Are you addicted to the YouTube feeds of social media influencers such as Rachna Ranade or Ankur Warikoo, ever since Covid began? Do you keep checking Instagram for new posts from Financewithsharan or Fincocktails? Do you trade based on stock and derivative tips you get from Twitter handles and Telegram channels?
If you find the finance and investing content from popular social media influencers (finfluencers) far more entertaining than what’s on mainstream media or in official investor awareness programmes, we understand why. The new breed of social media influencers certainly excels at creating engaging and innovative multi-media content, which makes the dry subject of finance seem very easy and fun.
But if you’ve been making real-life investing decisions based on what popular social media influencers tell you, then you could be in for some rough times.
Pied Piper effect
In the last one year, despite repeated warnings from the RBI about crypto-currencies not being legal tender and the government making noises about banning them, YouTube feeds of leading financial influencers have been full of how-to guides on crypto investing.
Some of them demonstrated the ease of buying cryptos through exchanges such as Vauld, CoinDCX and WazirX. Some talked of investing their personal money in ‘well-researched’ cryptos such as Bitcoin, Ethereum and Polygon Matic, and plugged DeFi tokens as alternatives to bank FDs.
But those who’ve taken such posts seriously enough to bet their personal money on cryptos or their offshoots have lost their shirts. In the last one year, Bitcoin has lost 50 per cent of its value, while Ethereum and Matic have tanked 60 and 80 per cent respectively. Following up its warnings with punitive action, the Indian government has imposed a 30-per cent tax on gains from digital assets and a 1-per cent TDS on their transfer. Talk of a crypto ban is still on.
Cryptos apart, finfluencers have also put out quite a few posts on options such as digital gold, covered bonds and fractional ownership of commercial property which fall in regulatory no man’s land.
If YouTube and Instagram posts can lead you into regulatory grey areas on investments, Twitter, Whatsapp and Telegram groups can be fertile ground for you to lose a packet to intra-day bets on speculative stocks and derivatives.
The stock of the relatively-unknown BrightCom, which in its earlier avatars went by the names Lycos Internet, Ybrant Digital and Lanco Global, unaccountably turned a social media favourite last year. It sky-rocketed from under ₹10 in May 2021 to ₹123 by December 2021, helped as much by Twitter handles touting it as a multi-bagger ‘ad-tech’ play, as by bullish management guidance, acquisition moves and a bonus issue. But recent events such as a CFO resignation and delay in the credit of bonus shares, amid a flatlining EPS have seen the stock tanking 53 per cent in the last six months. The stock has negligible domestic institutional presence and falling promoter holdings, even as retail investors have enthusiastically boarded it.
This is just one among scores of ordinary micro-cap stocks that have been built up to a cult status by the social media influencer army in the recent bull market.
SEBI’s been worried that the Covid lockdown has given rise to a manifold rise in retail investors dabbling in equity futures and options (F&O). As Indian markets soared from their March 2020 lows, there’s certainly been a manifold rise in both identifiable and anonymous Twitter handles claiming to belong to ace F&O traders.
Some promise a 99.9 per cent ‘win rate’ from a proprietory F&O strategy, while others promise to tell you how you can ‘compound your money’ at 1-2 per cent a day. Many of the trader handles post screenshots of five- and six-figure profits from F&O to woo new folk to their dedicated WhatsApp and Telegram channels or webinars and workshops, where they offer to share the secret sauce of their trading success, charging anywhere from ₹300 to ₹30,000 a day. As the bull market has given way to big two-way moves in the market, stories of novice investors who dipped into their family savings or borrowed to dabble in F&O and lost it all, are coming to light.
Are you the product?
Financial advice or professional money management in the real world costs money. So, what makes financial ‘experts’ on social media spend so much time and effort in creating free content on a daily or weekly basis?
If you’re looking for an answer to this question, remember what a tech mogul once said: “If you’re not paying for the product, you are the product”.
Yes, some seasoned investors and market experts may be on social media through a genuine desire to share their knowledge and experience with the public at large. But for the majority of influencers, who have systematically built a social media following running into millions, the main motive to offering all this ‘free’ content, is to monetise their follower count by tying up with product or financial firms.
There are many routes through which large social media finfluencers earn big bucks by monetising their fan base.
* They allow advertisements from financial firms or others to be hosted on their YouTube videos or Instagram reels, and receive a share of ad revenues from the company. This is a transparent practice and you can clearly distinguish between the advertisement and the core content.
* They enter into affiliate marketing tie-ups with companies and share links to a financial product or platform. Based on the number of followers who click on the link, the influencer gets a revenue share or commission. Such tie-ups too are fairly obvious to followers.
* They charge a brand or financial firm a fee for a ‘shout-out’ — a mention of a specific brand or product in their Youtube video, Instagram post or Twitter feed. This kind of subtle plugging is harder to detect, as the promotion may be part of more generic advice or content. Some influencers do disclose upfront, through a disclaimer that they’re doing a paid promotion, but some don’t.
* They charge a brand or company a hefty fee to create a YouTube video, Instagram reel or Facebook post that is devoted to exclusively promoting their product/brand. Most influencers caution you that they’re doing a paid promotion, but some don’t.
Typically, higher the finfluencer’s follower count, higher the fee he or she gets to charge to put out such sponsored content. Mega influencers, with a million-plus followers in India, are estimated to charge anywhere between ₹ 4 lakh and ₹15 lakh for sponsored Instagram reels or YouTube videos promoting a financial product or platform, while earning upwards of ₹1 lakh for a series of sponsored tweets. The accompanying table gives you a rough idea of the ballpark fees charged by social media influencers for sponsored content.
While the above are legitimate marketing arrangements between a social media influencer and a brand, there may be cases of ‘informal’ arrangements too, where an influencer’s content is paid-for, but the follower is not made aware of it.
If you’ve come across instances on Twitter of multiple handles asking you to subscribe to the same rights issue or plugging the same microcap stock, it’s quite likely that these are paid-for posts sponsored by the company or market operators. If you find an out-of-context glowing post from a big Twitter influencer extolling a company, bank or mutual fund when it’s in the midst of a regulatory investigation or controversy, it would be safe to assume that it’s sponsored by the company or marketing agency to counter negative news flow.
Sponsored content apart, Twitter, Whatsapp and Telegram groups are fertile play-grounds for pump-and-dump operators in the stock markets who rig up the prices of dud stocks, so that smart operators or promoters can offload their holdings to newbie investors. In the past, such operators circulated word-of-mouth rumours about the virtues of an obscure company so that its promoters or big holders could offload the dud stock to unwary newbies. Today, they use Telegram channels, Whatsapp groups and Twitter and YouTube posts.
SEBI recently cracked down on some employees of broking firms for insider trading, after they were found to be sharing insider information on company results before they were officially filed with the exchanges.
What about regulations?
If you’re familiar with how tightly the business of giving advice is regulated for vehicles such as mutual funds, you may wonder how the regulator has allowed such practices to flourish on social media.
SEBI’s Investment Advisers Regulations 2013 lay down stringent conditions from registration to minimum professional qualifications to net worth criteria to fiduciary duties and fixed fees, for individuals and firms seeking to operate as registered investment advisers (RIAs) or Research Analysts. To avoid conflicts of interest, SEBI-registered advisers are expressly barred from receiving any form of commission, incentive or junket from any company whose products they recommend.
Social media influencers, however, seem to follow none of these rules. They possibly take cover under the exemption given in SEBI’s Investment Adviser Regulations, given to newspapers, magazines, electronic, broadcasting and telecom platforms to disseminate information without attracting its provisions.
Social media influencers, however, are definitely subject to the Guidelines for Influencer Advertising put out by the ASCI (Advertising Standards Council of India) to regulate influencer marketing by consumer brands. Based on these guidelines, here’s what you must look for to know if the content you’re seeing is a paid ad.
* A disclosure by the influencer that he or she has a material connection with the company or brand mentioned
* An upfront disclosure in the video or post using the words – Advertisement, Paid promotion, Sponsored, Collaboration, Partnership, Employee or Free gift
After these guidelines, many social media influencers do carry explicit disclaimers in their videos and posts, which state that they are not offering advice or recommendations and that followers are required to do their own due diligence. Promotional posts or videos on Instagram often carry the text ‘Paid advertisement’ at the start. If you’ve been skimming over this fine print on your favourite YouTube, Insta or Twitter handles so far, it’s time to stop and read it. But do be aware that not all finfluencer content in YouTube, Twitter or Telegram or Whatsapp channels carries the necessary disclaimer.
So whether you choose to get your advice from SEBI-registered RIAs or research analysts or from informal social media channels is really up to you. But do be aware that if it is finfluencers that you prefer, none of SEBI’s ground rules on conflicts of interest or qualifications apply to such content creators. It is up to you to fend for yourself.
What to check
All the above information on the underbelly of social media finfluencing however, should not prompt you to assume that all the content you see on YouTube, Instagram or Twitter is driven by vested interests. That would be throwing the baby out with the bathwater.
There are some very valuable resources out there in the social media for you to learn finance and investing from genuinely-altruistic folks who would like to share their knowledge and experiences. Social media platforms also offer you a unique opportunity to directly interact with seasoned investors with decades of market experience, global investors, regulated money managers, analysts and good advisors, whom you may not have met in real life. To benefit from this, you need to consciously identify and ignore the noise from the sponsored content, while assimilating useful stuff.
Therefore, when choosing an influencer to follow, don’t just go by the follower count or ability to turn out entertaining videos. Run these additional checks to identify worthwhile handles.
Identified vs Anonymous: If a person has good content to share on social media, there’d usually be little reason for him or her to use an anonymous handle. Though some anonymous handles do put out useful content, it is best to rely more on identified handles than on anonymous ones for authentic content.
Claim to fame: To offer expert commentary on markets or finance, an influencer should have the requisite professional qualifications or a full-time job in financial markets. If a finfluencer boasts of no such experience and describes himself or herself as a content-creator, educator, author or someone who’s ‘passionate’ about financial literacy, it’s reason to be wary.
Skin in the game: Knowledge and experience in the investing world is acquired by taking the plunge into stocks, bonds or mutual funds, experiencing profits or losses and learning from one’s mis-steps. Look for social media handles with skin in the game in the form of personal investing experience, rather than those who impact wisdom from an Ivory Tower.
Length of market experience: To dole out advice to others on investing or markets, a person needs to have seen at least a couple of bull and bear markets. While it can be hard to gauge the length of a person’s market experience, the date an influencer joined a social media platform like Twitter and YouTube, and began to share relevant content can be an indicator. Be wary of newly- minted influencers who’ve popped up only recently during Covid.
Specific product advice: Learn to sift generic investing or finance content from plugs for specific products, brands and platforms. Whether it’s a mega influencer or a low-key handle you follow, it is best to take social media advice to buy a specific stock, bond, mutual fund or even offbeat products like covered bonds or digital gold, with a bagful of salt. The social media is a great place to learn but a bad place to get influenced.