Making finfluencers accountable

SOCIAL media can make any small incident go viral, whether good or bad, especially if shared by influencers or accounts with large audiences.

Social media often has a greater impact than traditional media.

People often share unverified posts based on rumours before traditional media even reports the news.

Interestingly, some traditional media outlets report on viral social media posts.

This shows that traditional media sometimes relies on social media as a news source. This observation applies to the capital markets as well.

For a long time, capital market reporting has been seen as outdated, heavy and dull.

However, social media has significantly changed the landscape.

It is now louder, more youthful, and eye-catching, with social media reposts and reshares of capital markets news aiming to captivate the public’s interest.

This has also played a role in boosting retail investors’ participation in the capital markets.

For example, an old video of Warren Buffett’s annual general meeting would have far fewer views compared to a re-edited version with special effects, presented in bite-sized pieces by an animated financial influencer (finfluencer) to their audience.

Impressions count

When brands plan their advertising budgets, they often seek out artists or celebrities with the largest following.

However, measuring popularity can sometimes be tricky.

Social media makes it easier by providing data on views and followers, helping brands identify the most influential personalities.

This, in turn, determines the monetary value and payment for these influencers when they promote a brand or product.

Capital markets have seen promoter roles evolve over time.

From digital marketers to financial coaches, and from “gurus” to today’s finfluencers, the landscape has changed.

What sets finfluencers apart from other brand influencers is their content and audience.

Finfluencers typically focus on capital market services or products, each with their own approach to monetising their audience. However, a major concern with finfluencers is the legitimacy of their investment advice.

For a while, this was a grey area. Many influencers operate under the guise of “investment education” or “financial literacy”, making it challenging for regulators to determine what is permissible and what is not.

The line between legitimate advise and misleading content has been difficult to discern.

The Securities Commission (SC) has finally made the bold decision to include finfluencers under its purview via the updated Guidelines on Advertising for Capital Market Products and Related Services which will come into effect on Nov 1.

Clarity over regulation

The SC decision is a positive move for all stakeholders.

The uncertainty and lack of clarity no longer exist. If the services need a licence or registration, they must get approval from the regulator before starting.

Similarly, if a licence is not required, the finfluencers or service provider need not fear.

The idea is simple, act within the confines of the permissible activity and you will be all right.

Prior to this, the parameters were blur. There have been organisations operating with an investment education facade but in fact, their main source of income is referral fees from fund management companies and brokerage houses.

They are neither an investment education certified organisation nor licensed distributors and securities/unit trust dealers.

Some “students” lost significant money following their recommended funds and haven’t recovered. This raises the question: What defines investment education versus advise?

Objectivity over monetary interest

Specifically, the guidelines are not intended to apply to the dissemination of factual information concerning a capital market product that is purely educational in nature.

Insisting that a person take any action or position relating to a specific capital market product (for instance, buy, sell or hold) is unlikely to result from the information disseminated.

The guidelines do not apply to, for example, university lecturers teaching courses on finance that deal with stock markets, corporate finance, and other matters related to finance.

Finfluencers, however, who actively promote a service or a fund or unit trust on behalf of licensed companies would be covered by the guidelines.

Based on this, it is clear that the SC recognises the issue of conflict of interest for finfluencers.

On one hand, they talk about investment education. On the other hand, they are paid for such content.

The audience may not know or be able to discern between objective content and favourably skewed content.

This is even more prevalent when monetary interest takes precedence over objectivity for some finfluencers with no regard to the consequences of their content.

An example is financial content on YouTube that talks about empowering the masses via financial literacy, yet they are pushing personal loans, credit cards, insurance plans and all sorts of products.

That is hypocrisy and to an extent a charlatan’s behaviour which needs to be reined in.

With influence comes responsibility

Everyone has a role to play in society. When it comes to capital markets, we need to remember that we’re dealing with people’s hard-earned money.

Losing your own money is one thing, but losing someone else’s is a much bigger deal.

It’s especially troubling if people lose money because of finfluencers who present content as helpful when it’s really for their own benefit.

That kind of behaviour is nothing short of a scam. As cliché as it may sound, with influence comes responsibility.

So, while finfluencers help promote the capital markets and educate the public, it’s crucial for them to educate themselves to tell authentic and legitimate products or partners apart from the questionable ones.

Once trust and credibility are gone, they’re hard to rebuild.