Despite a prolonged bull market, a boom in both investments and investors, strangely, the number of registered investment advisors and research analysts in India has not seen a significant rise. The number of demat account holders tripled from 4 crore to 11.4 crore between March 2020 and March 2023 while RIAs are still languishing between 1200 and 1400 in the same period.
Currently, there is only one Registered Investment Advisor (RIA) for every 86,037 demat account holders, that is, a total of 1,325 RIAs serving 114 million demat account holders.
On the other hand there is a burgeoning tribe of self-proclaimed financial experts plaguing the internet who are preying upon the Indian investors' dire need for guidance to navigate the securities market.
It is an enigma as to why there is reluctance on the part of the financial influencers, colloquially known as Finfluencers, to register themselves as Investment Advisors (IAs) or Research Analysts (RAs) with Sebi despite severe shortage of these professionals.
Financial capability is not a constraint for Sebi Certification:
A typical Finfluencer is an individual entity who pulls audience on their own charisma. Usually such an entity would only need to obtain an Investment Adviser (IA) or Research Analyst (RA) certification as an individual.
The Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, aka IA Regulations, Rule 8(2) requires IAs, who are individuals, to have net tangible assets of value not less than five lakh rupees, while Securities and Exchange Board of India (Research Analysts) Regulations, 2014, aka RA Regulations, Rule 8(1) mentions that an RA who is individual or partnership firm shall have net tangible assets of value not less than one lakh rupees.
Clearly, a Finfluencer does not need to invest a huge capital in obtaining Sebi certification either as IA or RA, at least to begin with. In fact, such financial requirements seem paltry when compared to the amount finfluencers seem to spend on digital advertising and marketing.
Moreover, every Finfluencer claims to be making tremendous profits from the market using their own financial wisdom so financial constraint obviously can't be an excuse for not registering with Sebi.
In such circumstances it is quite evident that it is highly likely that the benchmarks of qualification or the obligations demanded from a registered entity puts the finfluencers in an ineligible or inconvenient position.
Are Finfluencers even qualified to obtain Sebi certifications?
A self proclaimed 'genius' trader, Sashwat Verma, through his company Amrevx academy, teaches courses on Trading in the stock market. Enrollment perks include access to his premium Telegram channel, which is likely to contain buy/sell tips, as is the general modus operandi of Finfluencers.
Sashwat, apparently, makes more than ₹1 crore per month from trading in the securities market since he was 19 years old. If online content about Sashwat is to be believed, he is the youngest certified ethical hacker of Chattisgarh, youngest certified forensic expert in India, an author, a millionaire, and an angel investor who has been covered by some of India's leading publications. Upon close observation you would find that all those articles are paid advertorials! Interestingly, Sashwat’s qualifications are conspicuously missing from all his online profile descriptions or press coverage.
Take another case, Subhadip Nandy, whose introduction in his website reads as thus: "I am an independent quantitative derivatives trader. Have a background of economics and management. Have been the research head of one of the biggest prop firms in India at one point of time. Now a quant consultant for a forex hedging firm which manages AUM of ₹2000 crore."
In Nandy's entire introduction one will not find a single name that can be used to confirm the veracity of his claims about his educational qualification or professional experiences.
Another trader, Dr. Devendra touts his doctorate stature on his YouTube videos. Upon deeper investigation it gets revealed that Dr. Devendra is actually a Ph.D. in Pharmaceutical Sciences from Vishwakarma University.
Possibly, finfluencers who do not opt for Sebi certifications, lack the minimum qualifications or experience, or the ability to crack the required certificate course from NISM. In such a case one wonders how these finfluencers can proclaim themselves to be ‘experts’ of financial markets.
Rule 7(1) of IA Guidelines stipulates academic qualifications along with an experience of at least five years in activities relating to advice in financial products or securities or fund or asset or portfolio management, to qualify for IA certification. The minimum academic qualifications include either a professional qualification or post-graduate degree or post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from a university or an institution recognised by the central or any state government or a recognised foreign university et al; or completion of Post Graduate Program in the Securities Market (Investment Advisory) from NISM of a duration not less than one year; or obtaining a CFA Charter from the CFA Institute.
Additionally, as per Rule 7(2), the individual is required to have, at all times, a certification on financial planning or fund or asset or portfolio management or investment advisory services from NISM; or from any other institution accredited by NISM.
Rule 7(1) of RA Guidelines stipulate that an individual to be registered as research analyst to have a professional qualification or post-graduate degree or post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, financial services or markets, provided by a university which is recognised by University Grants Commission or similar body; or professional qualification or post-graduate degree or post graduate diploma accredited by All Indian Council for Technical Education, National Assessment and Accreditation Council or National Board of Accreditation et al; or completing a Post Graduate Program in the Securities Market (Research Analysis) from NISM of a duration not less than one year; or a graduation in any discipline with an experience of at least five years in activities relating to financial products or markets or securities or fund or asset or portfolio management. Additionally, Rule 7(2) mandates such individual to have, at all times, a NISM certification for research analysts.
If educational qualification is not a barrier then a finfluencer may have issues with the stipulated obligations and responsibilities that come with the certification.
Finfluencers want clients minus the responsibility
Sebi has placed obligations upon a certified Investment Adviser or a Research Analyst in order to ensure the wellbeing of the investors and fairness in dealing with the market.
The foremost obligation of an IA or RA is to act like a trustee towards its clients and disclose all conflicts of interests as and when they arise.
Additionally, in relation to the advice, an investment adviser is not to receive any payment from any person other than the client being advised. However, finfluencers earn heavily from endorsements and affiliate marketing. For finfluencers, the very aim of creating a follower community is to sell products, services, or ideas to a targeted cohort of gullible audience who are under their influence.
For instance, Dr. Devendra’s free telegram channel mentions in a post, "Open Angel or Fyers Account and TRADE THERE in order to get added to:- DR. D TRADING UNIVERSE FOR VIEWS ON CASH, F&O & COMMODITY MARKETS." Here Dr. Devendra is urging his followers to trade through Angel or Fyers platform, from where he gets referral fee, in lieu of getting access to his premium telegram channel that contains his daily 'views' or opinions on cash, F&O, and commodity markets.
Similarly, Subhadip Nandy sells his software to those learning trading from him. In an email to Fortune India, Finfluencer, Rohit Srivastava, of Indiacharts also revealed his plans to soon launch his algo trading software in the market. Finfluencer Akshat Shrivastava too promotes zero brokerage stock trading platform Mstock owned by Mirae Asset that offers discount to subscribers while referral fees to Akshat.
However, none of this would be possible if these finfluencers became certified IAs or RAs because
as per Rule 22A (1) of IA Guidelines neither the finfluencer nor anyone associated with them will be able to charge the clients for these products.
Most importantly, IA certification from Sebi will mandate a finfluencer to open their own securities transactions to Sebi as their trades will need to be commensurate with their recommendations. Also, they would need to customise their recommendations individually as per the risk profile of each client.
On the other hand, an RA certification will require finfluencers not to deal or trade in securities that they recommend or follow within thirty days before and five days after the publication of a research report. Closer scrutiny of finfluencers trading accounts may bring the connection in their own trades and stock recommendations given by them on social media platforms, says a market veteran on condition of anonymity.
To sum up, till the time Sebi investigates and nabs the finfluencers for any wrongdoings, or brings about stringent protocols for their conduct, it is simply not in the monetary interest of any finfluencer to register themselves as IA or RA with Sebi. Rather, the lure of easy money and lax code of conduct of the finfluencer profession may attract the aspiring securities market professionals to seek backdoor entry into the profession, finfluencer style!