This article first appeared in Capital, The Edge Malaysia Weekly on January 25, 2021 - January 31, 2021

LAST year, the mushrooming of self-proclaimed investment advisers had intensified to the extent that their activities on social media, online forums and messaging applications drew the attention of the Securities Commission Malaysia (SC).

On Dec 30, 2020, the regulator issued a Guidance Note on Investment Advice warning individuals that conducting a business of offering advice without a licence is an offence under the Capital Markets and Services Act 2007 (CMSA) that is punishable with a fine not exceeding RM10 million or imprisonment not exceeding 10 years, or both.

The typical modus operandi of these unlicensed investment advisers, as the SC points out, is to invite the interested public into subscription-based private chat groups — Telegram, WhatsApp, Facebook and others — where stock recommendations such as “buy”, “sell” and “hold” on specific companies are shared.

Interested parties’ inclusion in the private chat groups are sometimes preceded by a seminar or a training session, although this is not always the case.

The internet is rife with these so-called stock advisers’ promotional activities. The commercials, which often appear on YouTube, are compelling. They are even emotional to an extent, promising viewers financial liberty and the time to be with loved ones — if only they were to make the right financial choices.

Some of these advertisements appear as clickbait with testimonials of normal citizens “earning up to RM100,000 in the past 72 hours” in the stock market.

“[We] have been concerned [about] the increasing number of unlicensed investment gurus or chat rooms managed by unlicensed persons who profess to providing trading or stock tips to unsuspecting investors,” the SC says in an email response to The Edge.

“Providing investment advice is a regulated activity under Malaysian securities laws and doing so without a licence may attract a sanction,” the SC warns, telling investors to be cautious when seeking investment advice from unlicensed entities or persons, as they risk being defrauded or used as part of a market manipulation scheme.

Although some attendees may not mind attending these sessions for the sake of learning, even at a fee, that is not the point.

“Just because a person is willing to pay for drugs doesn’t mean that it is alright to buy or provide them,” Areca Capital Sdn Bhd CEO Danny Wong tells The Edge.

It is still early days to judge the impact of the SC’s new rule.

While the regulator’s blanket ban on unsolicited investment advice activities is primarily intended to put a stop to front-running of stocks and even Ponzi schemes, it also leaves genuine educators in a quandary. Some of these self-proclaimed authorities on the stock market are genuine individuals with reasonably sound knowledge of capital markets owing to their work exposure.

Matthew TJ (not his real name), an author of stock investment books capitalising on his prior experience as a finance writer and familiarity with the stock market, says: “I’m just trying to eke out a living by teaching beginners the very fundamentals of analysing a company. I teach them how to utilise the Bursa Malaysia website effectively, interpret corporate exercise announcements, look out for a healthy company and spot the clear signs of sound financials,” he says.

According to TJ, stock picks are not included in his modules, which he offers for a few hundred ringgit. “It is just enough to get individuals started, to help them gain some confidence to start investing on their own,” he says.

TJ responds to beginners asking for his opinion on their stock picks by teaching them the calculations for ideal returns on investment.

“It’s quite obvious when an investment guru is front-running stocks. Their followings, alone, are usually telling. Small timers who are genuinely teaching the basics tend to have smaller followings on social media — usually 40,000 followers, while the more popular ones may have 80,000, tops. But the ones with up to half a million followers, or more, tend to influence investors to buy certain stocks. It is quite evident from their marketing pitches,” he adds.

Adaham Rosli (not his real name), the owner of a small public relations (PR) firm, is another presenter of investment advice leveraging YouTube to profile promising companies and showcase their financial and stock performances. Not all the opinions are his; some are credited to research houses and credit rating agencies.

His intention, he says, has been to merely brand himself and establish his digital platform as an aggregator of company analysis.

“This is a form of new media. The changing media landscape has forced companies [like ours] to be more creative in profiling companies. But I have been inactive on this platform since the SC’s Dec 30 announcement as it puts me in a limbo,” says Adaham.

While the guidance note is needful to curb misleading information from being disseminated, he believes support should be given to providers of educational activities focusing on companies’ fundamentals.

“The relevant authority should draw the line between self-proclaimed gurus and practitioners of new media. I stand in the latter category in reporting market activity; I may showcase companies with strong fundamentals [as educational examples], but I am not punting stocks,” he explains.

Naturally, Areca’s Wong believes that anyone desiring to make a business of providing investment advice should obtain the relevant licence and certifications. After all, his firm has taken the long, hard road to be licensed as a veritable authority on fund management.

“It is expensive to start and upkeep a fund management business. We hire entire teams to look into compliance; conduct site visits, due diligence and risk management — and there is the statutory requirement to keep our records for at least five years. Advisory isn’t just about dishing out financial suggestions. There is a formal process to it with proper records to boot,” says Wong, providing a glimpse into the demands of maintaining a licence to operate.

When investment advice is given, he says, there is an impact to the community — hence the need for rules and regulations.

But the road to obtaining the relevant licence and certifications is long and costly. Not every aspiring investment educator has the financial means to do that.

“I certainly don’t,” says Adaham. “At this point in my career, it is almost too hard to start all over and begin the uphill task of getting certified.”

Having the skill set to run an investment advisory or fund management firm might be beyond these individuals, who prefer a small business.

TJ concurs that were the SC to provide an easier route for individuals to obtain a licence to share their investment knowledge, it would benefit genuine communities and that some flexibility for the category would be game-changing.

“We realise that there are individuals who are meeting gaps in the market, or are helpful to beginners. In that case, the SC might then support the good ones and work with them. Since qualifying for a licence is difficult, talk to the regulator. The rules might then be relaxed for individuals who offer value,” Wong opines.

It seems a reasonable enough suggestion. This alone could weed out investment advisers whose businesses are not compliant with the SC’s rules and regulations.

TJ and Adaham are offering a service needed by the public, who want to invest in the stock market. Small players like them appeal to audiences who may just want to dabble in stocks and earn some side income. TJ’s workshops, for instance, are an inexpensive alternative compared with established institutions. Almost inevitably in tutorials or workshops of this nature, questions on stock picks arise and become a part of the discussion. Where should the line be drawn?

“It all lies in the suspects’ motive — and that is the difficult task for the SC to prove. As with insider traders, investment gurus are just as hard to nab. Their stocks are usually bought under another person’s account with the purpose of front-running the stock — bought in advance and promoted to followings,” Wong explains.

He adds that while it is understandably tough for the SC to prove the motive of unscrupulous investment gurus, no one incurs costs to provide free investment advice. He is referring to individuals offering free seminars in hotels or other rented spaces.

“This could be a way to scrutinise the individual’s motive. It is costly to conduct these seminars in a hotel, yet some do it for free. Their unspoken motive then becomes apparent; therefore, be vigilant,” Wong cautions.

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