One lives to learn each day. Before we were able to fully fathom the meaning of the term of social media “influencer” one has been assaulted with a new word “Finfluencer”. Many would have not taken note of it had Kim Kardashian not been slapped with a fine of USD $ 1.3 million by the Securities and Exchange Commission (SEC) for promoting a crypto asset. The definition of “Finfluencers” one finds on Google sound very much like the “Snake Oil Salesmen” of yore, except that in this day and age “Snake Oil” has been replaced by financial instruments.
Celebrities are prone to endorsing all kinds of products from skin creams to vitality enhancers. One would suspect that they do not always test the efficacy of the products before lending their names to it. So why should it be any different in the case of investment instruments, one may ask? Physical products — especially those for personal use — are subject to several statutory safeguards from the Drugs and Cosmetics Act to the Prevention of Adulteration Act and Rules. However, when it comes to money it is a matter of faith. Stars have no special expertise to ascertain the bona-fide of the schemes or quality of the assets. In fact, some of them have been hoodwinked by fraudsters or come to grief by poor management of their own wealth. A few have been embroiled in scams themselves. So, they are not always the best names to trust on financial matters.
One can argue that no one except the most gullible confuse glamour with guarantee. But a new trend is emerging that may be more dangerous. This is a crop of self-styled “Investment Experts” on social media — especially YouTube and Instagram — with a huge follower base who freely dispense advice to the lay public. One does not have to be a cynic or sceptic to ask what motivates these individuals to dispense free advice to the public. The answer, obviously, lies in the influencer fees they charge and receive either in cash or kind from the firms whose products they peddle or their marketing agencies.
The logical questions that follow are of ethics and competence. Both are equally important. The ethical issue, one may argue, can be resolved by fair disclosure and disclaimers. But who can judge competence and how? Can mandatory certification — as done by the Securities and Exchange Boards of India (SEBI) for Investment Advisors — be a solution going forward? Is there a role for the Advertising Standards Council of India (ASCI)?
At another level the problem is neither new nor unique. Greed and hope are primitive human impulses that generations of unscrupulous businessmen have preyed upon. History is replete with stories of Chit Funds and Ponzi Schemes that have been used to dupe millions. Digital Assets are the newest addition to the list. Though there may not be empirical data to support, an analysis of past trends is likely to reveal that there is a surge in such dubious investment marketing at times of economic downturns when people are looking for ‘get-rich-quick’ opportunities. The difference is that in the pre-social media days, selling agents knocked at the customers’ door physically, at times leveraging on social obligations, professional or political relationships. Film and sports stars have often featured in advertisements for real estate projects that went bust.
The post-COVID world with many having lost jobs and regular sources of income is fertile for such shady enterprises. Then it becomes the moral responsibility of the government and regulators to shield the interest of common citizens.
The answers can range from the pious “increasing awareness and educating the public” of the pitfalls of “too good to be true” offers and importance of due-diligence at one end to a complete ban at the other. Crypto currencies have been under the scanner for long and rumours of declaring them illegal has been in the air. But in the interim deterrents by way of invoking penal provision under the Consumer Protection and Investor Protection Acts must not only be invoked but provided greater teeth to take on a modern menace. Though the initials ED (Enforcement Directorate), IT (Income Tax Department) and CBI (Central Bureau of Investigations) are anathema today, the tax authorities and central investigative agencies cannot look the other way and must investigate disproportionate gratifications falling in the grey zone.
Before that a good starting point would be to raise the level of public discourse on this. Policy and law makers should take this up in earnest and engage at the highest level of government to formulate a regulatory framework for cryptos and digital financial instruments.