SEBI Chairperson Madhabi Puri Buch in a press meet following the regulators board meet weighed in on the hot topic of influencers in the investment arena. What was notable about her remarks was that she distinguished between influencers focusing on "investor education" and those offering "inducements". That is a fine balance that will need to be maintained while framing rules and regulations as well, lest a few black sheep lead to the entire herd being branded in one light and an important initiative to educate the masses being nipped in the bud.
There's good influence out there
I did a cursory check, with not very high expectations, on the content being put out there by some of the leading influencers. And I was positively surprised. There is some sage advice and good knowledge being spread there, and more effectively than in several of the staid investor camps.
For the first time, in a long time, there are many people with knowledge of investing taking the right kind of information to the masses to increase financial literacy. Killing this initiative before it has had the opportunity to achieve its true potential can be detrimental to the entire nation. It can increase participation in the capital market and help mobilise savings for productive use in a capital-starved country.
But a need to level the field
Influence is good for those who wield it. It gets them the power to influence the actions of several others. But like with every other power, there must come responsibility. It should not be that we have two parallel systems, one regulated and one unregulated co-existing. That cannot be. Here it may be noted that some of the bigger influencers have now got organised as enterprises and registered with SEBI, but there is a big ecosystem out there that operates without any checks and balances.
Hence, there must be rules that align the minimum qualifications of investment advisors registered with SEBI and those offering advice as influencers. And, perhaps, a separate set of rules for those not looking to offer advice but only educate investors. But no one in the capital market system should be outside the purview of the regulator, as that poses a risk to both individual investors and the entire ecosystem.
Present SEBI regulations require investment advisors to have a relevant qualification in finance from a recognized institution to be eligible for a license. Advisers also need to have a minimum five years of relevant professional experience in the financial or securities sector and must have a minimum networth of Rs 5 lakh. There are no such rules for influencers, all you need is a social media account to get started. Such dichotomy must not continue.
The rules may be revised to align them, but no one should have a free run while another set is asked to also comply with a general set of responsibility obligations scripted by the regulator. This should help address the issue of "inducements" and "misrepresentation" by certain influencers.
Influencers and risks of oversimplification
In my reviews of content offered by some influencers I found a few cases where well-intended effort was made to simplify concepts and investing for the uninitiated. For instance, age-old stock market wisdoms of invest in businees you understand or the Peter Lynch doctrine of buy brands you use and like were contextualized for the lay investor. However, some of this tends to oversimplify the investment and stock identification process. Imagine buying Hindustan Unilever just because you like Dove soap or buying Nestle because you like Nescafe. That's hardly reflective of the companies in their entirety. Several lay investors may not even be aware of the entire portfolios of these companies. Often limited information can be more dangerous than no information at all.
A conservation from an ace fund manager spotlighted a folly several individual investors make, of using casual advice/comments from smart investors on stocks as buy recommendations. These money managers take a portfolio approach and hence their bad bets will often be more than offset by their right bets. An investor who picks one of the losers may suffer a much worse fate. Hence, for most investors taking the mutual fund route or being guided by a professional investment adviser is the best option. Dabbling in stocks directly should be generally avoided by individual investors unless they are equally qualified as an investment advisor to judge the merits of a specific stock investment and the risks associated.
Go passive, invest wisely.
