and desist their unregistered IA activities." The market regulator restrained Syyed and his wife from buying, selling or dealing in securities either directly or indirectly, in any manner until further orders. It froze bank accounts of Syyed, his wife, and his company and stated that proceeds in bank accounts to the extent of illegal gains of ₹12.84 crore shall be impounded, jointly and severally.

Or take the case of P.R. Sundar, a self-proclaimed financial wizard, who earned around ₹4.59 crore from investment advisory services, as per Sebi's order of May 25, 2023. Sebi banned Sundar from dealing with the securities market for a year. It directed him to pay back ₹6.07 crore to customers as per the fee collected from them and as penalty to Sebi. Sundar was found to be providing advisory services without the requisite registration. In fact, using his financial influencer (finfluencer) status, Sundar lured investors by offering paid workshops and classes. He gave daily recommendations on the stock market for a fee, and offered packages for advisory services through his website. Following Sebi's order, Sundar has closed his advisory services, but continues to conduct workshops.

Another relatively unknown entity, Kota Sunil Shankarbhai of Proworth Investment Research, (now called Profinity Investment Solutions), garnered ₹8.47 lakh in 11 days between February 6 and 16, 2020 by claiming himself to be a Sebi-registered investment advisory. The regulator, on May 31, directed Shankarbhai to refund ₹8.47 lakh to clients and complainants within three months.

In two years, Ruchit Gupta of Capital Gain Research, against whom Sebi released an order on May 12, 2023, charged around ₹79 lakh, from clients, merely for advising them on investing or trading in financial markets, but claimed ignorance of basic laws that regulate the market when questioned by Sebi. Gupta had responded to the regulator: "When I started this work, I didn't know about Sebi registration, later I realised that any advisory firm must be registered in Sebi."

Sebi received complaints against all these entities as investors incurred heavy losses when they applied the knowledge gained through online 'lessons.' These firms/individuals were giving recommendations related to purchasing/ selling/ dealing in securities which were communicated to 'paying' clients. Therefore, their recommendations are 'investment advice' as defined under Reg. 2 (1) (l) of Sebi (Investment Advisers) Regulations, 2013, also referred to as the 'IA regulations'. There is a misconception that Sebi's IA regulations are violated only when someone is giving 'buy' or 'sell' calls without registration. It also includes recommendations related to purchasing/ selling/ dealing in securities, which include advice on strategies, planning, analytical reports as well. Only a Sebi-registered and certified research analyst or investment advisor can charge a fee for any advice/strategy lessons, or analysis about the securities market.

Despite 11.4 crore demat accounts, investor awareness in India, regarding such laws, remains low. Lured by misleading advertisements, investors seldom check for Sebi registration certificates of fake financial pundits. Although the market regulator is cracking down on unregistered investment advisors, it takes action only when someone complains after suffering financial injury. Therefore, crores of retail investors remain at the mercy of financial gurus who mushroom and operate illegally, sans accountability.

The epidemic of fake financial gurus, or finfluencers, is rife online. Most are not registered with Sebi. The premium ones appear as experts on TV, or in live events on social-media channels, and write articles for newspapers. Some have garnered lakhs of followers on social media through digital advertising containing misleading claims and false promises. Since it is relatively easy to pose as financial wizards, these finfluencers use digital marketing to play a perception game. Most paid lessons are bundled with exclusive tips to tackle the market daily but not announced on public platforms. These Twitter Babas and Telegram Tantriks camouflage paid lessons as educational initiatives.

Non-certified Financial Gurus

While Sebi has taken action against those brought to its notice by investors, there are many who operate similar models, but have not been investigated. Take the cases of Subhadip Nandy and Rohit Srivastava. Even though their public communication is completely within the ambit of law, the content of their workshops and allied products cannot be vouched for as the access is available only to "paying" clients.

In fact, Nandy came into limelight when a stock market portal claimed he sold his trading tool to JP Morgan. When Fortune India contacted Nandy, he said he had not made any sale to JP Morgan and was misquoted. Today, Nandy has over 1.4 lakh Twitter followers, conducts workshops, and sells his trading algorithm through his website. He lacks Sebi registration, but that hasn't stopped him from appearing on TV channels as an "expert". His latest workshop costs around ₹55,000, where one pre-requisite is buying a ₹14,000 per annum trading view account and a basic web-based options analysis software for ₹5,000 per annum.

Rohit Srivastava of IndiaCharts Share Trading is another "expert" on TV channels. "We charge ₹90,000 for a three-month course. Every Sunday I give a three-hour video lecture on how to analyse Elliott Wave Theory, read charts and moving averages. I teach people how to fish, I do not spoon-feed, which is what a research analyst who tells you what to buy and what to sell does. I teach people how to read charts," says Srivastava. The IndiaCharts website mentions the benefits of being an "insider", including "coverage on short-term trades and long-term investment opportunities". When Fortune India asked Rohit, via email, to elaborate on what 'coverage' and 'investment opportunities' mean, he responded on a phone call, saying he needed a lawyer to draft responses to such questions, which were asked by regulators and not journalists. "Your questions are deep and tough, so I can't answer them in writing, but I can explain on the phone," he said.

Another self-proclaimed trading wizard is Dr. Devendra Singh. His videos emphasise that viewers are learning from someone who has a doctorate degree. His videos, though, don't disclose what his Ph.D. topic was or which institution conferred him the degree. Singh teaches Renko Trading, Elephant Bar strategy, and how to earn ₹20,000-30,000 every day through intra-day trade, on his YouTube channel.

In some videos, he talks about his luxurious life, where he trades for just a few hours each day. Through his YouTube channel and Telegram group, Singh promotes his Masterclasses and urges his followers to open accounts on Angel Broking, Upstox, or Fyers through specific URLs provided by him. Whether recommending these platforms involves Singh earning a referral fee hasn't been clarified by him. While he claims his content is for educational purposes, he charges people for attending his Masterclass and one-on-one training sessions. His latest online Masterclass is priced at ₹9,999. Singh did not respond to Fortune India's queries till the time of going to press.

Ruchir Gupta, meanwhile, blends the business style of P.R. Sundar and Syyed Shujauddin along with his own. He runs Ruchir Gupta Training Academy, which sells courses on the securities market. The Academy's GCD BSE Scanner with 2,800 Stocks is priced at ₹99,999. However, his Telegram group, Ruchir Gupta NIFTY50 Predictions, contains messages of recommendations given to paid subscribers and how much profit they made, to attract non-paying subscribers.

The Cost to Markets

Finfluencers provide free trading lessons mostly on YouTube. Giving free advice is not illegal, even if it includes buy/sell advice. However, defrauding is. Recently, Sebi barred YouTuber Manish Mishra for using his YouTube fan-following to promote the pump-and-dump stock manipulation scheme of Sadhna Broadcast. Thirty others, including Bollywood actor Arshad Warsi and promoters of Sadhna Broadcast, were barred from the securities market for involvement in the scheme.

Akshat Shrivastava, for example, teaches self-developed courses on the stock market for ₹10,625. It is not clear what qualifications he has for teaching such a course. The Advertising Standards Council of India (ASCI) has listed him as a non-compliant social media influencer for flouting MeitY (Ministry of Electronics and Information Technology) guidelines. In July 2022, Shrivastava caused heartburn among people who invested in crypto-lending platform Vauld, which he promoted on social media. P.R. Sundar, whom Sebi has already penalised, was also involved in the scandal. Despite being listed as one flouting government guidelines and promoting businesses that harmed investors, Shrivastava spouts investment wisdom on his YouTube channel.

Finfluencers wield huge power over followers. Those with a large following can influence markets and movement of specific stocks through recommendations. Sundar's YouTube channel has over 1 million subscribers; Dr. Devendra's Telegram groups have 4 lakh subscribers; Subhadip Nandy has 1.4 lakh Twitter followers, while Rohit Srivastava's IndiaCharts Twitter account has 54,000 followers, and Ruchir Gupta's NIFTY50 Predictions Telegram channel has 4 lakh subscribers.

Despite guidelines of MeitY and consumer protection laws regarding endorsers, it is easy for a finfluencer to influence the market since it is next to impossible to detect any financial dealing between a finfluencer and promoters of a company or any other interested party.

Let the Buyer Beware!

Section 2(l) and 2(m) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 states that "investment advice" means advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products, and advice on investment portfolio containing securities or investment products, whether written, oral or through any other means of communication for the benefit of the client and shall include financial planning. An "investment adviser" is a person, who for consideration (meaning, payment in both monetary or non-monetary terms), is engaged in the business of providing investment advice to clients or other persons or groups of persons and includes any person who holds out himself as an investment adviser, by whatever name called. He is required to be certified by Sebi.

However, free investment advice provided through widely available mass media is exempt. A "research analyst" as per Regulation 2(1)(u) of Sebi (Research Analysts) Regulations, 2014, aka the 'RA Regulations, 2014' is a person who is primarily responsible for preparation or publication of the content of the research report; or providing research report; or making buy/sell/hold recommendation; or giving price target; or an opinion concerning public offer, with respect to securities that are listed or will be listed in a stock exchange, whether that has the job title of "research analyst" or not. It includes any other entities engaged in issuance of research report or research analysis, as in, any associated person who reports directly or indirectly to such a research analyst in connection with activities provided above. The prima-facie interpretation of the clauses imply that any advice related to investing money in the stock market, even if it does not include any buy or sell call, when given in lieu of any kind of payment falls within the ambit of financial advice. People who give such advice, whatever they may call themselves, are considered as financial advisors or research analysts by Sebi. Financial advisors can operate only after they obtain the necessary certification from Sebi.

In addition to the MeitY guidelines for social media influencers, the Consumer Protection Act, 2019 provides for a penalty, to the extent of ₹10 lakh, for misleading advertisements. The culpable parties include not only the advertiser but also the endorser, which includes social media influencers as well.

The Impact

While India has 11.4 crore demat account holders, it has only 1,325 registered investment advisors (RIAs) — 1 RIA for 86,037 demat account holders. The ease with which unregistered investment advisors are flourishing may be one reason for decline of registered entities. These non-registered entities could also be selling services without complying with tax laws resulting in lower tax collection. For instance, says Srivastava, "We issue GST certificates only to B2B customers but generally don't issue GST certificates to B2C customers. I pay GST from my own pocket if any B2C client asks for a GST receipt because my course fee includes GST and I don't charge over and above ₹90,000 for issuing any GST certificate." A well-known stock market advisor on condition of anonymity says that it is easy to clear Sebi's exam and obtain necessary certifications for anyone who claims to know about the stock market. However, a registration with Sebi, and the certification that follows, bind the person to follow rules and regulations laid down by the market regulator. The self-proclaimed gurus, however, want to reap the benefits of the burgeoning retail crowd in the stock-market but do not want to take on liabilities of ensuring their client's financial well-being.

Sebi, MeitY, ASCI, consumer forums, and agencies responsible for the financial well-being of the people should work towards bridling unregistered entities, who are neither accountable to their "paying" customers nor towards the regulator in maintaining the sanctity of the securities markets. Proactive action against such advisors is a necessity. Waiting for only affected parties to complain may not be in the best interest of the public at large.

Today, the financial advisory ecosystem has become rewarding for such self-proclaimed stock market and financial gurus who ignore compliances and twist the laws. On the other hand, those operating accountably, through proper certifications are bound by laws and ethics, and hence, unable to compete with the fake gurus. Only when Sebi weeds out unregistered financial advisors posing as online trainers or teachers can the registered ones function under the ambit of the law. The primary objective of Sebi is to protect the rights and interests of market investors. The regulator has the onus of increasing investor awareness and tightening the noose around rogue entities. Incidentally, according to its FY22 balance sheet, the market regulator has a corpus of ₹3,942 crore in its books that is sitting idle, part of which can be deployed in investor education. A questionnaire sent to Sebi remained unanswered till the time of going to press.

At this juncture, the regulator has to be more proactive in curbing malpractices in the market, especially from those who wield substantial power to influence the market without any accountability. The two-pronged strategy of taking suo-moto cognizance, investigation, and action against unregistered financial advisors, coupled with programmes for raising investor awareness and financial literacy through institutions or individuals recognised by Sebi could release the market from the grip of widespread fraud.