Financial advice at the click of a button sounds like a tagline from the dotcom bubble of the late 1990s, but that kernel of an idea didn’t shrivel up when the bubble burst more than two decades ago. In fact, it is flourishing today, especially in the forms cultivated by social media influencers. So much so that in recent times, authorities around the world have flexed their regulatory muscles in efforts to ensure that these influencers operate within the law.
Malaysia’s Securities Commission (SC) is among the latest to act. In July, the commission updated its Guidance Note on the Provision of Investment Advice ‘to address the growing popularity of financial influencers [finfluencers] promoting capital market products and services on social media, as well as to create greater public awareness’.
What’s new in the guidance note are three illustrations, presented in a question-and-answer format, of how the rules on the provision of investment advice may or may not apply to influencers.
Through these illustrations, the SC makes it clear that finfluencers typically don’t need a licence from the commission if they are merely sharing factual information about investment products to educate or engage with people.
The finfluencer may be deemed to be carrying on a business of investment advice or investment analysis
However, a regulatory line may be crossed when a finfluencer is rewarded for posting a recommendation or an opinion that can induce others to take action (such as to buy, sell or hold) regarding a capital market product. In this case, the finfluencer may be deemed to be carrying on a business of investment advice or investment analysis, which is regulated under the Capital Markets and Services Act.
Misplaced opinions
Bank Negara has also been closely watching the activities of finfluencers as they are an increasingly significant factor in how Malaysians make financial decisions.
In speeches in May and July this year, the central bank’s assistant governor, Dr Norhana Endut, cautioned that while many finfluencers provide good financial advice, some of the rest offer misplaced opinions, are involved in pump-and-dump schemes, or may be less reliable because they lack the necessary qualifications and regulatory oversight.
In a March 2023 report on retail market conduct, the International Organisation of Securities Commissions (IOSCO) said social media had become a major source of information for retail investors, particularly the younger ones. ‘Their investment decisions are more easily influenced by social media and what their friends and family invest in, rather than relying on registered advisors with knowledge and expertise of trading in markets,’ added IOSCO.
Nobody is proposing that finfluencers should be sidelined. It’s widely accepted that they’ve already established a foothold in the finance and investment ecosystem, and are fulfilling a vital function.
Influence in finance and investment must be exercised carefully and responsibly
The appeal of finfluencers is no mystery. There’s a connection and trust between them and their followers on social media. Popular finfluencers are adept at creating content that is accessible and relatable. When young people start developing an interest in money matters, it’s natural for them to turn to social media for resources and role models.
However, the risks associated with the rise of the finfluencers have to be mitigated. What’s important is to reinforce the principle that influence in finance and investment must be exercised carefully and responsibly.
Apart from regulators issuing guidance and reminders to finfluencers and financial players that work with finfluencers, plus enforcement crackdowns when necessary, perhaps the most effective response is to keep getting better at educating and raising awareness among the investing public. Financial literacy may seem to be mundane stuff, but is a sturdy shield against those who capitalise on ignorance and greed.
It’s possible that many financially literate investors will continue to consume the content of finfluencers but, armed with solid knowledge and understanding of financial concepts and risks, these investors will less likely be blind followers.
