Amid an increased watch on the financial influencers and many crackdown in the recent past, many unethical trading practices have been followed in the market, say industry insiders. One of the activities that is on the rise is ‘renting’ licenses to dole out investment advice. Industry sources told CNBCTV-18 that many finfluencers are partnering with smaller research analysts to use their licenses to reach out to clients. Important to note that this practice is a violation of the SEBI code.

Finfluencers that CNBCTV-18 spoke to said that ‘renting’ RA licenses for a fee is happening and influencers pay around 20 percent of the fee they earn by providing stock tips and trading calls to the RAs. These influencers want to use RA licenses to evade regulatory watch. When asked if they want to apply for such licenses rather than renting it, they have multiple ‘issues’ with the format of licensing.

According to two finfluencers, the restrictive nature of RA regulations is something they want to avoid. In other cases, they say those who apply for these licenses don’t get it too easily.

“There is a credibility issue I believe. Sebi won’t trust finfluencers with such licenses,” says a financial influencer on the grounds of anonymity.

Even registered investment advisors are being targeted for these ‘partnerships’. RIAs say that the calls have picked up pace after Sebi penalized youtuber, PR Sundar, recently. “Only last week, a finfluencer from Noida contacted me and asked me to partner in exchange of a cut. Because our names and contact numbers are easily available on the internet, it is a not a difficult job to contact us. I declined the offer citing the tight rules Sebi has put down for us, but I am assuming RIAs and RAs with smaller AUM or fewer clients could fall for this,” said an RIA.

According to industry insiders, Telegram groups have become a ‘menace’ for the industry. They believe that many financial influencers have big groups on the chatting platform to dole out trading and investment advice to their followers. However, with the recent buzz about Sebi looking to strengthen the regulations around investment advisory, finfluencers have become cautious. They are now looking at newer methods to escape the regulatory glare.

Important to note that according to Sebi regulations, only registered investment advisors can offer investment advice to investors. Recently Sebi also put down stringent communication and advertisement norms for RIAs and research analysts to stop miselling of investment products and misuse of advisory licenses.

So, what does the finfluencer ‘deal’ sound like? Finfluencers want to use the names of research analysts and registered investment advisors to make their advice more credible. This advice ranges from trading tips to investment options. Industry sources say that after the recent crackdown, financial influencers are under stress to prove their credibility and hence partnering with registered entities looks like an easy option for them.

“Renting an RA license to be used by another individual or entity is just not unethical, but it's not allowed too under current guidelines. You need to show a trail of financial events for it which can easily be caught in a unbiased audit. It's nothing but a panic move by FFs to get some cover before the regulator comes along identifying them,” said an research analyst, Amit Kumar Gupta, in a twitter post.

Recently, market regulator Securities and Exchange Board of India (SEBI) on May 25 penalised and barred renowned youtuber and options trader PR Sundar from trading for a year over alleged violation of investment advisory norms. Influencer agreed to pay a settlement amount of Rs 46.80 lakh and to disgorge Rs 6 crore, which includes profit earned from advisory services and the interest on it. Apart from this, he has also agreed to refrain from buying, selling or dealing in securities for one year from the passing of the Settlement Order.

First Published:Jun 6, 2023 2:28 PM IST