Moneycontrol Mutual Fund Summit | There’s a big opportunity to democratise advice without diluting it, say experts

Speakers at the financial influencers segment of the event

Social media influencers benefitted over the past two years as people spent more time on the internet. These influencers talk about everything – from food, fashion, travel, and lifestyle to boring topics such as mutual funds and personal finance.

Experts say financial influencers, or ‘finfluencers,’ have helped to democratise advice, but risks are also evident. The US Securities and Exchange Commission recently charged eight individuals in a $100 million securities fraud scheme in which they used social media platforms to manipulate stocks.

Even the Securities and Exchange Board of India recently said it is working on a set of guidelines for financial influencers on such platforms.

Moneycontrol’s Kayezad E. Adajania talked to a panel of experts on the good, the bad, and the ugly of financial advice on social media platforms at the Moneycontrol Mutual Fund Summit. The experts included Kalpen Parekh, MD, and CEO, of DSP Mutual Fund; Pranjal Kamra, financial influencer; and Harsh Roongta, founder, Fee-Only Investment Advisers, and chairperson of the Association of Registered Investment Advisers (ARIA). Edited excerpts:

Many financial influencers have millions of followers. What are financial influencers doing differently than advisors, distributors, or fund houses?

Kamra: Almost all ‘finfluencers’ are unregulated. I’m one of the very rare regulated ones. And when you’re unregulated, you don’t play by the same rules, you’re not bound by the same disclosure requirements as registered entities. That gives you a lot of leeway to play around.

Second, a lot of content that's consumed in the name of finance is actually creators providing entertainment. Saying things like, instead of buying a Royal Enfield, invest in the stock.

If you sell a bite-sized packet of entertainment disguised as finance, people will get hooked to it and you're able to do it because reputed players can't. The onus on financial influencers is much more than any other category of influencers, which is why Sebi coming up with guidelines to ensure regulation is a great step and we should be regulated.

Registered investment advisors (RIAs) have traditionally catered to rich investors. If influencers are talking to the retail population, why is it bad?

Roongta: I personally don’t think that ‘finfluencers’ are bad. I think they've brought democratisation on advice and have brought finance to the masses. It is very difficult to catch the attention of a 24-year-old who has just started earning and to ask him or her to look at financial assets. If that has been achieved, there are lessons that we ought to learn.

But basically, if I have some following and I'm telling my followers something, I think it is incumbent upon me to advise them to consult a qualified expert as well. That's where regulations help, as they bring in credibility. Also, if a financial influencer is not disclosing endorsements, that's just plain wrong.

Investor education is one thing and financial advice another. Where should one draw the line?

Parekh: I think we should be realistic about what can be done and what's possible, and more so in the world of investing, which is multi-dimensional and has hundreds of variables. Drawing that line is a challenge and creating boundaries through just regulation alone is not easy.

I welcome the point that Pranjal said that some broad regulations do harmonise the rules of transparency. If I'm never going to put my own money and I'm still advising, then that is where the risk starts coming in.
Second, if consumers want to get carried away with nice music and dance and then put their hard-earned money at risk, I don't think you can blame others. My son goes for engineering classes; he doesn't follow a programme on YouTube to learn that course. I think that balance is very important, where we as investors should recognise what is right for our money.

At the same time, I would love to learn how to make risk-based communication entertaining. I think there's a huge opportunity to democratise advice, without diluting advice.

RIAs have amassed customers over a long period. Is there any change in communication style with clients after the advent of financial influencers?

Roongta: The influencers are keeping investment advisors on their toes. Now we know that the clients are going to ask questions and we better have answers. I think it is a very positive development in terms of making the profession more interactive.

At the same time, this has created a huge opportunity for us in the sense some of the risky advice given by unregulated influencers will end badly. Some of that blowback, obviously, will come back to the professionals like us.

How can the sanctity of financial advice be retained and where does entertainment stop?

Kamra: I'll answer this through the evolution of influences. Our evolution has happened because of all the malpractices that were, to an extent, happening earlier, which was probably not out in the public. For example, insurance is a commission-backed product.

People started trusting me because I was telling them about the side of a financial product that no one was telling. This is how we built trust because the traditional participants were not telling the people enough.

We were honest back then as a group because we were not being incentivised four years ago. Financial influencers are corrupt now because of the VC (venture capital) money that has flowed into the fintech sector. When that money flows into fintech, it eventually comes to us.
It’s really sad in the sense that I was trying to educate the public about the wrongdoings in the financial industry and right now as a group we are the widest source of misinformation. We have become the evil that we started to defeat.

Should mutual funds engage with financial influencers?

Parekh: When I give an ad in a newspaper, is it not a paid endorsement? Likewise, if I were to do something with an influencer, it is paid.
I think the starting point is the intent of doing it and what are guidelines you're setting. What we need to do is get the best out of both.

Let the responsibility come with experience and history and then allow the art of talking to consumers in a language, which is interesting.