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The story of fake P&Ls and figures: A critical look at finfluencers and financial pitfalls

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01 Feb '24
8 min read


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Did the headline bring you to the article?

It sounds familiar as this clickbait tactic is employed by most financial influencers, also known as finfluencers.

Today finfluencers like Raj ShamaniRachana Ranade, etc,  have emerged as significant opinions and decision-makers, particularly on platforms such as Instagram, Facebook, and YouTube. They try and ensure to put forward relevant and genuine investment advice for their audience. However, this development is not without criticism as not every finfluencer is reliable or genuine. There is the presence of a strong lure of get-rich-quick schemes which many fall prey to. More often than not they turn out to be scams as in the cases of Mohammad Nasiruddin Ansari and Abhishek Kar.

The investment consulting field is now controlled by 'financial gurus' and 'finfluencers,' whose influence grows during economic downturns, despite the unethical actions that frequently accompany their growth.

As these modern-day investment ‘gurus’ dominate financial discussions on social media with advice about the best stocks and wealth-building tactics, the distinction between legitimate advice and misinformation blurs. 

Allegations of finfluencers peddling false information, advocating stocks for personal benefit, and even charging fees for questionable advisory services have raised worries about the credibility of the financial advice available on the media platforms. 

This article tries to shed light on the potential pitfalls of blindly following finfluencers, underscoring the importance of awareness and due diligence in navigating the intricate landscape of personal finance. 

Why shouldn’t you trust them?

One-Size-Fits-All Approach

Fin influencers on social media may promote a specific investment strategy as a "guaranteed way to double your money in a year," regardless of their audiences’ individual circumstances or financial goals. This is a classic example of a one-size-fits-all approach, ignoring crucial factors like risk tolerance and investment timeframe. 

Finfluencers often offer such generalised advice that may not apply to every individual’s specific financial circumstances. Personal finance is fundamentally individualised, so what works for one person may not work for another. Blindly following a finfluencer's one-size-fits-all approach can result in ineffective financial tactics as they don’t take into account your personal goals, risk tolerance, and financial circumstances.

Overemphasis on Success Stories

Finfluencers like Ankur Warikoo often have shared their journeys with the audience. Warikoo has significant experience in finance and entrepreneurship, which played a crucial role in his success. This level of experience might not be common for everyone starting out. His specific investment strategies and decisions might not be replicable for others due to individual financial situations and market conditions.

While these stories might motivate you they might not delve into the risks and challenges faced along the way, potentially creating an overly optimistic picture. Followers should be mindful of the survivorship bias, highlighting only successful results and ignoring potential failures or disadvantages. 

There is a possibility that followers of influencers might consider taking loans to implement the trading advice provided by the influencers, exposing themselves to the risk of potential financial losses and susceptibility to debt. 

Fake Profit & Loss Screenshots

Finfluencers have been in the news recently after several were discovered distributing fake profit and loss (P&L) screenshots. 

They employ a variety of methods to falsify their profit and loss statements, including sophisticated clone apps and commercial photo and video editing software. Clone apps seem similar to legal apps from brokerage platforms like Zerodha, but finfluencers have control over the figures, allowing them to produce phony trade flows that represent a profit.

The modified P&L screenshots and screen recordings show the finfluencers making big profits, lending them false credibility. Finfluencers use their credibility to promote trading platforms, earn referral fees, and monetize through membership fees, paid courses, and market manipulation by promoting stocks and profiting from price increases.

The unfolding of scandals 

The Abhishek Kar Case

Abhishek Kar is a renowned Indian YouTuber and stock market investor. In August 2023, he was charged with breaking SEBI (Securities and Exchange Board of India) regulations for offering unregistered investing advice on his YouTube channel. The claims triggered a debate regarding financial influencers' roles in India, as well as the regulatory system that oversees them.

Some believe that Kar's acts were damaging and that he should face consequences. They claim he misled viewers and urged them to make dangerous investments without sound financial guidance. Others contend that Kar was only sharing his thoughts and experiences and that viewers should make their own financial judgments.

The 'Baap of Charts' Scandal

Launched in 2017, the Baap of Charts YouTube channel, run by Mohammad Nasiruddin Ansari, aimed to educate viewers about stock market trading strategies, particularly focusing on index options. The channel amassed over 4.4 lakh subscribers and 7 crore views before facing controversy and legal action in 2023. Ansari is the sole owner of 'Baap of Chart' (BoC), where he presents himself as a stock market expert who provides educational resources in the securities industry. Baapofchart was also the name of a product sold by Ansari, claiming to be an algorithm-based trading tool that could generate consistent profits without requiring users to analyze charts. 

It was discovered that he provided stock advice, both buying and selling, via numerous social media outlets like YouTube, X, Instagram, WhatsApp, and Telegram. 

Ansari was accused of luring investors with promises of guaranteed riches. Along with the prohibition, Ansari was ordered to repay Rs 17.2 crore that he obtained by defrauding investors and convincing them to engage in securities trading. 

He invited investors to attend "instructional programs" on a platform maintained by Bunch Microtechnologies Pvt Ltd. On this site, he advertised 19 courses about the securities market, four of which made promises of assured returns. 

The entire amount was classified as fees derived from unlicensed and fraudulent investment advice activity. An additional sum of Rs 3.42 crore was received using two UPI IDs affiliated with Ansari and BoC, maintained at Kotak Mahindra Bank and marketed on their website and social media outlets. 

From January 2021 to July 2023, Ansari and 'Baap of Chart' collected Rs 17.2 crore by tricking clients and investors into purchasing courses and workshops, enrolling them in exclusive groups, and convincing them to engage in stock trading. 

Following the SEBI probe, it was discovered that Ansari earned Rs 13.78 crore through courses and seminars delivered on Bunch's platform and mobile applications.

In its provisional verdict, SEBI accused Ansari and 'Baap of Chart' of misrepresenting their advising services as educational. They used theatrical YouTube videos to create the idea of massive earnings, enticing unwary viewers to enroll in Ansari's courses. These operations were described as fraudulent, to profit by persuading others to engage in the securities market with false assurances of significant rewards. 

SEBI’s role

Since early 2023, the Securities and Investment Board of India, SEBI) has been pushing for stricter compliance for this category of influencers. The fundamental goal of SEBI is to protect market investors' rights and interests, and the regulator is responsible for raising investor knowledge and tightening the noose around unscrupulous businesses. 

The market regulator has ₹3,942 crore available for investor education. To reduce market malpractices, the regulator should be more proactive in taking suo moto cognizance, investigation, and action against unregistered financial advisors and programs that raise investor awareness and financial literacy through SEBI-recognized institutions or individuals.

However, it is critical to recognize that retail investors own a great deal of responsibility for not falling for the deceptive claims made by finfluencers, because free advice, such as 'no-cost' ideas, can drain finances in disguise before we even realise it.

SEBI-registered analysts and advisors must also follow SEBI's mandatory advertising requirements. However, this does not currently apply to finfluencers. 

Consumer Awareness

As investors and audiences, we need to be personally aware of the financial market advisories, especially the ones that come from regulatory bodies like SEBI. SEBI has defined ‘Investment Advice’ and ‘Investment Advisor’ in its publications as follows:

  • Sections 2(l) and 2(m) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 define "investment advice" to encompass guidance on securities transactions, investment products, and portfolios, whether conveyed in writing, orally, or through any other communication means and includes financial planning, all for the client's benefit.
  • An ‘investment adviser’ is a person who, for consideration (meaning payment in both monetary and non-monetary terms), is engaged in the business of providing investment advice to clients or other persons or groups of persons, and includes anyone who claims to be an investment adviser under any name.

It is also worth noting that all of India's major stock exchanges, the BSE and the NSE, require prior approval for any advertisement made by stockbrokers or approved individuals/partners in cooperation with influencers/bloggers. Interestingly, some exchanges have equated influencers with over 1 million followers on social media sites with celebrities, prohibiting them from promoting stockbrokers or members.

Even the Advertising Standards Council of India (ASCI) updated its criteria for finfluencers, requiring them to register with SEBI before offering financial advice.

Manisha Kapoor of ASCI stated as quoted by Fortune India and Brand Equity, that the standards apply to all industry stakeholders. "There are possible risks associated with misleading and fraudulent advertising content in vital areas such as BFSI. To protect customers from financial loss, influencers who offer advice must have the proper skills and certifications," Kapoor noted.

Investors and audiences need to be personally aware of financial market advisories, especially those from regulatory bodies like SEBI. While SEBI-registered analysts must follow advertising requirements, these laws should extend to and be enforced for finfluencers. It is crucial to approach financial advice with discernment, verifying credentials, and seeking advice from reputable sources to make informed decisions. 

It goes without saying. Money will work for you only when placed under the right schemes and handled with due care.

 

 

Category : Finance and Investing


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Written by Deepali Singh